Weekly Edge: 24-30 March

Caught in a (Bear) Trap. Best not to open any new trades prior to Liberation Day.

Disclaimer

The following analysis is for educational and informational purposes only and should not be considered personalized financial advice. Always do your own research and consult a qualified professional before making investment decisions.

Preamble

We’re seeing a seemingly contradictory mix of “risk-off” and “inflation-hedge” signals—a classic sign that markets are grappling with both growth fears and sticky inflation. Copper and gold rallying, but crude languishing and bonds rallying, does not fit neatly into the typical stagflation playbook. Instead, it suggests that separate structural and cyclical forces are at work—some commodities are riding supply/demand imbalances (copper) or hedging properties (gold), whereas crude is more sensitive to immediate global growth expectations. Meanwhile, bonds are rallying as investors anticipate a slowdown or policy pivot, despite concerns about inflation.

On Friday I stopped out of my long position in ES futures. Now equities are “no touch” for me until Liberation Day passes on 2 April. We gapped down on the open in Asia this morning; however, I’m expecting positive flows for the RTH session due to month-end rebalancing.

Bulls had their opportunity to regain the market last week, and until Friday it looked like they might well succeed. We must acknowledge it was a “bull trap” and that the path of least resistance is down. It is a bear market now, and I am anticipating new lows and potential downward pressure through until June expiry. A change in protectionist policy (or breakthrough negotiations) could turn this around, but the administration seems committed to building a tariff wall around the US economy, so that simply is not my expectation.

James Bullard, former St. Louis Fed president, says the chances of a Federal Reserve rate hike are rising, and I agree. Here he is on "Bloomberg Surveillance" last week. One day the bond market will wake up and pay attention.

Trading a bear market is tough, and not just because the sharpest rallies happen in a bear market. It is tough because it is not a “levels” market in the sense that you can spot prior areas of balance on the chart and buy the dip. Rather, the market tends to stair-step down, so you have to sell prior support. And when there is a short-covering rally, the market will blow completely through the level, so you have to be disciplined about risk management. I’ll publish a separate article this week: 20 Time Tested Rules for Trading a Bear Market.

Economic Data Recap

United States:

• GDP (Q4): Growth at 2.4%, slightly above expectations (2.3%) but down from previous 3.1%.

• Durable Goods Orders (Feb): Increased by 0.9%, surpassing a forecasted 1% decline, indicating resilience despite policy uncertainties.

• Personal Spending (Feb): Rose by 0.4%, below the 0.5% forecast but recovering from the previous month’s decline.

• Personal Income (Feb): Up 0.8%, exceeding the 0.4% expectation.

• Core PCE Price Index (Feb): Increased by 0.4%, above the 0.3% forecast, reinforcing persistent inflation pressures.

• Michigan Consumer Sentiment (Mar): Declined to 57.0, below the anticipated 57.9.

• Consumer Confidence Index fell sharply to 92.9, the lowest since January 2021, signaling significant concerns about future economic stability and employment.

• Labor Market remains robust (low initial unemployment claims), but sentiment around future employment opportunities deteriorated.

Germany:

• Manufacturing PMI (Mar) improved to 48.3, surpassing forecasts.

• Ifo Business Climate (Mar) increased to 86.7, aligning with expectations.

• Unemployment Change (Mar) unexpectedly rose to 26K, significantly above forecasts (10K).

United Kingdom:

• Services PMI (Mar) rebounded to 53.2 from 51, surpassing forecasts.

• Manufacturing PMI (Mar) fell to 44.6, indicating manufacturing sector struggles.

• Inflation Rate (Feb) declined to 2.8%, below expected 2.9%.

Eurozone:

• Mixed performance; German and French manufacturing showed improvement, while service sector activity slowed or remained flat.

• Auto stocks negatively impacted by new US auto tariffs, creating economic uncertainty.

---

Market Moving Narratives

Here is a concise synthesis of the top five market-moving narratives from the past week. In summary, markets face a challenging convergence of aggressive protectionist policies, entrenched inflation fears, deteriorating consumer sentiment, currency re-alignments, and commodity price volatility, all contributing to significant uncertainty and elevated volatility across asset classes.

1. Tariff-Induced Market Volatility (Trump's Tariffs)

The announcement of a 25% tariff on imported automobiles by President Trump significantly impacted global equity markets, especially within the auto sector. These tariffs, which also include key components such as engines and transmissions, are forecasted to escalate car prices by approximately 13.5%, adding upward pressure on inflation (an estimated 0.3-0.37% increase in PCE inflation) and dampening consumer spending. The protectionist stance by the administration, viewed as chaotic and potentially counterproductive, recalls historical parallels to the Smoot-Hawley tariffs, heightening fears of a prolonged trade war and economic instability.

2. Inflation Persistence and Rising Expectations

Inflation remains stubbornly high, with Core PCE inflation surprising to the upside (0.4% MoM), alongside rising global inflation expectations. Consumer sentiment surveys suggest deeply anchored inflation fears, with both short- and long-term expectations hitting concerning levels (UMICH 1-year median at 5%, 5-10 year median at a historical high of 4%). The risk of stagflation has markedly increased, as inflationary pressures combine with subdued growth indicators to cast doubt over the trajectory of monetary policy and consumer spending resilience.

3. Weakening Consumer Confidence and Labor Market Anxiety

Consumer confidence has deteriorated sharply, driven by escalating worries about future job availability and income stability. The Consumer Confidence Index fell to its lowest since early 2021, highlighting significant anxiety about the potential onset of recession. Expectations of fewer job openings surged, correlating with declines in planned purchases for major items like vehicles, exacerbating the pessimistic economic outlook.

4. Currency Dynamics and Dollar Weakness

The U.S. administration’s implicit preference for a weaker dollar is being increasingly priced into markets, with speculative positions rapidly unwinding USD longs. The resulting dollar depreciation has spurred investors, particularly in Europe, to divest from U.S. assets, reallocating towards European equities. This shift exacerbates the risk of further capital outflows, potentially weakening financial market stability and influencing relative asset performance globally.

5. AI and Commodity Price Shocks: Copper's Surge

Copper prices surged to record levels, driven by strategic stockpiling ahead of anticipated tariffs and rising global demand linked to AI and renewable energy infrastructure. Copper futures reached record highs, driven partly by Trump’s executive order emphasizing copper's strategic importance. This surge is indicative of broader inflationary pressures in commodities and reflects heightened anxiety about the sustainability of AI-driven growth following recent volatility and pullbacks in semiconductor stocks.

---

Momentum Analysis

The global market landscape currently reflects heightened uncertainty, significant inflationary pressures, protectionist trade policies, and weakened consumer confidence, driving notable divergences across asset classes: