Macroeconomic Weekly Review: Market Sentiment Cautious, Searching for New Balance

1. Macroeconomic Review of the Week

1. Overall market performance

This week, the market showed signs of adjustment, mainly influenced by the adjustment of expectations for the Federal Reserve's interest rate cuts and concerns about economic growth slowing.

The three major U.S. stock indices broadly pulled back, with the Dow Jones Industrial Average falling by 3.1%, the Nasdaq down by 2.6%, and the Russell 2000 decreasing by 1.8%. The utilities sector rose by 1.4% against the trend, indicating a shift of funds towards defensive assets. The VIX volatility index remained above 20, reflecting cautious market sentiment.

The performance of the commodity market is diverging. Gold has broken through $3000 per ounce, setting a new historical high, while copper prices have risen by 3.9%, indicating that manufacturing demand still has support. Crude oil prices are stabilizing around $67, but net futures positions have decreased, reflecting weak expectations for global demand growth. Natural gas prices continue to decline, affected by oversupply and weak industrial demand.

The cryptocurrency market is undergoing an overall adjustment. The short-term selling pressure on Bitcoin has eased somewhat, but the performance of altcoins is weak, indicating a decline in risk appetite. The growth of stablecoin market capitalization is slowing, suggesting that market liquidity is becoming more cautious.

2. Economic Data Analysis

Inflation data shows signs of cooling. The CPI in February rose by 0.2% month-on-month, lower than the expected 0.3%. The core CPI also increased by 0.2%. The PPI data continues its downward trend, with the core PPI decreasing by 0.1% month-on-month, against an expected increase of 0.3%.

However, consumer inflation expectations have become divergent. The preliminary one-year inflation expectation from the University of Michigan rose to 3.9%, higher than the expected 3.4%. However, there are significant partisan differences in the data, mainly stemming from an increase in expectations among Democrats.

3. Liquidity and interest rate market changes

The broad liquidity has marginally rebounded, and the Federal Reserve's balance sheet remains above $6 trillion. The U.S. Treasury's general account (TGA) balance has decreased, and the usage of the discount window has declined, indicating that macro liquidity is tending to stabilize.

In the interest rate market, federal funds futures no longer expect a rate cut in March. The 6-month term interest rate and the yield curve of government bonds suggest that there may be 2-3 rate cuts this year. Short-term yields have fallen significantly, while long-term yields remain relatively stable.

It is worth noting that changes have occurred in the credit market. The corporate credit spread has widened, with North American investment-grade credit default swaps (CDX IG) rising by more than 7%. U.S. sovereign CDS and high-yield bond credit default swaps have also increased, reflecting heightened market concerns over debt risks.

2. Macroeconomic Outlook for Next Week

1. Key Variables

Next week's market focus will be on the FOMC meeting, retail sales data, and the global central bank's upward direction. Key points to watch:

• The Federal Reserve's dot plot indicates 2-3 rate cuts (.
• Will the quantitative tightening ) QT ( be paused? This may affect market risk appetite.
• Retail data reflects the consumption situation

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) 2. Investment Strategy Recommendations

Stock market:

• Reduce allocation to high beta assets and increase holdings in defensive sectors
• Focus on blue-chip stocks with high dividends and stable cash flow
• Moderately increase allocation to the Asia-Europe market to hedge against uncertainty in the US market.

Cryptocurrency market:

• Long-term holding of Bitcoin, pay attention to changes in the liquidity environment.
• Reduce exposure to altcoin risk
• Observe the capital flow of stablecoins to determine market direction.

Credit Market:

• Reduce high-leverage corporate bond allocation
• Increase the proportion of high-rated bonds and medium to long-term government bonds
• Be aware of the impact of the US debt deficit issue on market sentiment.

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Overall, the market is still searching for a new balance point. Investors need to remain cautious and seize potential opportunities arising from mispricings. The key turning point signals lie in the repair of the credit market or clearer easing signals from the Federal Reserve.

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