Macro Weekly Report: When Will the Market Turn? Interpreting Signals from the Credit Market

1. Macroeconomic Review of This Week

1. Market Overview

The market remains in a stage of multiple expectation games this week. The performance of the US stock market, cryptocurrency, and commodity markets primarily revolves around adjustments to the Federal Reserve's interest rate cut expectations and the slowdown in US economic growth, leading investors to enter a phase of adjustment in the pricing of risk assets.

The three major U.S. stock indices generally pulled back, while the utilities sector rose against the trend, reflecting a shift of funds towards defensive assets. The VIX index remained above 20, indicating that market sentiment is still in a cautious adjustment phase.

In the commodity market, gold has broken through $3000 per ounce, reaching a historic high, reflecting a continued increase in safe-haven demand. Copper prices rose by 3.9%, indicating ongoing support from manufacturing demand. The energy market showed mixed performance, with crude oil prices stabilizing but futures net positions decreasing, suggesting a weak market expectation for global demand growth.

The cryptocurrency market overall is adjusting in sync with the US stock market. The short-term selling pressure on Bitcoin has eased somewhat, but altcoins are performing weakly, indicating a reduced risk appetite in the market. The market capitalization of stablecoins continues to grow, but net inflows are slowing down, suggesting that market liquidity is becoming more cautious.

2. Economic Data Analysis

The CPI and PPI data released this week were below expectations, reinforcing the market's anticipation of a rate cut by the Federal Reserve within the year. However, the Michigan University Consumer Confidence Index and inflation expectation data provided opposing signals, with one-year inflation expectations continuing to rise. Notably, there is a clear partisan divide in inflation expectation data, which increases market uncertainty.

3. Changes in Liquidity and Interest Rate Markets

From a broad perspective of liquidity, there has been a marginal upward trend in the past two weeks. The outflow from the U.S. Treasury's TGA account and the decrease in the usage of the Federal Reserve's discount window indicate that the overall macro liquidity is tending to stabilize.

In the interest rate market, the federal funds futures market no longer anticipates a rate cut in March, but the 6-month interest rates and the yield curve for government bonds still suggest that there may be 2-3 rate cuts this year.

It is worth noting that there have been changes in the credit market recently. The corporate credit spread has widened, with North American investment-grade credit default swaps (CDX IG) rising more than 7% this week. At the same time, U.S. sovereign CDS and high-yield bond credit default swaps have both increased, reflecting growing concerns in the market about the sustainability of U.S. Treasuries and corporate credit risk.

2. Macroeconomic Outlook for Next Week

The current market is in a period of multiple contradictions, including a cooling of inflation but an increase in expectations, rising credit risk but the economy has not yet entered a recession, and marginally loose liquidity but policy constraints, among others. Market sentiment has not yet escaped the panic range, and the uncertainty of Trump's tariff policy continues to put pressure on market expectations.

1. Global Stock Market Strategy

• It is recommended to reduce the allocation of high beta assets and increase defensive sectors such as utilities, healthcare, and consumer staples.
• Pay attention to the opportunities of being wrongly killed, especially blue-chip stocks with high dividends and stable cash flow.
• Properly increase allocation to the Asia-Europe market to hedge against uncertainty in the US market.

2. Cryptocurrency Market Strategy

• Bitcoin still holds long-term investment value and can be held or added to during dips.
• It is recommended to reduce the allocation of altcoins and maintain a wait-and-see attitude.
• Closely monitor the flow of stablecoin funds to determine the direction of the market in the next phase.

3. Credit Market Strategy

• Avoid high-leverage corporate bonds and increase allocation to high-rated bonds.
• Be cautious of the impact of the U.S. debt deficit issue on market sentiment.

Next week's FOMC meeting will be the focus of the market, especially regarding the interest rate cut expectations indicated by the dot plot and Powell's speech tendencies. In addition, whether the Federal Reserve announces a pause in QT is also worth paying attention to, as it may have a significant uplifting effect on the current market.