In today’s briefing:
- How to Trade the Momentum Reversal
- The U.S. Bear Market: SELL THE RALLY!
- Japan Morning Connection: Micon After Market Gains Fail to Follow-Through
- Fed Tapers QT to Pre-Empt Debt Ceiling Increase as Forward Interest Rate Guidance Remains Unchanged
- Iron Ore Tracker (24-Mar-2025): Iron Ore At Support Levels of 100 USD/Ton
- Copper Tracker 24th March 2025: China “Special Action Consumption Plan”/Comex Spreads Stratospheric
- The Fed’s Next Move: How Interest Rates Will Make or Break Your Portfolio
How to Trade the Momentum Reversal
- Global equity markets saw a sudden reversal in risk appetite out of the Magnificent Seven.
- While risk appetite has recovered in the U.S. equity market and a relief rally will likely continue, the jury is still out on whether the stampede into non-U.S. will continue.
- Reiterate our view that any relief rally is unlikely to be sustainable. Investors may be better served by diversifying their U.S. exposure into non-U.S. equities for the coming market cycle.
The U.S. Bear Market: SELL THE RALLY!
- The initial target range for the S&P in the US bear market is 4800 to 5000. This level also coincides with the technical level of -20% from the top.
- The stock market and economy in the US are highly co-dependent, and the bear market will cause consumption to fall more than in previous market downturns.
- Foreign investors have started to reduce their overweight US allocations quickly. Retiree “Sequence of Returns Risk” will add to selling pressure in the US market.
Japan Morning Connection: Micon After Market Gains Fail to Follow-Through
- Micon management blaming soft NAND pricing, yet the outlook looks bright with price hikes on the horizon for April.
- Trump announcing the F-47 fighter jet after his status as 47th president sending Boeing up and Lockheed down
- Mega banks and Reginal banks posted sizable gains in Japan last week on expectations for higher yields. Looks priced in, but markets need something to chase with AI fever waning.
Fed Tapers QT to Pre-Empt Debt Ceiling Increase as Forward Interest Rate Guidance Remains Unchanged
- The Fed modestly revised economic growth expectations downwards for 2025 and next year and chose not to alter forward guidance. Two anticipated policy rate reductions in 2025 remain intact.
- Significant tapering of quantitative tightening was announced in anticipation of a debt ceiling agreement being reached. Higher Treasury borrowing could reduce reserves in the banking system, potentially creating financial instability.
- Short-Term survey-based measures of consumers’ inflationary expectations have seemingly become more unhinged in 2025, but this should not prevent the Fed from switching to easier policy settings if required.
Iron Ore Tracker (24-Mar-2025): Iron Ore At Support Levels of 100 USD/Ton
- Mixed data from China shows property prices down 5-7% YoY and lower land sales YTD, while weaker U.S. consumer sentiment has also negatively impacted overall commodity prices.
- China’s total social financing (TSF) for Jan-Feb reached 9.29 trillion RMB (Vs. consensus 9.75 trillion RMB). However, this figure is +16.6% YoY, signaling that substantial stimulus measures are in effect.
- We expect iron ore prices to remain rangebound between 95-120 USD/ton over the next few months as cost support is strong at the 100 USD/ton level.
Copper Tracker 24th March 2025: China “Special Action Consumption Plan”/Comex Spreads Stratospheric
- Copper prices are receiving a favorable lift following the announcement of China’s “Special Action Plan to Boost Consumption” made early last week.
- Total Social Financing (TSF) increased by 16% YoY for Jan-Feb to 9.29 trillion RMB. Despite being below the analyst forecasts (which were revised upwards), this is a strong number.
- Coupled with weaker supply (Post Results FY24: Mine-By-Mine Plan Production + Commentary on Copper From Global Listed Companies ), copper prices can surpass 10k USD/ton in the medium-term.
The Fed’s Next Move: How Interest Rates Will Make or Break Your Portfolio
- Fed policy choices could create two distinct market paths: a growth-driven rally if rates fall to 2-2.5% or a defensive rotation if rates stay near 5%.
- Understanding equity as a call option explains why changing interest rates dramatically impacts sector performance and overall market returns.
- Practical strategies exist for navigating both scenarios, focusing on portfolio positioning that can adapt to either Fed outcome.
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