Macroeconomic Weekly Report: When Will the Market Turning Point Arrive? Interpretation of 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 U.S. stocks, cryptocurrencies, and commodity markets revolves around adjustments to expectations of Federal Reserve interest rate cuts and a slowdown in U.S. economic growth, leading investors to enter a phase of adjustment in the pricing of risk assets.

The three major U.S. stock indexes showed a significant pullback, with the Dow Jones Industrial Average falling by 3.1%, the Nasdaq index down by 2.6%, and the Russell 2000 index decreasing by 1.8%. The utilities sector rose against the trend by 1.4%, reflecting a shift of funds towards defensive assets. The VIX index remained above 20, indicating that market sentiment is more of a correction to previous excessive optimism.

In the commodity market, gold has突破3000美元/盎司, setting a new historical high, reflecting an increase in safe-haven demand. Copper prices rose by 3.9%, indicating that manufacturing demand still has support. Crude oil prices remain stable around 67 dollars, but net futures positions have decreased by over 9.6%, suggesting a weak expectation for global demand growth. Natural gas prices continue to decline, affected by oversupply and weak industrial demand.

The overall cryptocurrency market is adjusting in sync with the US stock market. Bitcoin's weekly chart shows a downward trend, but the volatility is narrowing, indicating a easing of short-term selling pressure. Altcoins like ETH and SOL are performing weakly, reflecting a decrease in market risk appetite. The market capitalization of stablecoins continues to grow, but net inflows are slowing down, suggesting that market liquidity is becoming more cautious.

The trend of global supply chain adjustment is明显. The Baltic Dry Index ( BDI ) has continued to rise, indicating strong shipping demand in the Asia-Europe region. The U.S. transportation index has dropped by 6.5%, suggesting weak domestic demand. This divergence reflects that the global supply chain is undergoing regional reconstruction, with a slowdown in domestic demand in the U.S., while manufacturing and export activities in the Asia-Europe region remain relatively active.

2. Economic Data Analysis

The NFIB Small Business Confidence Index fell for three consecutive months in February, indicating that concerns among small and medium-sized enterprises in the United States about the uncertainty of trade policies persist.

CPI data is better than market expectations, with seasonally adjusted overall CPI and core CPI both at 0.2%, lower than the market expectation of 0.3%. The overall CPI annual rate has dropped to 2.8%. Commodity inflation has rebounded somewhat, but service inflation continues to decline.

The PPI data continues to show a downward trend, with the core PPI experiencing the largest month-on-month decline since April 2021, down 0.1%, while an increase of 0.3% was expected. Transportation services are the main contributing factor to the decline in PPI.

The University of Michigan's Consumer Confidence Index and one-year inflation expectations are moving in the opposite direction of the actual data. The initial one-year and five-to-ten-year inflation expectations rose to 3.9%, compared to an expected 3.4%. However, there is a significant partisan divide in the data, primarily stemming from the expectations of Democratic individuals.

3. Changes in Liquidity and Interest Rate Markets

In terms of broad liquidity, the Federal Reserve's balance sheet size continues to remain above 6 trillion, primarily affected by outflows from the U.S. Treasury's TGA account. The usage of the Federal Reserve's discount window continues to decline, indicating that the overall macro liquidity is stabilizing.

In terms of the interest rate market, the federal funds futures market hardly expects a rate cut in March. The 6-month term interest rates and the treasury yield curve suggest that there will be about 2-3 rate cuts this year. In the past period, short-term yields have significantly declined, while long-term yields have remained relatively stable, indicating that the market is gradually pricing in the Fed's future rate cuts.

In the credit market, the corporate credit spread is widening. The North American investment-grade credit default swap (CDX IG) has risen over 7% this week. Both the US sovereign CDS and high-yield bond credit default swaps are showing an upward trend, reflecting growing concerns in the market about the sustainability of US Treasuries and corporate credit risk.

2. Macroeconomic Outlook for Next Week

The current market is in a threefold contradiction period of "inflation cooling but expectations rising", "credit risk rising but the economy has not yet entered recession", and "marginal liquidity easing but policy is constrained". Market sentiment has not yet escaped the panic zone, and the uncertainty of tariff policies exerts significant pressure on market stability expectations.

1. Global Stock Market Strategy

• Reduce high beta asset allocation and increase defensive sectors such as utilities, healthcare, and consumer staples.
• Focus on high-dividend, stable cash flow blue-chip stocks, especially those leading companies with global competitiveness and a valuation decline.
• Appropriately increase the allocation in the Asia-Europe market, especially in assets from China, India, Southeast Asia, and Europe.

2. Cryptocurrency Market Strategy

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

3. Credit Market Strategy

• Avoid high-leverage corporate bonds and increase allocation to high-rated bonds.
• Shift to investment-grade bonds or US medium- to long-term government bonds to reduce credit risk exposure.
• Be aware of the impact of the U.S. debt deficit issue and pay attention to changes in sovereign credit default swaps.

Overall, the market is still searching for a new balance point. Investors need to remain cautious and seize potential opportunities for high-quality assets that have been mispriced.

Next week, pay attention to the FOMC meeting, focusing on the number of rate cuts indicated by the dot plot and Powell's speech tendencies. In addition, it is also worth observing whether the Federal Reserve announces a pause in QT, as this could significantly boost the current market.