Macro Weekly: Market Adjustment Intensifies, Focus on FOMC Meeting and Credit Risk

Macroeconomic Weekly Report: Market Adjustment Intensifies, Follow Credit Risk

1. Macroeconomic Review This Week

1. Market sentiment is cautious, defensive assets are favored.

This week, the three major U.S. stock indexes generally experienced a pullback, with the Dow Jones Industrial Average falling by 3.1%, the Nasdaq index down by 2.6%, and the Russell 2000 index down by 1.8%. The utilities sector rose against the trend by 1.4%, becoming the only industry to gain, reflecting a shift of funds towards defensive assets. The VIX volatility index remains above 20, indicating that the market is still in a cautious adjustment phase.

2. The performance of the commodity market is differentiated

Gold broke through $3000/oz, reaching a historic high, reflecting increased safe-haven demand. Copper prices rose by 3.9%, indicating continued demand support from the manufacturing sector. Crude oil prices remained stable around $67, but net futures positions decreased by over 9.6%, reflecting weak market expectations for global demand growth. Natural gas prices continued to decline, mainly affected by oversupply and weak industrial demand.

3. Cryptocurrency market synchronized adjustment

The short-term selling pressure on Bitcoin has eased, but altcoins like Ethereum and Solana are showing weak performance, indicating a decrease in market risk appetite. The market capitalization of stablecoins continues to grow, but net inflows are slowing down, suggesting that market liquidity is becoming more cautious and the pace of new capital entering the market is slowing.

4. Global supply chain accelerated adjustment

The Baltic Dry Index ( BDI ) continues to soar, indicating strong shipping demand in the Asia-Europe region, and manufacturing capacity may be accelerating its shift overseas. The U.S. Transportation Index has declined by 6.5%, suggesting weak domestic demand. This divergence reflects a regional restructuring of the global supply chain.

5. Inflation data cools, but expectations diverge

CPI and PPI data both fell short of expectations, reinforcing market expectations for a rate cut by the Federal Reserve this year. However, the University of Michigan's preliminary one-year inflation expectation rose to 3.9%, higher than the expected 3.4%. The rise in inflation expectations mainly comes from Democratic supporters, showing a clear partisan divide.

6. Liquidity marginal easing, credit risk rising

The outflow of the U.S. Treasury General Account ( TGA ) balance has occurred, and the usage of the Federal Reserve's discount window has decreased, indicating that the overall macro liquidity is tending to stabilize. However, corporate credit spreads have widened, with North American investment-grade credit default swaps ( CDX IG ) rising over 7% this week. U.S. sovereign CDS and high-yield bond credit default swaps have also seen varying degrees of increase, reflecting growing market concerns over corporate and government debt risks.

2. Macroeconomic Outlook for Next Week

1. Key Variables

Next week, the market will focus on:

• FOMC Meeting: Pay special attention to whether the Fed's dot plot indicates expectations for 2-3 rate cuts, as well as the inclination of Powell's speech.
• Did the Federal Reserve announce a pause in quantitative tightening ( QT )?
• Economic data such as US retail sales.
• Dynamics of other major economies' central banks.

2. Investment Strategy Recommendations

• US Stocks: Reduce allocation to high beta assets and increase holdings in defensive sectors such as utilities, healthcare, and consumer staples. Follow potential mispricing opportunities in blue-chip stocks with high dividends and stable cash flow.
• Cryptocurrency market: Hold Bitcoin for the long term, reduce altcoin allocation. Follow the changes in stablecoin liquidity.
• Credit Market: Reduce exposure to high-leverage corporate bonds and increase allocation to high-rated bonds. Be vigilant about the potential impact of the US debt issue on the market.
• Global allocation: Appropriately increase the allocation to the Asia-Europe market to hedge against uncertainty in the US market.

Overall, the market is still searching for a new balance point. Investors need to remain cautious while closely monitoring the results of the FOMC meeting and changes in the credit market, seizing potential opportunities from mispriced quality assets. The main signals of a market turning point come from the repair of the credit market or the Federal Reserve providing clearer signals of easing.