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Macro

September’s FOMC meeting left markets with more than just a single cut. It reinforced the delicate policy balancing act the Fed now confronts. Chair Powell described the Fed’s rate stance as “still modestly restrictive” even after the quarter-point reduction, implicitly leaving room to ease further, should the data justify it. But he cautioned that there is “no risk-free path”: move too aggressively and inflation could reaccelerate; move too cautiously and the labour market might erode. The policy dots from September reflect that tension. While a narrow majority now pencilled in two more cuts this year (in October and December), the forecasts underscore how difficult consensus will be to maintain in a softening yet sticky inflation environment.

That fragility is already visible in the labour market. The ADP private payrolls report for September came in with a surprising -32,000 job loss (following a revised -3,000 in August), the largest monthly drop since March 2023. This weak reading, especially in a month where the official BLS nonfarm payrolls release was delayed by the government shutdown, sharpens scepticism about labour resilience and re-energises the case for further rate cuts. With hiring decelerating even inside private payrolls, the Fed’s “data dependence” posture will be tested more than ever in October.

The unfolding US government shutdown compounds that challenge. With nonessential federal services shuttered, data collection and publication for key releases (particularly the monthly nonfarm payrolls, CPI, jobless claims, and various Census surveys) are already delayed or suspended. For a Fed that now claims it will “move policy if policy is not in the right place,” being forced to act amid data blackouts raises risks. Compounding that, each week of shutdown is estimated to shave ~0.10 % (annualised) off GDP growth via lost government output, and the sentiment drag could amplify those losses if the impasse lingers.

In effect, a protracted shutdown makes the October FOMC decision significantly trickier. The Fed may face pressure from weak forward indicators (like ADP) and delayed core metrics, but must also resist overreacting in a fog of uncertainty. A soft landing narrative becomes harder to defend without clean, timely data; yet impatience to cut could reignite inflation expectations. If the government impasse deepens, the Fed risks acting on noisy signals or lagging indicators, thereby raising the potential for policy missteps. That makes October not just another cut meeting, but a delicate juncture in the Fed’s transition from “data dependent” to “forward guiding” in a less transparent environment.

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Equities

Earlier this week, we published our year-end outlook on emerging markets, a segment of global risk we remain constructive on. The full report is available below.

Regarding the US indices, the market’s summer resilience has left positioning full but not euphoric, valuations stretched but not unanchored. The next leg will be defined less by momentum and more by execution, particularly in terms of inflation, earnings, and policy. The macro hinge remains the inflation–Fed trajectory: a stabilisation in price pressures would preserve optionality for rate cuts into 2026, reinforcing the soft-landing narrative that has underpinned equity multiples. But persistence, particularly around services or wage inflation, would challenge that equilibrium. The October 15 CPI print is the most consequential macro event of the month, sitting at the intersection of monetary flexibility and market sentiment. In short, the setup is binary, but the balance of forces still tilts constructive into year-end.

With real yields stabilising and the long end absorbing Treasury supply without disorder, financial conditions remain accommodative enough for risk. Inflation’s descent has slowed, but not reversed. The Fed’s messaging has softened (from “restrictive for longer” to “attentive to lags”), a tone that supports multiple expansion so long as macro data remain orderly.

Earnings are now the swing factor. The Q3 reporting season begins October 13, led by the banks, with consensus expecting S&P 500 earnings growth of nearly 19% year-on-year and over 30% in Information Technology. Those are exceptional expectations that require exceptional delivery. Q2’s 11% growth surprised positively, but the hurdle is now far higher. Mega-cap tech’s ability to deliver operational leverage and sustain the AI narrative will set the tone for risk assets into year-end. Leadership breadth remains the key tell: broadening beyond the Mag7 would confirm market durability; failure to do so reinforces fragility. Execution must validate the premium valuations that investors have been willing to pay for AI-driven growth.

Volatility itself remains deceptively calm. Hedge funds and large speculators are heavily short VIX futures, among the most crowded positioning since 2022. Implied vol has reset lower, creating an attractive entry point for institutional hedging, which has quietly increased in recent weeks. The asymmetry is low, as realised vol supports carry and performance-chasing, but it also raises the risk of an abrupt repricing if shocks emerge, such as from inflation data, trade policy, or a surprise miss in tech earnings. Low volatility is not complacency, but it is concentration, and that makes the system fragile.

Corporate demand, the quiet tailwind, is temporarily on pause. The buyback blackout window began last week and will last through much of earnings season. But once companies exit blackout, the scale of potential demand is formidable. EventVestor data show over $1.3 trillion in announced authorisations year-to-date, the fastest pace on record. The return of buybacks will coincide with the seasonal pickup in retail demand and the typical late-year risk appetite recovery, creating a synchronised tailwind into year-end.

October itself, however, is the inflexion month. Historically, among the choppiest periods for equities, it tends to mark the transition between correction and rally. Over a century of market data shows that October 26–27 typically marks the Q4 trough for both the S&P 500 and Nasdaq 100. Late-month volatility often gives way to the strongest trading stretch of the year as earnings visibility improves and corporate demand resumes. Retail activity, too, tends to rebuild through October and peak in November, reinforcing the seasonal dynamic. This time should be no different. The path forward likely involves turbulence in the first half of the month as investors digest inflation data and earnings surprises, followed by a resumption of risk-taking once event risk clears and buyback flows return.

Fixed Income

UST

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Welcome to the monthly market update, a rundown of global markets for the coming weeks in around ten minutes.

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Macro

September begins with the data that matters most for markets: jobs and inflation. Together, they will set the tone for the Fed’s September meeting and shape expectations for the path of easing into year-end. With the FOMC entering blackout after this week, investors are left to interpret the last signals before Powell’s delivery of what is now a fully priced cut. One cut is not in question—the market is confident, and the Fed has no incentive to spring a surprise—but the manner of that cut will matter. Powell’s communication will need to balance easing financial conditions with a cautious nod to inflation’s persistence.

Labour market dynamics are softening. Consensus expects payrolls to rise by around 75–90k in August, extending a four-month streak of sub-100k prints—the weakest run since 2020. The unemployment rate is projected to tick up to 4.3%, a near four-year high. Hiring appetite has cooled as firms grapple with higher import duties and margin pressures, with job openings slipping toward the lowest levels since 2021. Fed officials are split: some, like Waller, argue the slowdown is reason enough to start cutting; others warn against moving too fast with inflation still inching higher. The August jobs report will likely cement which side carries the debate, but the near-term implication is clear: the Fed wants to deliver this first cut smoothly, without destabilising markets.

Beyond the payrolls, the ISM surveys and trade balance data will test the durability of US momentum. Manufacturing indicators are showing tentative signs of life—PMI readings suggest activity may be turning, and capital goods orders have surprised on the upside. Yet trade flows remain distorted by tariff front-loading, with the July deficit set to widen sharply. The tariff regime itself remains in flux after a federal appeals court ruled Trump’s global levies illegal but allowed them to remain in place pending further review. That legal overhang ensures trade policy risk will stay a front-and-centre driver of market sentiment.

The month ahead is therefore less about whether the Fed cuts—that decision is effectively locked in—and more about the narrative that follows. A cut framed as pre-emptive support could extend risk appetite, while one justified by labour market deterioration could be seen as an early capitulation. Markets will parse Powell’s language as much as the rate move itself.

Equities

The summer’s easy stretch for equities looks to be behind us, but that doesn’t mean the move higher can’t continue. With tariffs set to shape September’s narrative, the question for investors is whether the rally can extend beyond a narrow cohort of megacap tech and into the broader market. The past month showed the first signs of fatigue: Nvidia wobbled, Europe diverged, and earnings cleared a low bar rather than set a new standard. Now comes the harder part—absorbing tariff impacts on margins and revenues while keeping risk appetite alive.

In the US, the S&P 500 closed August with fresh all-time highs, supported by improving breadth. Nearly 70% of constituents now trade above their 50- and 200-day averages, suggesting the advance is healthier than the narrow leadership that defined the first half of the year. Still, the sustainability of that breadth depends on cyclical participation. Recent manufacturing PMI strength and capital goods orders hint at a potential turn, which could support small caps and industrials in September.

History suggests that once ISM manufacturing turns back into expansion, small caps outperform over the next 12 months—a dynamic to watch if the recovery takes hold.

Large-cap tech remains the earnings engine, but its dominance is already showing signs of waning. Nvidia delivered another beat, yet its contribution to S&P growth is declining from the peaks of 2023–24. Consensus still expects big tech to carry index EPS in the back half of the year.

In Europe, the tariff story is already creating fractures. Major indices have diverged sharply over the past month, with correlations dropping to decade lows. This reflects more country-specific dynamics, from energy resilience in the UK to industrial vulnerability in Germany. The European value factor has also been a standout, materially outperforming its US counterpart over the past year. That may continue if the region’s domestic rotation persists, but it leaves benchmarks more vulnerable to idiosyncratic shocks and uneven policy responses as trade pressures escalate.

China has quietly built momentum, with its tech sector stringing together three straight weeks of gains while global peers faltered. For investors, the key question is whether this rally can extend beyond a tactical bounce. Earnings trends remain fragile and policy support has been hesitant, but relative performance is improving versus other EMs. A broadening of Asia’s momentum would mark a meaningful shift in flows after years of underperformance.

Within EM, India deserves particular focus. Benchmark resilience since April masks underlying weakness: the median BSE 500 stock is down more than 20%, with small- and midcaps faring worse. That fragility is colliding with geopolitical risk as Modi navigates a tense trade dynamic with Trump. For global allocators, India’s headline indexes remain attractive but are increasingly disconnected from the broader corporate earnings picture. Any escalation in tariff rhetoric would raise the risk of further decoupling between benchmarks and underlying fundamentals.

Taken together, September presents a more fragmented equity landscape than the synchronised rallies of earlier in the year. Tariffs and trade policy will be the decisive catalysts, testing whether breadth in the US holds, whether Europe can sustain value-led resilience, and whether China’s rebound can extend. The next leg higher, if it comes, will require broader participation across sectors and regions rather than another round of narrow gains at the top.

FX

For once, the US Dollar wasn’t the main focus in the FX space. During the month of August, it traded mostly sideways. Although some of this can be put down to summer liquidity, it highlighted the push-and-pull factors at work in the greenback right now.

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Welcome to the AP Research monthly market update, a rundown of global markets for the coming weeks in under ten minutes (if you’re a fast reader).

Here’s what you need to know…

If you are not yet a premium subscriber to AP Research, you can manage your account here.

Macro

The soft landing narrative took a hit in July. What began as a resilient run of economic data in H1 has turned more ambiguous, with recent US releases showing cracks across labour, services, and sentiment. ISM Services fell below 50. NFP revisions were brutal. Even the inflation surprise came on the disinflationary side. Growth may not be falling off a cliff, but it’s no longer outpacing expectations.

This is more than just a shift in tone. The combination of weak private payrolls, downward revisions, and easing inflation prints resets the balance of risks around Fed policy. Markets are once again flirting with a September rate cut. But the deeper story is about fragility. Momentum is fading at the margin, and soft data leads positioning. Traders are no longer pricing upside growth with the same conviction.

We released further thoughts on the US macro landscape in Friday’s note. That can be read below:

Globally, macro divergence is intensifying. Japan is back in play, but for all the wrong reasons. While equities have staged a relief rally on trade deal optimism, the post-election fiscal picture is increasingly cloudy. Real rates remain too low, CPI remains above target, and the BoJ is stuck between a rock (political gridlock) and a hard place (rising US pressure over JPY weakness). Japan’s structural reflation is still a work in progress, with markets beginning to price more volatility in response.

In the UK, the story is deteriorating further. Stagflation is not just a talking point—it’s the baseline. Growth is flatlining. CPI remains elevated. And fiscal arithmetic is tightening. The new Labour government is learning that tax hikes are the only politically palatable path forward, but the market is watching for signs of slippage or backpedalling. Confidence in UK macro is brittle, and rightly so.

Equities

Most major global equity benchmarks posted a positive gain for July, although performance tailed off in the last few trading days of the month.

Before we get to the end-of-the-month antics, let’s focus on the main catalyst that aided stock performance, namely corporate results. Earnings season for major US companies has been positive.

A sign of investor sentiment was evident when it came to AI-related stocks, with investors rewarding those firms that outlined higher capex spend in this regard. For example, Microsoft popped 9% post-market and Meta pushed 11% higher following earnings releases. Even though some of this was down to solid revenue and EPS beats, a big factor was the push on AI initiatives.

For example, Microsoft plans to spend $30bn in capital expenditures for the coming quarter. If this is kept up, the $120bn annual run rate of spending would exceed that of Alphabet at $85bn. Remember earlier this year when people were scoffing at Alphabet’s spend? How times have changed.

Meta is in a great position, where AI is already helping to boost revenue on the ad side of the business, while pumping cash into the superintelligence team provides optionality for new projects.

If AI is helping to drive the market higher, and the MAG7 is leading AI, there’s a clear case for keeping exposure to this group over the summer.

Another takeaway from earnings season was an apparent lack of tariff impact. One clear case is Sanofi, which described the U.S. tariffs as “manageable” and simultaneously raised its full-year sales growth outlook, suggesting any tariff-induced cost pressures were minor and not materially affecting its performance.

Even Amazon’s CEO Andy Jassy chimed in, saying it’s still unclear “who's going to end up absorbing the higher costs.”

Jassy brushed off tariff concerns, saying the company hadn’t noted diminishing demand or meaningfully appreciating prices at this point in time.

This marks a sharp shift from the previous earnings season, where several major companies decided to pull future guidance altogether due to the uncertainty that existed at that time. The reversal (and overall positive financials) is another boost for investor sentiment in the equity space heading into the late summer.

However, the sell-off to end the month, followed by a 1%+ loss on the first trading day of August for several indices, does show some market fragility. A disappointing set of US data (shown below) didn’t help, with Trump’s antics on fresh tariffs targeting Canada and Switzerland were two catalysts to the price action.

FX

July turned out to be a turning point for the US dollar, even if it eventually turns out to just be a tactical bid.

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Welcome to AlphaPicks’ monthly market update, a rundown of global markets for the coming weeks in around ten minutes.

This month, our guest contributor is Donnie Phillips (), an ex-CME local trader.

Here’s what you need to know…

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Rates

By DCP

With the One Big Beautiful Bill (OBBB) now passed, the focus shifts to Trump’s August 1 tariff deadline. Markets are preparing for what could be a significant shift in inflation dynamics—one that won’t fully register in CPI and PPI data until the fall.

Tariff-Driven Inflation Is the Next Shoe to Drop

The nonfarm payroll data released yesterday underscored just how sensitive markets remain to the jobs-inflation balance. Any lingering hope for a July rate cut was effectively erased.

But with the August 1 tariff implementation date fast approaching, the bigger question is now whether a September cut is still on the table.

We’ll begin to see some early signs of the tariff impact in the July and August inflation reports, but the full effect is likely to appear only in the September and October prints. The Fed may be forced to wait and reassess, especially if headline inflation starts to reaccelerate into Q4.

Treasury Supply and the Inflation Feedback Loop

I expect a large T-bill issuance at the end of the month—likely around $800 billion—as the Treasury replenishes the TGA. This adds another layer of tightening, particularly as the market digests:

• Fiscal-driven spend

• Tariff-driven inflation

• A Fed trying to stay “data dependent” in a noisy environment

Higher bill issuance increases leverage in the system, which could add to inflationary pressures. That could be offset by the Fed selling MBS, but don’t hold your breath.

OIS vs SOFR: Diverging Views on Cuts

While markets have priced in multiple rate cuts this year, options market implied cuts and OIS curves are now offering fewer cuts than SOFR futures or broad market sentiment suggests post non-farm payrolls.

It’s worth noting that Scott Bessent recently remarked that the administration may begin the search for a new Fed Chair this fall—a statement that should be somewhat reassuring that Powell will remain chair despite what I expect to be more mean tweets about the Fed.

What to Watch:

• Tariff impact on July & August inflation data

• T-bill issuance relative to duration and bid-to-cover trends

• Market pricing for September vs December Fed meetings

The next few weeks could bring volatility and slightly higher yields as supply, inflation, and policy digest news. The market may be underestimating the upside risk to yields and the downside risk to rate-cut expectations.

And from AP…

JGB Update: Still Waters, Rising Tension

Since our June 18th note, Japanese yields have held steady, but the quiet belies the pressure building beneath the surface. Volatility has cooled, but only because the market is in wait-and-see mode ahead of the Ministry of Finance’s next move. Super-long JGB auctions remain fragile, BOJ tapering continues in the background, and speculation around a modern-day Operation Twist is intensifying. The 10-year yield may look anchored, but this is a market in transition, not stability. The absence of fireworks is not a signal of resolution, but of coiled uncertainty.

Equities

With the OBBB now signed, sealed, and spun into campaign glory, we expect Trump’s rhetorical pivot back toward tariffs to be swift and deliberate. The fiscal win has been booked. Time to bring the trade war sabre back out of the sheath.

But investors have seen this movie before, and they’re not buying the ending. The “TACO” trade (Trump Always Chickens Out) remains firmly in play. Each tough-talking headline will be met with brief dips and fast recoveries. The reflex is well-worn: threaten tariffs, stir headlines, then pivot to ‘negotiation wins’ before real damage is done. It’s a policy show designed for media cycles, not macro consequences now.

So while volatility may tick up around soundbites, the bigger trend remains: we are still bullish US equities through July.

That said, after the sharp rally post–Liberation Day selloff, the pace of gains may decelerate. Fiscal thrust, AI optimism, and a structurally resilient consumer have already repriced a good portion of the soft landing narrative. The summer grind is now in play. We’re shifting from price discovery to price digestion, with returns harder-earned and more rotational.

Earnings Season: More Noise Than Narrative

With earnings season approaching, positioning will likely turn cautious but not bearish. Barring any true downside surprises, the market reaction should be contained. As Morgan Stanley’s Wilson team pointed out recently, “negative earnings revisions are now in the rear-view mirror,” and markets are more interested in 2026 than Q2 margins.

Tariffs: Fog of War Returns

The most acute risk this month is not earnings, it’s uncertainty around tariffs, particularly for non-US indices. Trump’s post-bill pivot puts trade back at the top of the macro worry wall. But without specific numbers or timelines, it’s hard to model the impact, especially across geographies.

Take Japan: they were first in line for trade talks back in April, but the handshake hasn’t materialised. The Nikkei, which had run hard on both AI optimism and relative policy stability, now faces headline risk. Tariffs on Japanese autos would be particularly sensitive, not just economically but symbolically, reigniting a Reagan-era dynamic in markets already cautious on industrial exposure.

Any hard tariff announcement could knock the Nikkei sharply. But again, the TACO playbook suggests any sharp drawdown would attract domestic pension buying and fast money reversal.

China: Fragile Truce, Real Momentum

Meanwhile, the US–China truce has underpinned a quiet rally in both onshore and Hong Kong indices. No tariffs, no tweets, no tension—just flows, tech optimism, and recovering local liquidity. BofA noted this week that Southbound inflows into HK equities are at a 3-month high, and mainland tech has outperformed MSCI China by over 300bps in the past 10 days.

With the trade war narrative on pause and sentiment recovering from last year’s doom loop, Chinese equities have a window to rerate. Add in the local AI push—now attracting state-banked capital and real VC scale—and there’s a credible case for continued strength.

We remain bullish on China tactically, with a bias toward tech and semis. It’s still a politically fragile rally, but for now, the tailwinds outweigh the tension.

Bottom Line

• Trump’s tariff theatrics are back, but so is the well-worn TACO playbook.

• US equities are likely to grind higher in July, just with less velocity than post-April.

• Earnings could bring some chop, but won’t derail the broader equity story.

• Japan’s Nikkei faces near-term risk if auto tariffs are confirmed.

• China has regained momentum and remains tactically attractive, with tech and AI leading the charge.

It’s not a quiet summer, but it is a manageable one. For now, risk stays on.

FX

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Welcome to AlphaPicks’ monthly market update, a rundown of global markets for the coming weeks in around ten minutes.

Here’s what you need to know…

If you are not yet a premium subscriber to AlphaPicks, you can manage your account here.

Macro

The trading and investing landscape for May can be best described as ‘macro whiplash’. The almost constant change in trade policy out of the US made it difficult to try and have a clear conviction, with being nimble yet again serving as the best tactic for many.

We entered the month with more optimism of trade resolutions between the US and key trading partners such as China and the EU. Progress was made to some extent, although the erratic nature has made any correspondence out from the administration incredibly unreliable.

A good example of this was with the EU, with the imposition of 50% tariffs, then becoming an extra month extension of talks, to outright positive discussions. Related asset price moves in EUR/USD and in equity indices can be seen below:

It’s clear that Trump is now no longer just fighting the trade war with external parties, but even within his own justice system. This provided another case of the whiplash we refer to.

Earlier this week, the US Court of International Trade ruled that the administration had improperly imposed wide-ranging tariffs on dozens of US trading partners, declaring the legal justification for the levies under the 1977 International Emergency Economic Powers Act (IEEPA) invalid.

Yet in a reversal on Thursday, a federal appeals court issued a temporary stay, pausing the trade court’s ruling while considering a longer-lasting hold on the decision.

Looking forward, it’s unlikely the situation will improve anytime soon, and the assumption that the market will become more accustomed and less volatile to these headlines is only partially valid. Structuring VIX higher plays for the coming 0-3 months can provide attractive payoffs.

When trying to get a feel for the health of the US consumer, the UofM Consumer Sentiment Index held steady at 52.2 in May, matching April's reading. While the temporary reduction in tariffs eased some inflation concerns, 64% of consumers still anticipate deteriorating economic conditions over the next year

In the Eurozone, inflation prints steadied, with Spain at 2.2%, Germany at 2.1%, Italy at 1.7%, and France dropping to just 0.8%.

This has bolstered expectations for another interest rate cut from the ECB, potentially the eighth since June 2024. Easing wage pressures, a stronger euro, and falling energy costs contributed to the slowdown, giving the ECB more room to support growth without risking overheating.

The UK presented a more complex picture. The Bank of England cut interest rates to 4.25%, even as April inflation rose unexpectedly to 3.5%, well above its 2% target. The monetary policy decision was anything but a clear call. The 5-4 call wasn’t even the main eyebrow raiser, but rather the fact that of the four dissenters, Swati Dhingra and Alan Taylor advocated for a larger 0.5% cut to 4.0%. In contrast, Catherine Mann and Huw Pill preferred maintaining the rate at 4.5%.

Policymakers expressed interesting views, with MPC member Alan Taylor arguing that the spike was due to temporary effects like higher utility bills and council tax changes, and not a reason to pause the easing cycle.

Catherine Mann expressed concerns over “greedflation,” where companies raise prices beyond cost increases to rebuild profit margins, which will likely see her continue to vote to keep rates on hold.

FX

Thoughts from guest contributor Alexie (@Viraelum) on FX ideas for the month ahead:

Trade 1: EURUSD 12-Month 1.29/1.05/0.95 Seagull Structure: Long 12M 1.05 put, short 12M 1.29 call, short 12M 0.95 put; zero-cost ±15 bp vol. Target 0.97, hard stop 1.13.

Rationale: ECB–Fed rate gap poised to widen; EUR downside skew trades 0.8 vols cheap to 5-yr median. Seagull monetises muted right-tail, maintains convexity to structural EUR depreciation as it evolves into primary funding currency. Risk: Euro-area wage-price spiral forces ECB to guide deposit rate back to 3.25 %, steepening 1y1y €STR by 90 bp and driving EURUSD through 1.13.

Trade 2: USDJPY 6-month Broken-Wing Put Fly 149/144.5/139. Long 1× 149 put, short 2× 144.5 puts, long 1× 139 put.

It pays out if spot settles in the 140.5-148.5 range, with maximum profit at 144.5; any additional yen strength only incurs the limited loss built into the structure.

Rationale: 6M implieds trade 1.4 vols rich to 12M after recent front-end hedging demand; calendar flattener captures relative skew normalisation while retaining long-dated vega for 2025-2026 yen strength. Carry drag contained; theta on short leg funds 65 % of long-leg decay. Risk: Compression of longer-dated vols; exit if 12M-6M vol spread narrows below 0.5 vol.

Thoughts from AlphaPicks on CHF

After rebounding from April lows just above 0.8000, USD/CHF continued to trade with downside pressure, with both the USD leg struggling to catch a bid and CHF continuing to be well supported by haven buyers.

The next SNB meeting is scheduled for the 19th June, with rates pricing finely balanced between a 25bps and a jumbo 50bps at 31.5bps.

We feel the SNB will be keen to try and weaken the Franc, especially given the lack of corrective moves over the past couple of weeks following the April surge. Of course, some of the rationale behind a larger cut can be justified via data, with April headline CPI falling to 0%:

This provides more of a get-out-of-jail-free card for the SNB to play in loosening monetary policy at a faster pace than is currently priced. This is likely one of the few ways to induce some CHF weakness.

It’ll be interesting to see how June pans out for related CHF crosses and whether SNB actions, or even a risk-on bid and use of CHF as a funding currency (more attractive with lower…even potentially negative rates) can help to release the pressure valve. If not, then the next real downside test is a break of 0.8000—something we haven’t seen since 2011:

Equity Indices

The tone in global equity markets has firmed, driven by a more constructive backdrop on trade and earnings. Europe (SXXP) has already outperformed YTD, shedding the heavy coat of US tariff anxiety. With the trade headwind fading and macro data stabilising, European equities are holding their ground. Valuations still look more reasonable relative to US peers, and the political relief is adding a tailwind for risk sentiment in the region.

In the US (SPX), the market has shown that it can navigate the chaos. Earnings season passed without major shocks, and retail investors remain active buyers of any dip. The renewed AI trade narrative is adding a fresh layer of enthusiasm, reinforcing the view that corporate innovation can keep the bull case alive. Notably, funds remain well underexposed to tech after the derisking wave in April, with many firms lagging the index in performance as a result. This underexposure is now a fourth leg of support for flows (a slow but steady catch-up) that can fuel further upside as managers chase performance.

Emerging markets remain the overlooked beneficiary of this recalibration. Local currency assets, in particular, offer an appealing mix of stronger fundamentals, cheap valuations, and low foreign investor positioning. Improvements in external balances and fiscal discipline across countries like Brazil, India, Indonesia, and South Africa have created the most compelling entry point in over a decade. These former “Fragile Five” economies now boast positive current account balances and have embraced more orthodox economic policies. As global capital begins to rotate out of crowded US positions, EM local markets (including Latin America, Eastern Europe, the Middle East, and Africa) stand ready to soak up those flows, with the prospect of robust returns and currency appreciation in tow.

Overall, global equities have found a new equilibrium in the aftermath of tariff anxiety and earnings resilience. The path ahead is volatile, but Europe and EMs look poised to extend their outperformance, while US equities still have room to grind higher, so long as the AI narrative holds and the retail bid doesn’t fade.

Bonds

The trade détente has put a fresh coat of gloss on risk sentiment, but the global bond market remains in the throes of a deeper structural repricing. As optimism on US-EU trade talks lifts equities, bonds are bracing for another leg higher in long-end yields.

The US Treasury market is ground zero for this rethink. The president wants lower rates, but the market is pushing back. Bessent’s nod to the 10-year benchmark only underscores the White House’s dissonance with a market that smells inflationary risk and fiscal profligacy. The flattening impulse has given way to a bear steepener, with term premia rebuilding amid shifting growth and fiscal narratives.

Across the Atlantic, Europe’s bond complex is proving more resilient. Gilts, OATs, and bunds have been outperforming Treasuries, buoyed by more anchored inflation expectations and a political backdrop that, while noisy, lacks the same direct fiscal fuel. The macro risk of Trump’s tariff threats remains, but the market’s working assumption is that Europe’s negotiating leverage and internal cohesion will keep a lid on US-inspired volatility, at least for now.

In Japan, the BoJ’s exit strategy is playing out in real time. The long end of the JGB curve has been leading the global steepening trade, testing how far yields can rise before policy recalibration kicks in. With historical steepness levels already flashing red, Japanese yields may be closer to their upper bound, while the US and European curves have more room to adjust.

Next-Month Views:

• US Treasuries: We see further upside for long-end yields as term premia grind higher. US economic resilience and persistent fiscal headwinds argue for more steepening ahead. Stay cautious on duration—the bear steepener is not done.

• Europe (Bunds, OATs, Gilts): Eurozone and UK sovereigns look set to continue outperforming Treasuries. The market is still wary of political tail risks (tariffs, elections), but the relative calm in inflation expectations and a less aggressive fiscal backdrop should keep European curves better bid versus the US.

• Japan: The JGB long end is already testing limits, and we expect the steepening to moderate here. But volatility remains the watchword. Japan’s exit narrative is a wildcard that can feed further moves in global term premia.

The bottom line: optimism on trade is feeding animal spirits in risk assets, but the bond market is still untangling the costs of fiscal expansion and structural inflation shifts. Long-end yields are headed higher, with the US leading the charge. Europe will continue to outperform, but don’t expect an easy ride. Term premia is a global story now, and volatility is the new normal.

Commodities

An interesting commodity that flashed across major headlines in May was Uranium. Both contracts on the heavy metal and uranium-linked companies such as miners saw a significant move up on the back of news on Trump’s nuclear revival plans, the latter demonstrated by the ‘Global X Uranium’ ETF (URA ticker) price chart below.

Whilst the focus leading up to the presidency and during the first part of his term has been on reinvigorating US oil and gas production, Trump recently added another dimension to his national energy security policies by signing executive orders to stimulate the domestic nuclear industry. Proposed policies such as fast-tracking federal approvals for mining permits and expansion plans for industry workforce all point towards growing the domestic supply and reducing dependence on foreign sources.

The above political developments in the US, combined with the renewed interest and growing demand for nuclear energy driven by the artificial intelligence sector, such as for powering data centres, have provided strong tailwinds to push Uranium higher. Whilst there will always be concerns regarding Trump headlines and what his administration is able to deliver in practise, it is hard to deny the growing importance of AI and its related requirements needed to meet the insatiable demand from investors and tech firms. If price action action can break the resistance levels and peaks seen in October and November of last year, we could see a notable leg up.

Gold has turned cautious since April after hitting a peak of ~$3500 and trading back down around the $3300 level. However, recent sell-offs have been well supported by the 50-day Moving Average illustrated in the below chart.

Whilst the upward trend in gold is likely to remain intact in the long-term, due to protracted risks around trade policy, a Russia-Ukraine stalemate, and declining US inflation that continues to raise market expectations for a Fed rate cut, the short-term picture for gold could be more muddy and susceptible to volatile fluctuations. As highlighted earlier in the post, the recent rebound in US yields and the Dollar could continue placing downward pressure on gold and sustain profit-taking.

That wraps up our Money Markets for June. Weekly updates on views and trades will come as usual to start each week.

See you tomorrow,

AP

Welcome to AlphaPicks’ monthly market update, a rundown of global markets for the coming weeks in around ten minutes.

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Macro

What a month April turned out to be. To some extent, the anticipation of Liberation Day on April 2nd did cause some to be cautious about what Trump might come up with. But for many, the bar was high for providing something groundbreaking, given his existing forays into using tariffs as a combat tool in February and March.

Such thinking proved to be misguided, as his global tariff imposition sparked a sharp risk-off mood in financial markets. Notable casualties over the space of the next week ranged from oil to the US dollar, from the S&P 500 to US Treasury yields:

At a global macro level, we believe that tariffs are a zero-sum game. The global efficiency loss (otherwise known as the deadweight loss for all those Econ 101 junkies out there) makes the world economy smaller, not bigger.

Yet it’s also true that the country imposing the import tariffs often mean that domestic consumer pay higher prices. It also opens up the country to retaliation risks. The latter already happened, with it likely to take some time to see if the former will play out.

The market volatility incurred saw the VIX spike to 60, with an almost daily barrage of headline risk relating to either the stepping up of trade tensions or some form of relief with exemptions or more constructive dialogue.

In all of this craziness, it was a great time to be a trader, where volatility provided opportunity.

As we enter May, the landscape regarding global trade is more settled. Late in the trading week, headlines from the Chinese Commerce Ministry essentially added up to saying they were open to starting dialogue with the U.S. We feel that over the course of the coming couple of months, some form of trade deal will be struck between the two sides.

We also start the month on the back of an 11% rally in the S&P 500 from the 52-week lows, albeit notching the worst first-100-day performance under a new administration since Richard Nixon’s second term in 1973.

However, if the equity markets are giving mixed signals from a macro perspective, the rate space is equally unhelpful. At one point in April, erratic price action indicated five 25bps cuts were fully priced in for the Fed this year. This has now eased to just over three cuts, with the FOMC meeting next week being a really good barometer for investors to mark against when it comes to the policy stance and outlook from Powell and Co.

A cut next week is very unlikely, but it’ll be good to see if inflation is still perceived to be transitory, even with the tariff uncertainty. If it is, and the Fed believe that they can use rate cuts as a tool to stimulate economic growth, then the market might take any dovish pivot rather well.

Whilst we’re on the topic of central banks, it was impossible to ignore the public displeasure with which Trump has for Chair Powell. During the month, there were several outbursts (often in the form of posts via Truth Social) that criticised his ability to do his job, aggressively pushing for rates to be lowered.

We thought this had been resolved and put to bed, but earlier this week, during a rally in Michigan on Tuesday, he was at it again. Trump commented, “I have a Fed person who is not really doing a good job. You’re not supposed to criticise the Fed, you’re supposed to let him do his own thing, but I know much more than he does about interest rates.”

In our musings on this in Drawing The Line of Independence, we drew some parallels to Turkey in terms of how an escalation of tensions could end up from here. This might sound farfetched to some, but with Trump, you really can’t rule anything out.

It appears Trump doesn’t realise that Powell is part of a committee, and that it’s not his call alone on policy decisions. We feel this isn’t a story that has run its course, so we are observing this as we progress in May.

The corporate earnings season is in full swing, and although we’ll leave more of that chat for the equities section, there was a clear distinction of winners and losers from those reporting so far.

From a macro perspective, one of the main takeaways was the impact of tariff uncertainty on businesses. Even if no tariffs from this point forward get imposed and existing ones are rolled back, damage has already been done. Trying to beat the rush of potentially higher prices has seen supply chains disrupted, with expensive changes to move production onshore or away from Asia beginning.

The removal of financial guidance by some reporting companies was another notable point. We wrote about this in more detail here, looking at how policy uncertainty has historically led to fewer companies issuing guidance:

A great point that was made from the article was that:

“This is why guidance matters. It isn’t perfect. It compresses analyst dispersion, incentivises short-termism, and occasionally manipulates expectations. But in an environment where the fog isn’t lifting, it’s one of the last remaining signals from the bridge.

As earnings season unfolds, investors aren’t just watching EPS. They’re watching how many captains are still willing to chart a course.”

Equities

The critical dynamic to monitor in the coming weeks is straightforward: risk assets are front-running an easing in trade tensions. The deals must ultimately be delivered.

Markets do not bottom on resolution—they bottom on diminished fear. Even if the damage to global relationships proves lasting, a de-escalation of tariffs paired with incremental trade agreements offers a substantially better backdrop than continued escalation and isolationism.

The primary catalyst for equities in the near term remains further normalisation with China. Current levels already price significant progress, and there is room for extension, but not without risk. The principal challenge for the tape lies not abroad, but at home: the U.S. growth trajectory and earnings resilience are the emerging headwinds.

European equity markets are navigating a complex macroeconomic environment defined by both emerging opportunities and persistent structural challenges. After a sharp drawdown earlier this year, the index has retraced more than half of its losses, supported by signs of easing trade tensions and renewed fiscal initiatives across the continent.

The European Central Bank’s increasingly accommodative posture, especially in contrast to the Federal Reserve’s tighter stance, provides a favourable backdrop for equities. With rate cuts likely to continue through the year, monetary divergence is reinforcing relative valuation support and creating an attractive environment for risk assets.

Fiscal expansion is also becoming a material driver. Germany’s infrastructure and defence spending packages are channelling significant capital into the economy, with positive spillover effects expected across the broader Eurozone.

Valuations further bolster the investment case. European equities remain notably cheaper than their U.S. counterparts, with the STOXX 600’s forward price-to-earnings ratio trading at a discount to the S&P 500. As global investors increasingly search for value, this relative mispricing has the potential to act as a catalyst for further inflows.

That said, headwinds remain. Earnings expectations have been revised lower, and forecasts now imply a contraction in EPS across European corporates, reflecting still-cautious sentiment around growth prospects. Currency strength presents an additional challenge; the euro’s appreciation threatens to erode the competitiveness of European exports at a delicate moment for global trade.

Finally, while progress on the China–U.S. trade front is encouraging, the broader landscape remains fraught with uncertainty. Ongoing negotiations and the spectre of renewed tariffs continue to inject volatility into the outlook, leaving European markets susceptible to external shocks even as domestic conditions stabilise.

Emerging markets are regaining prominence in 2025, offering differentiated opportunities across regions such as India, South Africa, and Brazil. Structural shifts in global supply chains, improving domestic fundamentals, and renewed investor confidence are converging to create a more compelling backdrop for selective emerging market exposure.

In India, the acceleration of the “China Plus One” strategy is materially shifting the investment landscape. Global manufacturers are increasingly diversifying production away from China, with India emerging as a primary beneficiary. Apple’s significant expansion of iPhone production through new facilities led by Tata Electronics and Foxconn is emblematic of a broader trend. Policy support remains robust, with production-linked incentives underpinning this manufacturing renaissance. While regulatory complexity and infrastructure bottlenecks remain headwinds, India’s scale, demographics, and policy orientation continue to reinforce its positioning as a structural winner in global manufacturing realignment.

South Africa has also quietly staged an impressive recovery. The Johannesburg Stock Exchange has reached new highs, with the main index advancing 13% year-to-date, buoyed by strength across mining, financials, and domestic-facing sectors. The suspension of several global tariff initiatives has provided a further tailwind, supporting South Africa’s export competitiveness at a critical juncture. After years of structural stagnation, the market is beginning to reflect a more balanced risk-reward profile, though political risk remains an embedded factor.

In Brazil, the story is increasingly one of diversification and sustainability. The economy expanded by 3.4% in 2024, and although growth is expected to moderate to 2.2% this year, the foundations are shifting in important ways. Brazil’s leadership in renewable energy, particularly in hydropower and emerging solar infrastructure, is attracting investment into adjacent sectors such as AI and data centres, where energy stability is a strategic advantage. A transition toward a more diversified and resilient economic model is underway, providing a medium-term anchor for investors willing to look through near-term volatility.

FX

On a normal month, it’s hard not to talk about the USD, but April’s price action makes it impossible not to start by delving into what turned out to be the biggest percentage loss for the greenback in three years, something visualised well below.

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Welcome to AlphaPicks’ monthly market update, a rundown of global markets for the coming weeks in under ten minutes (we didn’t overrun the target this month).

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Macro

Global markets have eased somewhat over the past two weeks after experiencing a stretch of volatility driven by political upheaval. The macroeconomic indicators still look strong, and the Federal Reserve is on track to cut interest rates later this year, while fiscal policies in Europe and China are becoming increasingly supportive.

In Germany, the passage of a significant stimulus package through parliament has marked a clear policy shift, setting the stage for economic recovery. However, in the United States, troubling signs are starting to show as consumers brace for rising unemployment and inflation, and political uncertainty is causing businesses to hesitate on investment decisions.

A key date for the markets is April 2, referred to as “Liberation Day” by Trump, when substantial tariff plans are anticipated to be unveiled. Our baseline scenario suggests that tariff uncertainties will peak in early April, after which Trump is expected to pivot towards measures that support growth.

The Fed in March held policy rates unchanged at 4.25-4.50%, as expected, and continued to signal two rate cuts in each of 2025 and 2026 (median estimate). The message from Chair Powell was that tariff inflation is seen as transitory, meaning the Fed can look through a temporary increase in prices and has scope to react to unexpected weakness. We expect the Fed to remain in a reactive stance that will be echoed by Fed speak in the coming weeks.

Recent comments indicate that many members of the Governing Council see the potential for lower policy rates, but they remain unsure whether to cut rates or hold off in April. Key factors influencing the April decision include March inflation figures (released on April 1)—particularly in the services sector—and the impact of Trump tariffs (announced on April 2).

The EU’s defence initiative, “Readiness 2030” (previously known as “ReArm Europe”), appears to be falling short of the Commission’s goal of EUR 800 billion. Signals from several countries, including France, suggest a reluctance to pursue additional national borrowing due to high debt levels and concerns about negative reactions in the bond market. We believe that collaboration on EU defence borrowing, going beyond the EUR 150 billion currently outlined in the plan, may be essential in the future.

Swap spreads have continued to rebound from the cheapening caused by the German fiscal package in early March. Looking ahead, Germany’s increasingly expansionary fiscal policy is expected to remain a structural driver of bond cheapening relative to EUR IRS in the coming quarters.

The recent rise in credit spreads may look alarming at first glance, but the broader context tells a different story. Despite the uptick, spreads remain well below levels that historically signalled significant market stress. The current Z-score of 3.3 indicates an elevated but not extreme deviation, and spreads have yet to approach the peaks seen during past periods of genuine concern. This suggests that the move is more reflective of short-term positioning or mild risk repricing rather than a fundamental deterioration in credit conditions.

Equities

Equity fact to start off: It’s incredibly rare for the S&P 500 to decline in a month while the DAX moves higher. This has happened only three times since 2000.

U.S. Equities: Neutral Stance Amid Transition

The U.S. equity market outlook for Q2 is neutral, reflecting a transition from the Trump sentiment trade to the Trump tariff trade. Falling growth expectations and technical indicators, such as the breakdown in market leadership, suggest a cautious approach.

The S&P 500 correction we experienced through March 10th was one of the fastest corrections on record. Equity risks from here are cut both ways. While some tariff impact is priced, markets may underestimate the full outcome if US corporates feel the heat. That said, a more benign scenario (phased, less aggressive tariffs) could offer a better buying opportunity after the dust settles than getting very long into the tariff decisions.

China: Optimism Despite Tariff Risks

In contrast, the outlook for Chinese equities remains positive. U.S. exceptionalism appears to be on hold, and technological advancements in AI and large language models bolster China’s growth narrative. Despite mixed economic data earlier in the year, the bottoming out of the credit impulse and resilient A-share performance indicate underlying strength. However, the risk of further tariffs or non-tariff constraints remains a wildcard. An agreement between Trump and Xi could catalyse further outperformance.

Japan: Underweight Due to External Risks

The Japanese equity market faces multiple headwinds, including the potential for tariffs, a global growth slowdown, and yen appreciation from a more aggressive Bank of Japan stance. Year-to-date, Japan has shown resilience against U.S. market sell-offs, but the outlook remains tepid. The auto sector, crucial for Japan's economy, is particularly vulnerable to global tariffs. While strong corporate earnings and share buybacks highlight corporate health, upside potential remains limited in the short term.

European Equities: Momentum with Caution

European markets have been among the best performers year-to-date, buoyed by improved fiscal policies in Germany, defence spending, and shifting capital flows amid concerns over the U.S. economic outlook. However, the economic data remains mixed, with hard data lagging behind soft data improvements. The key factors influencing Europe’s future performance include the allocation of the EU defence budget and the unification of industrial strategy. With the tariff announcement looming, a neutral stance is prudent until clearer signals emerge post-event.

Tactical Over Reactive

The upcoming tariff decisions on April 2nd will test market resilience and policy expectations. Maintaining a neutral stance in U.S. equities allows for flexibility in responding to market developments. Meanwhile, optimism in China and cautious positioning in Europe reflect a nuanced approach to regional market dynamics. Investors should prepare for volatility but remain poised to capitalise on opportunities once the post-announcement landscape becomes clearer.

We posted a deep dive into equity thoughts in the week, which can be found below.

FX

The bulk of the price action on the US dollar came in the first few trading days of the month, as the chart below highlights. The move lower was correlated to the general risk-off sentiment that spread through the market. Some might wonder why this negatively impacted the greenback, given the fact that it’s traditionally perceived as a safe haven during unpredictable times.

There are two main reasons why this was not the case this time around…

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Welcome to AlphaPicks’ monthly market update—a rundown of global markets for the coming weeks in under ten minutes (sort of).

Our guest contributor this month is , financial market strategist and portfolio manager of the Mott Capital Thematic Growth Portfolio.

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Macro

Michael Kramer:

It has become clear that the stock market is only as strong as Nvidia, and if we have passed peak hype for Nvidia and the promise of AI, the equity market in the U.S. — and possibly globally — could face a tough road ahead.

While Nvidia’s results were strong and exceeded sell-side expectations, they were not enough to surpass the overall market’s expectations. Looking at options positions, it was evident that the market was overly bullish on the stock breaking out above $140, but it simply wasn’t meant to be.

If data from regional Fed surveys and inflation expectations are correct, and inflation is indeed accelerating again, then the Fed is done cutting rates. The combination of a Fed with no further promise of rate cuts and a market without Nvidia’s leadership could make March a challenging month for equity investors—not just in the U.S., but globally.

AlphaPicks:

The U.S. economy could be gearing up for a significant downturn in the first quarter, following two reports highlighting weaker consumer spending and a dramatic increase in the trade deficit at the year’s start, according to the latest GDPNow forecast from the Federal Reserve Bank of Atlanta. The gross domestic product is now projected to drop at an annualised rate of 1.5% in the current quarter, a notable revision from the previously expected growth rate of 2.3% just days ago. However, it is still early in the quarter, and the GDPNow estimate will be updated as more monthly data becomes available.

The regional Fed bank anticipates that net exports will deduct 3.7 percentage points from GDP. Recent government figures revealed that the merchandise trade deficit in January widened by more than 25%, reaching a record $153.3bn. Before this data, the GDPNow forecast estimated that trade would only reduce GDP by 0.41 percentage points.

Projections for consumer spending indicate it will contribute less than 0.9 points to first-quarter GDP, down from an earlier expectation of 1.53 points before the latest consumption data was released.

Notably, inflation-adjusted personal spending fell by 0.5% in January, marking the most significant decrease in nearly four years. After months of strong spending leading up to the holiday season, consumers tightened their wallets, pulling back on purchases of motor vehicles and other goods. Additionally, severe winter weather impacted a significant portion of the country in January.

The U.S. economic landscape is taking a significant downturn, presenting a stark contrast to the excitement that characterized the beginning of ’25. As a result, investors are rapidly trying to recalibrate their strategies in response to this shift.

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Equities

Equities spent most of February digesting macro drivers, such as geopolitical tensions, trade wars and growth scares. First, let’s talk about how the U.S. indices have gone nowhere since the election.

Equities, by default, go up and to the right over time. It’s different to an asset like gold, which we argue needs a fundamental driver behind any price appreciation. However, headwinds such as stagflation, risk-off sentiment in heavy-weight tech names, and uncertainty around tariff/trade plans have left equities struggling to break to new highs. December, January, and February have all seen attempts to rally higher materially, but have ultimately seen sellers come in just a few points above.

Conversely, there haven’t been any developments to devalue equities lower. The Fed’s change of stance in December is behind us, AI narrative concerns only left tech in breather mode, rather than in retreat, and growth scares have added some more uncertainty, but are not yet large enough to send everyone running to defensives or cash. Growth is the biggest narrative that we see over the next few weeks, but we expect indices to stay within the recent range for the rest of the quarter.

Europe is still the standout market YTD, but the election in Germany and tariff negotiations between the EU and the U.S. have seen markets also put the brakes on. There looks to be continued investments from EU members into sectors like defence, while institutional money is also flowing in as funds rebalance their previously under-weight Europe allocations.

We feel some profit taking/de-risking was the driver toward the end of the month, and don’t see major headwinds ahead.

Hang Seng has been tremendously strong this year, with the tech index up 24% and the overall index up 14%. Towards the end ot the month, Trump turned his attention back towards President Xi and added another 10% levies to imports. The reaction was some selling in the indices, which cooled the month’s rally.

The developments of DeepSeek remain the reason as to why China can be a big player in the AI tech race, and government spending across sectors will continue so as not to fall too far behind. We see China as a continued hedge against the U.S.

FX

The U.S. Dollar index (DXY) finished the month modestly lower than where it started. Despite it only falling by less than 1%, the fact that it didn’t materially rally despite several influencing factors reinforces our view that the top is in for 2025 for the dollar.

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Welcome to AlphaPicks’ monthly market update, a rundown of global markets for the coming weeks in under ten minutes (we didn’t overrun the target this month).

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Macro

Last week, the Federal Reserve entered a new stage in the interest rate cycle, that of a wait-and-see attitude. During the news conference following the meeting, Fed Chair Jerome Powell remarked that, with interest rates now “significantly less restrictive” than they were prior to last year’s cuts, there is no rush to adjust our policy stance.

Market pricing (see below) is now basically in line with the latest dot plots, looking for two further 25bps cuts in 2025.

Following Powell’s remarks, President Trump criticised the Federal Reserve and its chairman for allowing inflation to surge four years earlier, asserting his commitment to curbing price hikes. “I will tackle this by unleashing American energy, cutting back on regulations, rebalancing international trade, and reigniting American manufacturing,” he stated in a post on his social media platform.

All in all, there were not many takeaways from the meeting.

Feb. 7th sees the release of NFP and the unemployment rate. Estimates for Jan’s NFP are 154k, compared to 256k previously. Unemployment is expected to come in consistent with last month’s figure at 4.1%. Labour markets have remained resilient and will not weigh into the Fed’s decisions unless weakness is seen again.

Over in Europe, investors are facing a central question: how many more times will the ECB cut interest rates? Economic growth in the eurozone came to a standstill in the last quarter of 2024, while headline inflation has increased for three consecutive months, now sitting at 2.4%. This situation has created a challenging backdrop of stagflation.

ECB President Christine Lagarde indicated that the bank plans to implement several more rate cuts in the upcoming months. She noted that Thursday’s decision received unanimous support from the ECB’s rate-setting committee and emphasised that the current policy rate is still restrictive, hindering economic growth.

Lagarde added, “It would be premature at this point to discuss when we should halt rate cuts.”

Investors anticipate that the ECB will continue cutting interest rates by a quarter-point in the upcoming meetings, possibly extending into the summer or beyond. The ECB is expected to operate on autopilot in the near future, aiming to bring policy rates back to a neutral level, around 2%, as an initial step.

However, a potential trade war could disrupt this plan. If the U.S. were to impose a 10% tariff on all eurozone imports, it could dampen the region’s economic growth by as much as 0.5 percentage points within a year, which may prompt more significant rate cuts.

Equities

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Macro

December proved to be a lively month to finish the year on, largely driven by central bank actions.

It became apparent early in the month that although the FOMC would indeed cut by 25bps, it could turn out to be a ‘hawkish cut’ since the outlook for further cuts in 2025 could be pared back somewhat, given the recent inflation data.

This turned out to be correct, with the dot plots indicating just two more cuts in 2025. Powell said the Fed can be more cautious as it assesses further adjustments because “the economy is strong overall.”

Interestingly, San Francisco Federal Reserve Bank President Mary Daly said later in December that the cut earlier that month was a “close call,” further providing a spook to equity market investors.

From here, it appears the Fed will stay on hold for January, with a February cut a 50/50 toss-up as we stand.

From our perspective, the other notable central bank meeting in December, which largely went unnoticed, was at the Swiss National Bank (SNB).

The SNB cut rates by 50bps when markets expected a quarter-point reduction. This now leaves them merely half a point—or two quarter-point reductions—away from a zero interest rate.

Given the recent strength in the Swiss Franc and the SNB’s willingness to use monetary policy to actively engage in FX, the path from here is interesting. They could expand their balance sheet through market interventions to limit CHF strength or look to move back to a zero / negative interest rate path.

Switzerland implemented a subzero interest rate policy for nearly eight years, partly to deter currency speculators. The nation maintained the lowest interest rate in the world at -0.75% and was the last economy in Europe to transition out of subzero conditions, moving higher in September 2022.

For the moment, the Swiss OIS curve doesn’t go negative, but it is one to definitely keep an eye on:

We elaborate on the Bank of Japan and their antics in the FX section, so we will close the central bank book there for the moment and move on to the other market-moving topic from December… President-elect Trump.

Although Trump has yet to take office, he has already been establishing his trade policy and appointing his team, which can provide more than an indication of his stance for 2025.

Some of it is simply noise; in other cases, his bark might be worse than his bite. But as far as trade tariffs go, fairly immediate action could be seen. During the month, he went after China, and although we aren’t completely sure about the scope or additional % to be placed on imports, it’s coming for sure.

Goldman put out a note stating that it expects the second Trump administration to increase tariff rates on imports from China by around 20% on average. They think tariffs will likely rise more sharply on non-consumer goods than on consumer goods.

Trump also spoke about energy. Under Biden’s Inflation Reduction Act, consumers could receive tax credits worth up to $7,500 when buying EVs. Trump has been vocal about how he would “end the electric vehicle ‘mandate’ on day one” of his term.

We wrote about what this could mean for stocks like Tesla (hint: it’s better for some EV manufacturers than others) back in late November, but it’s still relevant heading into January.

Finally, we can’t end this section without turning to Europe and politics. Both Germany and France are in a pickle, with both now having Governments that are ceasing to function.

The French government faced a no-confidence vote in the National Assembly, resulting in the ousting of Prime Minister Michel Barnier and his cabinet after just three months in office.

If you want to see a headline that (in our view) sums up the apparent blinkered view of the French policymakers, look no further than this NYE headline:

December also saw German Chancellor Olaf Scholz lose a vote of confidence in the Bundestag, leading to the collapse of his coalition government. President Frank-Walter Steinmeier subsequently dissolved parliament and has scheduled snap elections for late February.

Are we at peak pessimism in the Eurozone as we hit January? We’re not sure. Happy to hear thoughts on this.

Equities

U.S. Equities start the year looking to emulate the feat of the Chicago Bulls in the 90s:

Investors have experienced substantial rewards from U.S. equities over the past two years. As we approach 2025, we maintain an optimistic yet measured outlook, aware that two years of significant gains combined with a diversifying market indicate that much positive information is already reflected in the valuations of an increasing number of stocks. However, we still identify sufficient appreciation potential within individual companies to uphold a constructive, risk-positive stance.

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Macro

China stimulus reports continue to make headlines across financial markets, but the follow-through into their economy and equities is fading. Last month, China stocks faced headwinds of trade tensions as Trump announced 10% tariffs. Equities were affected, although there had previously been a belief that tariffs in the region of 60% might be possible. Markets didn’t like the announcement, even if it came in on the lenient side.

However, renewed China stimulus talks boosted sentiment into the end of November as the focus turned to December’s Central Economic Work Conference. Investors expect the introduction of measures to boost consumer spending, which may be needed to bolster the Chinese economy.

Increasing headwinds with decreasing stimulus sentiment is how we’d describe China right now. The easy money has come and gone. Time for more navigation.

Between the U.S. and Europe, there is an emerging divergence in the December rate cut story. More detail on that is in the FX section. However, jobs data is due on the 6th, which we’ll touch on now.

October’s report released in early November was noisy. The Boeing strike and hurricane disasters impacted the jobs report. The unemployment rate came in steady at 4.1%, but NFP figures showed just 12,000 new jobs. This will be one we’re watching closely. A rebound might confirm the noise was just indeed noise last month. But another weak report may throw the labour market back into the Fed’s spotlight, something that has recently taken a back seat as inflation talk reignited.

Equities

U.S. indices see out November at highs as the post-election rally is still leading strong. The Russell (small caps) returned >10% in November. If history is anything to go by, December usually is a strong month.

The SKEW Index is nearing the 2021 highs. This means SPX OTM options are seeing the slope of IV rise. The probability of a two or three-std dev move over the next 30 days is heightened. It's not a great predictor, but information that is important to be aware of.

Europe stocks and the FTSE are quiet as they hear the cheers from across the pond. However, they are faring well considering a challenging economic environment in powerhouses such as Germany and France. The discrepancy is stark, but there’s a reason for the disconnect. Unlike in the U.S., many foreign stock indexes don’t depend much on their local economies for growth.

We can also attribute a dampened performance to the lack of tech weight in the indices, a sector that has been on a tear over the last few years as AI innovation runs riot.

Do we expect a change? No. The U.S. will keep drawing the investment flow in comparison to other DM peers.

In EM markets, India stocks are back on the rise after Prime Minister Modi secured a strong victory in the nation’s wealthiest state of Maharashtra. It could be the catalyst India bulls need after the index fell into a correction (10% down from highs) in November. The alliance’s victory ensures policy continuity in the state, home to India’s financial powerhouse of Mumbai and several of the nation’s largest investments. Also, China’s stimulus acted as a headwind for India. With sentiment around China and economic stimulus efforts now waning, there could be more adoption of Indian stocks again.

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FX

The U.S. Dollar had another fantastic month in the spotlight for November. The DXY index traded up to 108.00, the highest level since late 2022. There were three main factors that drove the price action:

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Welcome to AlphaPicks’ monthly market update - a rundown of global markets for the coming weeks in under ten minutes (sort of).

This month, our guest contributor is (@ebconomist), an independent strategist and economist. Previously, he was the Chief FX Strategist and Global Head of FX Analysis at Citi.

Macro

by Ebrahim Rahbari

There are macro issues galore into year-end. I want to focus on i) the trends in October, ii) how to trade the US election and iii) market drivers into year-end.

US vs The Rest

Three major developments drove asset prices in October: 1) US economic resilience, 2) US outperformance vs RoW and 3) markets pricing higher odds of a Trump election victory. But performance, notably the US Dollar rally and the sell-off in fixed income and related assets, such as JPY, needs to be seen against its starting point: up to mid-September, markets priced a sharp Fed rate cutting cycle amid recession concerns and a proactively dovish Fed, while investors were heavily positioned in JPY and short USD.

How to Trade The US Election

My long-held view has been that this is the Republican party’s election to lose, informed by the broader context illustrated in the Gallup survey, early voting trends, and swing state polling. I discussed many election-related questions here and here.

But at this point, I think Trump trades no longer offer attractive risk-reward into the election, which is different from markets fully pricing a Trump victory/ Republican sweep. That is because i) markets have increasingly priced a Trump victory and ii) there is a plausible path to a Harris victory in Pennsylvania via ‘Never Trumpers’, the ‘Puerto Rico effect’ and broader Democrat turnout efforts, which could also imply (slight) delays in election clarity.

For now, my approach to trading the election focuses on owning the ‘election risk premium’, which historically paid off on average. Typically, US elections would see a risk premium in risk assets, with US equities typically slightly down 1-2 months into the election and strongly up afterwards. Given the focus on fiscal risks, the risk premium this time around is in rates (& -sensitive assets) and tariff-sensitive FX.

Thematically, owning the risk premium for this election, therefore, aligns more with ‘Harris trades’, which makes sense because investors appear to have mainly hedged against ‘Trump outcomes.’  My preferred way to express this view is to sell out-of-the-money (OTM) optionality to higher US yields around the wider election window, given high US rates and high rates volatility.  

But it makes sense to keep some powder dry, given that the election outcome will have directional impact on many assets, and historically, it’s often been possible to trade the election result afterwards. There are many scenarios to consider, but two examples include buying US equities in a Trump victory with orderly rates (e.g. via divided government) or patiently buying a dip on a Harris win.

What’s Next?

Beyond the election outcome, macro markets will trade i) US macro, ii) momentum and iii) year-ahead positioning into year-end, alongside many idiosyncratic themes. The key remains the US rates trajectory. I lean towards at least a speed bump in 10-year yields between the current 4.38% and 4.50%, in line with the above views and the latest payroll report lowering the bar again for a December Fed cut. But it’s not clear if it’d be more than a brief relapse given benign US macro trends that could shorten the Fed easing cycle.

Last week’s data took excitement out for the ECB & Fed and paves the way for likely 25bp cuts for each in December. That was made up in excitement in the UK – I see the risk-reward of a combined 31bp of cuts priced for Nov & Dec as attractive to receive, despite the volatility around last week’s Budget.

Currently, I expect investors to start positioning in November for 2025 with a positive mindset, including looking for cheap upside in risk assets – including upside for EM equities, particularly under a Harris victory. Yen upside also appeals even though the timing of entry and cross-currency depend on the election outcome.

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Equities

By AlphaPicks

For the first part of November, U.S. equity markets will be noisy. However, come November 11th, the U.S. will have a new President and the Federal Reserve will have (most likely) reduced their rates by 25bps and given some comments on their thoughts (note that they are currently in a blackout period).

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Welcome to AlphaPicks’ monthly market update - a rundown of global markets for the coming weeks in under ten minutes…

This month, our guest contributor is:

Alyosha, an independent commodity trader and member of COMEX/NYMEX for over four decades. He writes at .

Macro

September had a disproportionate amount of weight placed on the US Fed meeting, with the announcement and press conference on Wed 18th showing that the committee decided to start monetary policy easing with a jumbo 50bps cut.

Even though some thought that the decision for 50bps over 25bps could spark some concern amongst investors and cause a sharp reaction in both equities and fixed income, it was actually taken as a positive. The cut was seen to be a stimulant for demand which could help to engineer a soft landing.

Indeed, investors appeared to be reassured by Powell’s comments:

“I don’t see anything in the economy right now that suggests that the likelihood of a recession, sorry, of a downturn, is elevated. You see growth at a solid rate. You see inflation coming down. You see a labor market that’s still at very solid levels. So, I don’t really see that now.”

Once the meeting had been digested overnight on Wednesday, Asian markets kicked off a broad based equity market rally which continued for the rest of the month. US Treasury yields fell as many eyed up further imminent cuts that tie in with the updated Fed dot plots.

The other key stimulant to risk appetite was stimulus from China to end the month. A broad based package including rate cuts and other measures helped to push the Hang Seng index to the best weekly gain since 1998. The CSI 300 closed the last week of the month up over 15%, the best gain since 2008.

Despite this rosy macro backdrop to finish September, there’s still plenty of caution to note for October.

As our friend JJ flags up in his Commod section below, oil is in a real pickle and being influenced by a variety of factors (none of them bullish for the near term outlook).

Staying in commodities, precious metal prices continue to surge, with silver now outperforming gold in percentage gain terms YTD. Part of the rally can be attributed to the lower opportunity cost with US rate cuts. However it’s rational to think that some of the gains is down to investors diversifying exposure and even actively looking to allocate to these safe havens ahead of Q4 event risks.

The Fed don’t meet in October, but the host of key data releases during the month mean that implied pricing for the November meeting will help to dictate flow.

A big question for investors to consider for October is that if 50bps does get priced in for November (given that the dot plots only shows a cumulative 50bps for the rest of the year), would that act to spook the market? There surely comes a point whereby people would start to get a little uncomfortable with what the pace of easing would assume about the health of the economy.

As for other macro points to watch out for in the month ahead, we flag up the slightly surprising victory at the end of September for the new Japanese PM, Shigeru Ishiba. Known as not being a fan of Abeonomics, or a devalued Yen, as well as being a China hawk and wanting the BoJ to normalise monetary policy, there could be a lot of fireworks to watch out here for USDJPY, Nikkei 225 and other related assets in coming weeks.

Finally, even though the US Presidential election just falls into November, positioning will definitely be taken up over the course of October. We flag up some of the implications for this in FX and equities, but needless to say that it’s worth staying reactive to polls, interviews and policy chatter in coming weeks to see if the winning chances for either party start to meaningfully diverge.

Commodities

By JJ (Alyosha)

The most important thing happening in commodities today is happening in oil. OPEC is coming undone because diverse sources of energy are converging in usage and price everywhere. Coal, wind, solar, LNG, natural gas, Hydro, and nukes compete with refined oil products.

The marketplace is weeding out the weak, not so much by sector per se, but by the weakest player within each. In oil, that means lower prices challenging producers with high break-even costs. In OPEC, that means undercutting for market share.   

Refining margins have been low and falling for over a year because crude prices are too high due to OPEC policy. Demand for refined products has been flat, and product prices have declined. The chart below is the notional NYMEX spot heating oil crack spread indicating the relative value of distillate to a barrel of crude. Crude has no value unless it is refined. Wholesale gasoline prices traded $1.90 last week, 30% lower than their highs in 2005.  

War, politics, and climate dogma have never been aligned because oil was subject to abusive pricing and economically prohibitive development. Technology has finally changed the risk profile of E&P. In the tight oil regions, new wells can be found, funded and brought to market in months instead of years.

One must ask, are strategic reserves even necessary? Wars in the Middle East do more harm to the cartel than they do to consumer nations. When Gaza broke out, oil went down. The game in crude oil now is reliable service at competitive prices in the same way consumers choose a local gas station, price and service.  

As for coal, If China and India keep building coal-fired utilities, coal will be available.  

Wind seems to be the weakest long-term solution. Solar has wood to chop but the highest potential for innovation. Hydro is free power but limited. Nukes have come a long way, Baby (golf clap Mr. Gates). America is the largest producer of crude oil in the world. I don’t see that changing for a very long time.

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Equities

We leave September with a risk-on equity front. The Fed is easing monetary policy, aligning with similar actions of the ECB and BoE, and China is going full ‘bazooka’ and stimulating multiple areas of their economy. The spillover from these tailwinds has equities rallying.

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Welcome to AlphaPicks’ monthly market update - a rundown of global markets for the coming weeks in under ten minutes…

This month, our guest contributor is:

, independent global macro trader and author of the Fidenza Macro newsletter.

Macro

by Geo Chen

Over the past month, asset managers have been piling into bonds, while CTAs and global macro funds have been building longs in Treasury futures. The main catalyst for this aggressive shift in positioning was the surprisingly weak unemployment rate print of 4.3% on Aug 3.

The release triggered the Sahm rule, which observes that in every previous instance when the 3 month moving average of the unemployment rate rose 0.5% from the cycle low, the economy was in the early stages of a recession. I believe that the economy is not as weak as what the bond market suggests, and that the coming Fed rate cut cycle will be slower and shallower than expected. 

This economic cycle has been different from many cycles that came before it, which makes it difficult to rely on tried and tested recession indicators that have worked previously, such as the Sahm Rule and the yield curve. Claudia Sahm, the inventor of the Sahm rule herself, pointed out that the labor market is in much better shape at the moment than in previous recessions. Labor market recessions are usually caused by a sharp increase in layoffs, yet right now the increase in laid off workers is smaller than most recessions. 

Previous recessions also saw fewer people enter the labor force and an increase in workers leaving it, resulting in lower participation. This time around, there has been no drop in net entrants into the labor force. 

Thomas Barkin, in a recent interview on the Bloomberg Odd Lots podcast, said that in his conversations with companies, they are telling him that they are in a “low hiring, low firing mode.” This suggests the economy is in a state of equilibrium and not on the verge of recession. Since unemployment data is often subject to large revisions, I like using jobless claims as a source of truth, and that data is not pointing to a significant increase in firings that is typical of a recession. 

Against this economic backdrop, the Fed is set to deliver on some of the rate cuts that the market has eagerly priced into the forward curve. Expectations of cuts have resulted in a similar magnitude of easing in nominal and real yields as the Oct-Dec period of last year. The chart below shows how the decline in 5 yr nominal and real yields last year was followed by a jump in the US economic surprise index over the coming months. The improvement in data was accompanied by a reversal in yields higher, as well as a rally in risky asset classes such as equities, commodities, and crypto. I believe that the upcoming round of Fed easing will have the same reflationary consequences for the market. 

It’s likely that we are in a mid-cycle rate cut scenario, which tends to be very bullish for both growth, inflation, and for risky assets. The last mid-cycle easing happened in Q4 of 1998 following the Russian debt default and the Long Term Capital Management crisis. The Fed responded to the crisis by doing an emergency inter-meeting rate cut, followed by two 25 bp rate cuts months later. The market had been piling into Treasuries in a flight to safety, similar to today, but 10 yr yields bottomed out the same month the Fed delivered its first cut. In the height of the crisis, the eurodollar futures market priced in a terminal rate as low as 4.18%, but the Fed only cut rates to 4.75%. 

Drawing this parallel forward to today’s environment, it’s likely that Treasuries have overshot to the upside, and are already in a topping process. The current elevated long positioning and bullish sentiment in Treasuries creates a compelling contrarian setup for shorts. The Fidenza Macro portfolio will be establishing a short in ZN futures (10 yr Treasury futures) next week. 

Risk assets shouldn’t fear higher yields. We are back in a risk-parity friendly environment, where good economic news equates to good news for the market, and where higher yields are a symptom of stronger growth and improving earnings. The few cuts that the Fed delivers should be enough to jumpstart the interest rate sectors of the economy back to life. 

FX

August proved to be a terrible month for the US Dollar index (DXY). It was caught up in a variety of cross-hairs which meant that it traded fresh YTD lows earlier this week.

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For a start, it took a sharp knock at the start of the month following the disastrous payrolls report and kick higher in the unemployment rate. As Treasury yields dropped, so did the dollar.

This was compounded by the unwinding of carry trades, with heavy selling on USDJPY and USDCHF.

The swift retracement in the US equity market throughout the rest of the month led to a general risk-on move across assets. In G10 FX, this played out via a weaker dollar, with higher beta currencies such as AUD and GBP gaining from this.

With Jackson Hole giving Powell the opportunity to all but cement a September rate cut, the only real point of contention heading into September is whether it’ll be a 25bps or 50bps move from the Fed.

In our view, the coming month is very important the greenback. If it can’t hold 100.00 and 99.50, more weakness beckons. Fundamentally, this could be driven by a more dovish Fed than currently priced, or via another bout of US specific risk-off movement.

On the other hand, over 100bps worth of cuts are priced in for the remainder of 2024. The downside risk here is somewhat limited. We don’t see the Fed coming out with 50/50/25bps cuts. If anything, 25/25/25 is more plausible. More on rates later.

We also flag up the role of the dollar in the event of a more general risk-off mood. The USD smile shows us that when risk-off is more of a global nature, the dollar usually strengthens:

Aside from the USD, for the month ahead we’re also watching EUR/GBP carefully. After a sharp rally in early August, the pair is rolling lower, and has retested the 0.8400 level late in the month. Below 0.8375 and we have to look back to the summer of 2022 for new levels.

We’re cautious to chase this move lower, but it’s true that the UK economy has really been outperforming the Eurozone over the past month.

If the BoE are happy to continue to pushback on the need for steeper cuts and the data holds up, there’s not much stopping the pair accelerating lower to sub 0.8300.

Lastly, we cut out the USD leg and compare safe havens with CHF/JPY. Over the past couple of weeks, the pair has resumed the uptrend following the unwind of the carry trades primarily involving Yen. This tells us that even though the Yen could remain bid if we get another bout of risk-off in September, the Franc is the favoured play during normal trading conditions.

In our view, this provides a lower risk play of shorting the Yen again without having to take on a USD view or another high beta option. In buying CHF, there is some benefit to pick up yield, but it’s more of a play of getting back short JPY in the lowest risk way possible.

If we do see another drawdown, the move vs CHF will be shallower than vs USD, GBP, EUR etc. Only a break below 166.60 would give us reason to change our view here:

Equities

For August, the top-performing S&P 500 sector was Consumer Staples (5.78%). This was closely followed by Real Estate (5.64%). On the other hand, the worst sector to be in for the month was Energy (-2.32%).

Let’s start with energy. A key input here was oil, and the sharp move lower in the black gold which weighed down oil related stocks.

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There was a significant oversupply in the global oil market due to higher-than-expected production levels from key oil-producing countries. Countries like Saudi Arabia and Russia increased their output, contributing to an excess supply that pressured prices downward.

Continued back and forth in tensions in the Middle East saw elevated volatility too. The progress made regarding a potential six week ceasefire deal helped to push oil lower, although news out late this week around Houthi rebels releasing footage of them bombing an oil tanker won’t help to start September.

Consumer staple outperformance is a really telling theme that has been developing as part of a broader rotation in the equity market. U.S consumer discretionary stocks fell by just over 1% for the month (at a sector level). In fact, the iShares Con Staples ETF outperformed the Con Disc version for the entire month:

It’s clear that even though the dip in the equity market has been bought following the start of the month tree shake, investors are becoming more cautious about where to allocate funds.

The fact that consumer staples is the place right now where money is flowing in tells us that investors are wanting to position defensively while still maintaining equity exposure.

The outperformance in real estate is splitting the crowd as we head into the new month. On the one hand, the increase in pricing for Fed cuts has naturally been a positive tailwind for real estate investment trusts (REITs). Cheaper funding for new projects and the ability to refinance existing deals at lower rates should ultimately flow through to a higher level of profit for the trusts, boosting dividend payouts.

Further, REITs often provide attractive dividend payments, which historically have outpaced inflation, providing a real net yield. With some inflation concerns persisting in August, we feel this could have been another factor that supported inflows.

Yet not everyone is convinced that this is going to be a theme that will endure over the coming year. For example, Wells Fargo put out a note earlier in August flagging up three reasons why one of their desks is underweight.

First, low rates don’t always correlate to gains in real estate. Despite a favorable interest-rate environment from 2020 to 2022, the relative performance of REITs remained underwhelming. We personally flag this up as an isolated case, but let’s keep going.

Next they mention that REITs have shown poor relative strength for years, and they are not convinced that this long-term trend has change.

Finally, they have a gloomy outlook for the US economy next year and feel real estate will be sensitive to this.

Part of the focus for September will be investors getting their portfolios positioned for the first US rate cut and the beginning of the cycle. Bloomberg Intelligence strategists Gina Adams and Michael Casper wrote earlier this month about what we can learn from past rate-cut cycles.

A couple of the key points noted were:

Defensive sectors have had the edge over cyclicals. Measuring Fed rate cut cycles from the date of the first cut to that of the last one shows large-cap value posting a median 2.4% drop versus a 24.5% decline for growth — though the latter led in four of five instances.

When you turn to the small-cap space, value posted a median 2.7% gain to growth’s 21.5% drop, again with the latter ahead in three of five cut cycles.

Staples, health care and communications have the most consistent performance within the S&P 500 during cutting cycles. Energy and industrials struggled most often. Russell 2000 communications and health care fared best while real estate and energy struggled.

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Welcome to AlphaPicks’ monthly market update - a rundown of global markets for the coming weeks in under ten minutes… or 12, if we’re being precise.

This month, our guest contributor is:

Here’s what you need to know…

Macro

It felt as though equity markets were turning a corner on the July pullback. The Fed signalled rate cuts to come in September. All was well. Markets legged higher.

Friday’s jobs report suggested more concern in the labour market than had previously been believed. Now, markets see September cuts from the Fed for completely different reasons and at a steeper rate.

There is growing concern that the Federal Reserve is lagging behind and should have already initiated interest rate cuts. This worry is amplified by the fact that the Fed does not have rate-setting meetings scheduled for August or October, limiting its opportunities to decrease rates. Although off-calendar rate changes are feasible, they are uncommon and typically only used in emergency situations. More thoughts on this are in the rate section further on.

Another macro factor at play in the US is the election. While at the start of last month, Trump was heading towards a landslide victory, Biden’s resignation from his re-election campaign and Kamala Harris’s takeover has seen the ‘Trump Trade’ take a step back. There have been talks relating to a Sep 4th debate, so we may see more of a move in the election odds in the following months.

The BoE started its rate cut journey on Thursday. Five of the bank’s policymakers voted for the quarter-point cut, while four voted to keep rates steady, unconvinced that inflation in the UK was sufficiently tamped down.

The bank expects inflation in the UK to pick up slightly in the coming months to around 2.75%. Officials said rates need to “remain restrictive for sufficiently long” until they are confident inflation will return to target.

The bank has revised its growth forecast, anticipating a rise to 1.25% for the year, up from the previous projection of 0.5%. However, officials anticipate a subsequent slowdown due to the effects of high interest rates, with growth expected to decrease to 1% in 2025.

Over in the eurozone, the ECB has also commenced its journey of descent. A slight increase in inflation, to 2.6% in the year to July, is making it seem less certain that the European Central Bank will cut interest rates in September. However, two cuts are still on the cards as the CB may have to ease monetary policy further to aid the region’s struggling economy.

Equities

Capital Flows:

We are in a moment in time for financial markets where understanding WHAT and WHY things are happening is critical. As we have ended the month of July and started August, equities are having a drawdown as they break the 5,400 level in SPX: 

The greater sign of capitulation is how implied vol is at a historical extreme compared to realized vol. This represents a significant implied vol premium in the vol complex for equities: 

Implied volatility (IV) premiums and discounts refer to the differences between the implied volatility of an option and the historical or realized volatility of the underlying asset. When the IV is higher than the historical volatility, it indicates an IV premium, suggesting that options are relatively expensive as traders anticipate higher future volatility. Conversely, an IV discount occurs when the IV is lower than the historical volatility, implying that options are cheaper and traders expect less future volatility.

The question we are faced with is if this pullback in equities is going to turn into a full-fledged bear market or if we will consolidate in the month of August before continuing back to all-time highs. While we can’t know the future, we can know the exact signals to watch for in order to discern which outcomes is dynamically unfolding. 

First, we have seen a growth surprise to the downside in economic data but not an outright contraction (chart is the economic surprise index and rolling SPX returns). 

The unemployment rate ticked up in the most recent NFP print, but we are still softening from an incredibly low level: 

If we see a lack of persistence in growth data decelerating, this will begin showing the market that the “growth scare” is being over-extrapolated. 

Second, implied vol has accelerated to an extent that is unlikely justified given the underlying drivers that will be reflected in realized vol. Watching this premium will be critical moving through August: 

Finally, watching how the forward curve is pricing cuts for the end of 2025 as it correlates with equities will be important. The rate cuts that have been priced on the forward curve are also unlikely justified, given we have only seen a marginal declaration in growth data. 

AlphaPicks:

The UK’s FTSE 100 was positive in July, a standout among many other index decliners. Strategists at Bank of America called the FTSE 100 the “anti-Nasdaq,” where the dearth of tech stocks often bemoaned in London could prove to be an advantage for the benchmark should there be a further selloff across the pond.

Overseas earnings for the UK’s largest companies complicate the outlook, though. The UK stock market is driven 80% by earnings offshore, so there is a weak link between UK interest rates and the earnings of the UK stock market. 

The housing sector is an evident beneficiary of rate reductions. Construction companies have experienced value growth this year in anticipation of cuts, which increase consumer access to mortgages and decrease business debt expenses. Declining inflation and a strengthening economy have further enhanced the outlook for the significant housing sector, as recent surveys indicate a rebound in housing prices.

Financials is one area set to struggle. Lower interest rates reduce banks’ net interest income, a key metric for the sector.

The global equity selloff has been intensified in the eurozone as Stoxx 600’s poor earnings results continue. The few resilient names in the index were pulled lower during the sentiment shift. The seasonality weakness of August and September in Europe doesn’t help the outlook, either.

FX

After breaking lower at the beginning of July, the DXY had trodden water for a few weeks before everyone jumped into action on Friday. The payrolls report saw sharp selling, driven by the move lower in the rates space. Given the US-centric problem faced, the USD struggled to catch any safe haven bids, with investors looking elsewhere (e.g., JPY).

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Welcome to AlphaPicks’ monthly market update - a rundown of global markets for the coming weeks in under ten minutes.

This month, our guest contributor is:

Arno Venter from Capital Edge

Here’s what you need to know…

Macro

June provided us with a continued theme of moderating inflation and monetary policy reacting to this.

In the developed markets, we got two central banks that started their cutting cycle. This included Canada, with the BoC reducing its interest rate by a quarter-point to 4.75%, marking its first rate cut in four years.

Similarly, the ECB cut the benchmark rate by 25bps at the June meeting. Later in the month, the Swiss National Bank provided us with a second 25bps cut, taking the base rate down to 1.25%.

This theme is picking up pace, with the US and UK also on alert for the first rate cut in the early autumn. The macro driver for this continues to be inflation returning towards target levels for most major nations. Many still have a robust labour market, so the cuts are seen as coming from a position of strength. Even though wage pressures are a key risk in this dynamic for July and beyond, the market perception of cutting from a strong base means that equity markets should continue to be supported.

Below we show the change in inflation versus the same reading a year back. The broad trend of moving back to the 1.50-3.50% region has certainly provided some cautious optimism to take into the month ahead.

The other theme that drove markets was election results. Throughout June we covered this in detail, noting divergence from the expected poll results in South Africa, Mexico and India.

In India, Modi and the BJP coalition secured 292 out of 543 seats in the Lok Sabha, with the BJP alone winning 240 seats, falling short of an outright majority. This marked a decrease from their previous performance (e.g in the 2019 election mentioned above).

Modi thus had to spend rushed time trying to secure a working Government, but naturally the demand of the smaller parties meant that negotiations in order to get support were tough.

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In South Africa, the ruling African National Congress (ANC) failed to secure a majority for the first time since the end of apartheid, receiving just over 40% of the vote. This marks a dramatic decline from its previous dominance, meaning that just like India, a coalition was needed.

Investors cheered an agreement between rival political parties to back the re-election of Cyril Ramaphosa as president. This agreement paves the way for a broad government coalition led by the African National Congress and the business-friendly Democratic Alliance.

We covered the implications for South African assets in particular here:

While you can read the broader run down of early June elections here:

The macro calendar for July has various events which we are watching closely. To begin with, the first round of the French elections is today (30th June), with the second round taking place the following weekend.

The other election that we are watching for is here in the UK, which is on Thursday 4th July.

The next Fed meeting is right at the end of the month (Wed 31st July), where there’s a slim 10% chance of a rate cut. The ECB meet on Thurs 18th July, whereas the Bank of England take a break and meet again in August.

Equities

Although the broad macro theme played out throughout May, this didn’t always correlate through to respective equity markets.

The best case of the correlation came from the US, where a lower than expected inflation print and a neutral Fed allowed stock to continue their march higher. AI and semiconductors led the charge in the risk-on mood.

Elsewhere things were more nuanced. Election results mentioned earlier saw idiosyncratic moves higher in South African equities, while the snap election call saw the French CAC 40 tumble lower.

One of our favourite charts from May came from Goldman Sachs, who pointed out that equity returns this year aren’t simply coming from owning the MAG7, but rather from a much more diverse selection of sectors and markets:

We don’t want to give away too much from our Global Asset Portfolio review which drops next Wednesday. However, during the month we did add exposure to UK equities in particular. We continue to see good value in large and mid cap names, and it appears we aren’t the only ones.

M&A activity in the UK market has really picked so far this year. One notable acquisition is the purchase of Barratt Developments by Redrow for £3.2bn. We’re also in the middle of Hargreaves Lansdown getting bought out for £5.4bn by a private equity consortium, alongside other smaller deals.

One particular case that we have a position in heading into July is Britvic. Carlsberg has made two takeover bids for Britvic over the past month. These were both unsolicited, but highlights its strategic interest in expanding its presence in the soft drinks market.

The initial bid, valued at £800 million, equated to 1,200p per share in an all cash offer.

Britvic initially rejected the offer, believing it undervalued the company’s growth potential and market position. In response, Carlsberg tabled a second, higher bid of £850 million, which equated to 1,250p per share. Even though this was around a 20% premium to the share price close on that day, the offer was turned down.

We bought the stock for our portfolio at 1,080p and will either will take profit at 1,300p based on a future offer that may/may not come. If this does happen, it’ll bank us good profit in a short space of time (a few weeks).

Given the share price jump on the offer rejection, if Carlsberg walk away we don’t see downside risk. Rather, we think organic growth will support a move towards 1,300p anyway, albeit over the course of the next year or so.

Looking ahead at July, we don’t really see many warning signs that should derail the broader equity market rally.

In the US, we continue to believe that tech and related sectors outperform, with the NASDAQ 100 likely offering the highest returns.

What we’re watching in the short term is how strongly dip buyers emerge on Nvidia. The sharp three day correction lower has been bought so far, and we expect that any move lower will be stopped around the $112 level:

FX

Guest Contributor: Arno Venter

What is up with the Pound?

The British Pound has been on an absolute tear this year. Recent developments in data and sentiment suggest that Sterling’s strength might be challenged in the next few weeks.

At the start of the year a lot of the outperformance was associated with monetary policy where the BoE was seen as one of the outliers to keep rates higher for much longer than their peers.

However, the shifts in money market expectations over the last two months have eroded that view.

As we can see from the table above, the expected amount of cuts expected for the BoE is not a reason for Pound strength anymore. The intriguing thing is that the Pound has not responded to the market’s changes in rate expectations over the past few weeks.

By using a normalized real effective exchange rate comp, we can start to appreciate just how strong Sterling has been relative to its peers. The reason why this is important is because it’s easy to blame much higher inflation for a lot of the strength, but stripping that out as a variable still leaves Sterling on the top of the pile.

Furthermore, inflation in the UK is not the same problem it was for the BoE just a few short months ago. Apart from wages and Services inflation which has remained stubborn, headline and core CPI (which policy decisions should be based on) has seen decent deceleration.

For the BoE, their most recent meeting saw interesting language used in their voting split explanations which suggested that votes between holding rates and cutting rates very finely balanced.

That’s basically the BoE’s way of telling us that if it wasn’t for the upcoming election there’s a likelihood that they could have cut rates at that meeting. But whether they admit it or not, politics matter when they make decisions.

When it comes to growth and the labour market, we’ve seen clear signs of deterioration in the labour market, which suggest that wages should start to moderate as the labour market continues to slow.

On the growth side, looking at a normalized comp of the Citi Economic Surprise Index, there is reason to believe it’ll be tough for data to surprise higher in the weeks and months ahead, given the herding mentality and recency bias in forecasting from the economist community.

Keep in mind that growth does not need to collapse to be seen as negative. If analysts and economists use recency bias to estimate data too lofty, and actual data surprises lower as a result, that will still be seen as a negative for Sterling.

The latest flash Services PMI saw a big surprise miss, and since it makes up over 80% of UK GDP it is something that should have mattered to Sterling.

On the political side, looking at a chart of the 1-month risk reversals for GBPUSD, it seems like the market is not pricing in any meaningful risk premium for the upcoming election. Given the polling data one would have assumed a bit more risk associated with the potential uncertainty, regardless of outcomes.

So, here is where we stand:

- We have a market that no longer prices any meaningful rate differential for the BoE versus its peers.

- Sentiment that suggests a cut would have been possible had it not been for the election.

- A moderating labour market, decelerating inflation and higher risk of growth data surprising lower.

- A currency that trades much stronger than its peers on both a relative and absolute basis (looking at geometric and REER strength).

- Almost no risk premiums priced for upcoming election risks, which almost seems irresponsible for those that would at a minimum want to hedge some currency risk.

- Risk to reward favours downside far more than chasing more upside at this stage.

With all of the above in mind, it would seem that the path of least resistance is tilted lower for Sterling from its current levels, and that further gains will be much harder to come by compared to previous upside seen earlier this year.

My base assumption would be that once the election is out of the way, attention should zero in on the data and the BoE, and on that front, I think the bias is titled lower.

With so many idiosyncratic risks in play right now, I prefer expressing this view against a basket of currencies instead of having all the eggs in one basket. It’s going to be an interesting next few weeks for the Pound.

AlphaPicks:

The US Dollar Index (DXY) finished the month higher than where it started. Bulls were cheered on by the hawkish tilt in the Fed’s new dot plots, as well as being buoyed by decent US data prints.

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Macro

Our broad view going into June is that it should follow May in being fairly normal service.

Economic data out of the US for May was a touch softer for the labour market, with inflation steady. There are no alarm bells for us either that the economy is underperforming or blowing the top off. So the 31bps worth of cuts (1.5 actual cuts) through to year end seems well priced.

A continuation of this should help to support equities to trundle higher. This is especially true now that earnings season is over, with Nvidia continuing to garner bids from the market, and putting the rest of the market on it’s back.

While we don’t refute claims from the bears that Nvidia might be forming a bit of a bubble, we don’t see what will break to spark a selloff.

UK equities continue to look cheap in our view and have some way to catch up to US peers. More and more are being bought out by private equity giants, something we wrote about in more detail here.

Stocks related to key commodities including copper and gold continue to outperform. In our section below, we flag up that while we favour silver longs over gold, we feel there’s room to run for both. Copper is flying too, and if you buy into the stories of AI-demand and a China recovery (not mutually exclusive) then copper can keep going.

Central bank meetings for the US and UK aren’t live, so we see little drama here beyond guiding towards when the first cut will be later this year. For the ECB, we do think June will be the month where the first cut will happen, but this is already priced in and therefore anticipate little movement in the EURO following such a move.

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Thoughts on US inflation from

One of the most problematic components of the Consumer Price Index is transportation fuel. Politicians point to high gas prices whenever they talk about inflation but the price of wholesale gasoline in the NY harbor today is on average $0.60 cents per gallon cheaper than it was 13 years ago in 2011. And exclusive of periodic volatility, it stayed there for 9 years until 2014. 

Spot June rbob settled at $2.475 on May 31, 2024. On August 31, 2005, spot rbob settled $2.57. Three years later spot rbob settled $2.51. And so forth again, for 4 years from 2011 to 2014. Reverse inflation adjusted wholesale gasoline prices today would be equal to $1.50 a gallon +/- $.05 cents in 2011 and $0.97 cents in 2005 by my estimate.     

This is a good example of hedonic deflation. Corn, one the most versatile sources of calories globally, traded $394 in March 2024. Corn traded 3.97 in 1974, 3.99 in 1980, and multiple times in the last 50 years. Sugar settled at 18.32 cents per pound yesterday. Sugar has traded 18 cents bi-annually (at least) since 1973. Cotton and live hogs have been the same price every year... year in year out for 50 years. The list is very long.  

Currency debasement, taxes and interest have inflated food and energy prices in CPI, but hedonic productivity has actually made some of them 50 to 90% cheaper at the wholesale level.  

Equities

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Macro

The past week brought mixed economic signals and another challenging situation for Wall Street traders attempting to anticipate the Federal Reserve’s data-dependent actions. After pulling money out of credit and crypto on inflation fears while easing up on stocks, bears just took a hit as the S&P 500 and Treasuries notched their first in-tandem weekly gain in a month.

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Macro ~ FX & Rates

Deer Point Macro: FX and rates that are top of mind going into the following month

A significant focus for the coming months centers on FX, where I think there’s still plenty of alpha to be generated despite subdued overall volatility, as well as within the rates complex.

Euro

At the forefront of my observations, is the EUR/USD. The ECB will be meeting on April 11^th, and this should play out interestingly. Looking at the EURO on the 1 month time frame is where we will begin. We have observed massive demand for put buying relative to calls, and I do believe that this will continue to be the case into the ECB meeting as the market starts to anticipate a much more dovish ECB relative to the FED. This should start to put some downside on the EUR/USD. Hence, there is anticipation for this sideways chop in EUR/USD spot to start to fade, and for the EUR to move lower relative to USD. Implied vol on the one month has started to rise with a 40bps rise in implied vol now sitting at 5.40 vols.

Looking at the EUR/USD 1m Risk Reversal 25 delta, we are now witnessing rollover. Currently, we are seeing more buying of puts than calls. However, since COVID the overall level is relatively in line with where the options activity has been. Looking at the implied vol. this is also relatively low, and it does not appear that anything interesting is happening on the vol front with vol continuing to remain relatively suppressed.

Regarding the meeting for the ECB. I would expect the potential of witnessing the demand for puts to outstrip the demand for call buying, and potentially adding to some downside in the EUR/USD which over the last 3 months has been stuck in a range between 1.07-1.10.  

Now observing the EURO, we witness something rather interesting happening with the term structure. We are only just starting to see widening until further out the maturity of the term structure. This implies that there is a macro risk that is being priced into the EURO, and thus traders are cautious about the outlook. This is driven by low expectations for growth, low productivity, and geopolitical issues within the Red Sea that seem more likely to hurt the EU compared to the US. Once again supporting the thesis that we should observe weakness in the EURO overall.

Asia FX

Focusing further on FX APAC continues to be intriguing. As FX vol has declined, we witness more and more people within the market seeking carry. This has increased the sharp for the carry trades. Regionally the attractive bet continues to be long rupees vs. other currencies within Asia. Given my outlook, India will start to be more attractive from a growth perspective relative to China as it appears their growth has peaked. This seems like a trade that will not fade out in the intermediate term. China will continue to struggle from a growth perspective and thus carry trade for rupees continues to be favored.

China

Now a simple observation on China. From the equity side, I do think that getting long China here could lead to an overall value trap. Many are pointing to the fact that China should start to stimulate, but looking at the overall correlation between liquidity (broad measure looking at the fiscal impulse+monetary operations) has shown very little correlation recently between liquidity and overall returns for the stock market.

Another big aspect that many have been worried about is the overall level of selling of treasuries by the Chinese. Frankly something I’ve been wanting to touch on as well, China and many other nations rapidly increased their overall holdings of treasuries during the pandemic. However, there has now been a lot of buzz around the net selling of treasury securities.

There are other explanatory variables for this, but it seems one of the largest ones is the overall buying of long-dated treasuries and the impact it has on fx-hedging.

When the Fed started raising rates and the curve flattened, this had a net negative impact, given the overall mechanics of FX-hedging. We have seen China start to sell treasuries over the last year. However, if we get a cross-country synchronization of cuts we should see foreign investors start to pick back up their allocation of treasuries. This has started to happen for some nations over the last few months till now where we are seeing net buying, and some of this has to do with the steepening of the curve.

However, for further allocation and net buying of treasuries, further steepening of the curve would be required. We are not seeing some slight steepening happening, which would see to the revival of China’s net buying of treasuries. Something to monitor is 1m-6m, as steepening would most likely need to be positive before we see a wave of bids back in from Foreign nations for UST.

The New York Fed released an article this week discussing the possibility of a China hard landing, and this should be noted as well, for it could occur in the next month or so (depending on data) and affect the overall US outlook along with the dollar. I am optimistic about US growth, but this is vital to note. Everything below is summarized from the New York Feds blog.

Using a Bayesian VaR to quantify the impact on US growth and inflation should there be a continued decline in the Chinese property sector.

They find that under a scenario Real GDP would decline by about 200bps and exports would fall by about 10ppt.

PCE would decline by 3ppt below baseline in such a scenario. Further impacts would cause a decline in global commodity prices everywhere.

If this scenario plays out, my expectation of a decline in USD would be null, as it would appreciate massively while global commodity prices fall. This could be the only risk to a higher dollar as mentioned above, and is something to monitor closely for shifts in the overall entry/exit of bullish dollar positioning.

US Dollar

I will conclude this with the US. I do expect the DXY to weaken overall. I have been in the bullish dollar camp for most of last year with expectations that the DXY would not fade into the 90s. However, I expect this trend to start to turn around this year. Lower currency volatility tailwind for the Dollar.

The strong risk that we have seen across asset classes reduces the bid for safe-haven assets like the dollar.

Furthermore, the ability thus far for CNY to maintain peg is contributing to stability in other currencies.

What we are now witnessing given the above is the overall reduction in FX vol. However, over the next month, I would try to not get in the way of the overall dollar strength, especially given the  anticipation from the NY Fed given their most recent DSGE (dynamic stochastic general equilibrium model) forecast for Q1 2024 growth to come in around 1.9% revised up from 1.2%. Any other economic surprises (to the upside) could continue to add to the dollar strength, however, longer term throughout the remainder of the year and I would expect this to begin to ease.

US Rates

Looking at US rates, bear steepening should not be taken off the plate given the rise in 10y term premium. Considering the current rise in term premium, it looks like we could observe more bear steepening. Term premium is currently starting to creep up and we have been witnessing Z5/Z6 move higher last time term premium rose. When looking at the graph in April,  where you witnessed the steepening of Z5/Z6 this was bull steepening that occurred during the banking worries in the US. The other time we observed steepening was all bear steepening which was driven by an overall higher 10y term premium. As the term premium is starting to tick up again. The z5/z6 bear steepening should be something on the lookout into the next month, especially if inflation data continues to come in sticky. I will touch on PCE next and some good developments there.

Prices are falling for an increasing % of both items, as well as for expenditures. All this worry about inflation data coming in hotter than expected seems to be very overblown. We are continuing to see price declines within the inflation index, and thus this seems to be a point where the Fed can start to take its foot off the gas. However, that does not mean that we will observe an easing of term premium as of yet. So far, the overall elevation noted in term premium is still something that could spook the market. Although we are seeing easing in components of the PCE. (shown below) It is still something that should be noted, however, given the worry about upticks and inflation hovering around 3% for the remainder of the year. That expectation in and of itself could cause term premium to inch higher.

Now onto some thoughts on other asset classes from AlphaPicks:

Indices

We’ll be honest, US stock markets seemed to ignore everything during March and decided that this was a risk-on mood that meant buy anything and everything.

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Macro

The first topic of conversation is the FOMC March meeting. Going into 2024, this meeting was teed up to be the first-rate cut that markets would see in this cycle. As of the last trading day of 2023, there was a 73.35% probability of one rate cut in March and 15.11% for two quarter-point cuts.

That narrative has changed dramatically, with markets now expecting just three cuts in 2024, much more in line with the Fed’s dot-plot. Fed speakers continue to remind market participants that they are data-dependent and not calendar-dependent.

PCE data was keeping markets on the sideline. The data release avoided any surprises, so now we can wait patiently to hear the Fed rhetoric at the end of the month.

Lowering interest rates prematurely would be a worse mistake for the European Central Bank than reducing them too late. The euro-zone inflation rate dropped to 2.6% last month, missing the economist's prediction of a slowdown to 2.5%. That supports ECB officials who don’t want to rush into lowering borrowing costs. Cutting too quickly and losing control of inflation poses a real challenge for the bank.

Financial markets began the year expecting the first Bank of England rate cut in May. That’s since been pushed back to August. That’s partly because of the prospect of tax cuts at the March 6th spring budget. All else equal, that would require slightly tighter monetary policy, though in practice the room available for sizeable tax cuts appears pretty limited, barring some major fiscal gymnastics.

The BoE will want to see the April and May inflation figures, the latter of which is released the day before the June policy meeting. So, as far as a March outlook, there is unlikely to be too much of a sentiment change.

Indices

US indices have stubbornly risen higher throughout the year. The AI theme can keep things going (or propped up) in the US. Avoiding the final hurdle of PCE ended last month on a “no news of bad news” theme.

While markets delayed the rate cut story till later in the year, they haven’t let that change the bullish sentiment. Earnings season comes to an end with no major surprises or effects on the greater market.

Euro markets have been helped higher by the success of ‘Granolas’. You can read more about this group here. UK markets have remained fairly unchanged YTD and also through Feb, finishing the month just 0.7% higher.

The rangebound FTSE is still yet to make a new all-time high, unlike its peers in Europe and the US. Things are likely to be the same in the near future.

Europe markets can continue higher, offering some opportunities to go long on an index and single-name point of view.

In 1989, the Japanese Nikkei 225 index reached an all-time high of 38,915.87, which was accompanied by great excitement. However, the following 34 years were marked by numerous crises, natural disasters, deflation, and a decline of almost 80% in the index. Last week, markets were able to rejoice as the Nikkei finally recovered its 1989 level, reaching 39,239. This recovery has been driven by the global semiconductor stock boom, along with other more fundamental factors.

China is another story, but one that could be changing tune. After declining for the last few years, investor interest in a contrarian bet is rising as the markets hold some recent gains. Chinese Premier Li Qiang said ‘effective measures’ were needed to boost confidence.

We think the start of this recovery will continue, but we are staying on the sidelines with this market as we believe there are better opportunities for capital deployment in other markets.

Commodities

Oil is slowly but surely making its way higher. We are yet to tap the $80 mark on US crude, but speculation that OPEC+ will extend supply cuts and the market will gradually tighten could take us there in the month.

We are starting to see some signs of life in global manufacturing, petrochemicals and strong fuel demand in Asia.

Gold is lining up to be a strong performer. PCE data leading the USD lower helped the precious metal start its next move higher, with Friday's price action leading to the highest weekly close on record. Fast incoming is the fatal 2070-2100 level that has kept the commodity withheld for some time now.

This is a main watch for us, as well as related names, such as gold miners.

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Currencies

In FX, March promises to be a busy month. Given the sensitivity to macro drivers, the US Fed, BoE, ECB, BoJ and other key central bank meetings will be closely watched.

The latest round of CPI readings and labour reports are another added layer that will provide traders with a finger on the pulse of each country’s respective health.

In terms of specific pairs we’re watching for March, we start with USDJPY. As we close out February, we had interesting comments out from the BoJ’s board member Hajime Takata. He commented that the central bank's price target is finally coming into sight. This boosts expectations that an exit from the current policy stance will be seen shortly.

USDJPY fell circa 0.5% on the comments, out of the 150-152 range dubbed ‘intervention territory’. March will be a key month, either for a break lower (based on a weaker USD / stronger JPY) or for this to be another dip that gets bought by the market to test 152 again.

The other pair for the month ahead is EURNZD. We saw the Kiwi Dollar weaken sharply on Wednesday following the central bank Governor walking back on comments that another interest hike is needed.

Despite this knee-jerk move, we think traders will look to buy the dip in NZD pairs into March. They are still the most hawkish G10 central bank in our view (excluding the BoJ… but would you call them hawkish?), and so when you pair it off against somewhere like the Eurozone, where the ECB really need to start cutting in the spring, we feel EURNZD is one to watch for a move lower in March.

Crypto

The crypto market has been recovering for some time now. But last week, we think it’s fair to say that the mania is well and truly back. Bitcoin is flying, random dog tokens are gaining 30 or 40 per cent every few days, and Coinbase is crashing. It all feels back to normal.

Bitcoin ETFs had their highest inflow since launch, with the underlying asset up more than 30% since. What next? New high in March?

Bitcoin’s ATH of $69,000 is well within reach as the price surges to $64,000. The closely-watched ‘halving’ event will be a topic of discussion in April’s ‘Month Ahead’.

Bitcoin has outperformed traditional assets like stocks and gold in 2024, providing a locus of volatility for traders seeking opportunities. We expect much of the same as mania builds: volatile price, outperformance, and the feeling of “I wish I’d bought more” from the masses.

A question to leave you with: Tell us the difference between BTC and TQQQ?