Macro Market Weekly: Finding a New Balance Point

1. Macroeconomic Review of This Week

1. Market Overview

The market is still in a stage of multiple expectation games this week. The performance of U.S. stocks, cryptocurrencies, and the commodity market revolves around adjustments to the Federal Reserve's interest rate cut expectations and a slowdown in U.S. economic growth, leading investors to enter a phase of adjustment in the pricing of risk assets.

The three major U.S. stock indices showed a significant pullback, with the Dow Jones Industrial Average falling by 3.1%, the Nasdaq index down by 2.6%, and the Russell 2000 index declining by 1.8%, indicating a drop in market risk appetite. 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 remained above 20 but did not enter the extreme panic range, indicating that market sentiment is more a correction of previous excessive optimism.

In the commodity market, gold has broken through $3,000 per ounce, reaching a historical high, reflecting a continued increase in safe-haven demand. Copper prices rose by 3.9%, indicating that manufacturing demand still has support. The energy market showed mixed performance, with crude oil prices stabilizing around $67, but futures net positions decreased by more than 9.6%, suggesting weak expectations for global demand growth. Natural gas prices continued to decline, mainly influenced by oversupply and weak industrial demand.

The overall cryptocurrency market is adjusting in sync with the US stock market. Bitcoin's weekly trend shows a downward movement, but the amplitude has narrowed, indicating that short-term selling pressure has eased. Altcoins are performing weakly, reflecting 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.

2. Economic Data Analysis

The NFIB Small Business Confidence Index fell for three consecutive months in February, indicating that U.S. small businesses continue to be concerned about the uncertainty of trade policies.

CPI data was better than market expectations, with seasonally adjusted overall CPI and core CPI both at 0.2%, lower than the expected 0.3%. The annual rate of overall CPI decreased to 2.8%. Detailed data shows that while goods inflation rebounded, service inflation continued to decline, with service inflation excluding housing falling to its lowest level since October 2023.

PPI data continues to show a downward trend, with the core PPI experiencing the largest month-on-month decline since April 2022, decreasing by 0.1%. Transportation services are the main contributing factor to the decline in PPI.

The University of Michigan Consumer Sentiment Index and inflation expectations data show that the preliminary inflation expectations for one year and five to ten years continue to rise, but there are significant partisan differences, mainly among Democrats.

Overall, the decline in actual inflation data has strengthened the market's expectations for the Federal Reserve to cut interest rates within the year, but the volatility of inflation expectations has increased market uncertainty, intensifying short-term market adjustment pressures.

3. Changes in Liquidity and Interest Rate Markets

In terms of broad liquidity, the Federal Reserve's balance sheet has shown a clear upward trend in the past two weeks, maintaining above $6 trillion, mainly due to outflows from the Treasury's TGA account. The usage of the Federal Reserve's discount window continues to decline, indicating that the overall macro liquidity is tending to stabilize.

In the interest rate market, the federal funds futures market has very low expectations for a rate cut in March, but the 6-month interest rate and the government bond yield curve suggest that there may still be 2-3 rate cuts this year. Short-term yields have significantly declined, while long-term yields remain relatively stable, indicating that the market is gradually pricing in the Federal Reserve's future rate cuts.

In the credit market, corporate credit spreads have 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 both increased, reflecting growing concerns in the market about the sustainability of U.S. debt and corporate credit risk.

2. Macroeconomic Outlook for Next Week

The current market is in a "cooling inflation but rising expectations", "increasing credit risk but no economic recession yet", and "marginal liquidity easing but policy constraints" triple contradiction period. Market sentiment has not yet escaped the panic range, and the uncertainty of tariff policies puts pressure on the market's stability expectations. Investors should pay special attention to the credit market, as its changes often precede the stock market or other risk asset markets, and a turning point may indicate a change in risk appetite.

1. Global Stock Market Strategy

• In the US stock market, reduce the allocation to high beta assets and increase defensive sectors such as utilities, healthcare, and consumer staples.
• Pay attention to opportunities for misjudgment, especially high-dividend, cash flow stable blue-chip stocks and leading companies with declining valuations.
• Appropriately increase allocation in the Asia-Europe market, especially in China, India, Southeast Asia, and Europe, to hedge against uncertainty in the U.S. market.

2. Cryptocurrency Market Strategy

• Bitcoin still has long-term allocation value and can be held or increased during dips.
• Reduce exposure to altcoins and maintain a wait-and-see attitude.
• Pay attention to the flow of stablecoin funds and observe the liquidity conditions in the market.

3. Credit Market Strategy

• Avoid high-leverage corporate bonds and increase the allocation of high-rated bonds.
• Be aware of the impact of the U.S. debt deficit issue, which may raise market risk aversion.

Overall, the market is still searching for a new balance point. Investors need to remain cautious and seize potential opportunities for undervalued quality assets.

Key events next week include the FOMC meeting, with the market's main focus on the number of rate cut expectations indicated by the dot plot, Powell's speech tendencies, and whether a pause in QT will be announced. A pause in QT could significantly boost the current market.