Contrarian Update on 20 May 2025

 

Global Markets

 

 

 

 

 

US Yield Curve & Fed Rate Monitor

  

 

Crypto Market Tracker 

  

 

 

Key Macro & Technicals

  

 

Market Commentary 

·         MSCI World and S&P 500 continues to extend the up-move having rallied 4.4% and 5.4% around the last 2 weeks. Mag 7 clearly outperforming  as NASDAQ moved even higher +7.2% in the same period. ROW equities also positive by not much between 0.4$ - 1.6% except for Russia Index which pulled back 1.9%. Deeper dive reveals that S&P 500 has gapped through key line of polarity 5780 and broken above 200-day SMA recently despite the weak trading volume but rising market breadth. In the 09/24 publication, we had forecasted S&P 500 hitting 6100 levels which came to passed and after that next level 7200 – 7363. Updated the Fibo clusters and there is an interim level 6840 – 6915 and reconfirmed 7212 – 7299 levels.

 

·         Having said that, still feel these higher levels are too high given that 6100 level already +76% PnL from last COVID low 3500 in FY2020. Based on S&P 500 trading history since GFC 2008, the index has rallied 34 – 120% each trading cycle so 76% PnL from 10/22 low is getting towards the high end of the range. Also, Fibo time projection indicate that 23 – 29 May is an important week so we need to keep close watch for any reversal sign. In terms of trading intuition, would feel that next Fibo level 6450 would be a more realistic ATH so the remaining 20% equity position being kept for that purpose. Also, noticed harami cross forming on 19/05 and the index has pulled back from 5970 to 5844 since then.

 

Also, noticed that CSI 300 has finally broken out of its 4H falling wedge lately so there seems to be more upside for Chinese equities from here. Interestingly, Chinese iron ore imports which should be hard hit with tariffs remain unaffected. ECB still on the rate cutting cycle since 2024 as well. 

·         FX markets been lackluster with USD Index only down -0.8%. Both G7 and Asian currencies have hardly moved with even the volatile AUD/JPY only dropping 1.6%. DEER model showing that JPY and CNY are the most undervalued versus the USD. Same goes for fixed income, REIT and commodities with 10Y UST +0.9%, IYR + 1.3% and GPSCI +0.3%. Even crypto has hardly moved but noticed BTC/$ settling into $109k level quite well this week. Only exception is BNB/$ retracing 12%.

 

·         On 14/05, HSBC expects $/MYR to reach 4.9 due to heightened uncertainty in the global economic environment triggering GLC to repatriate more funds back to Malaysia to support the Ringgit. “Total annual outbound portfolio investment jumped from $7B in 2022 to $10B in 2023 and then further moved to $24B in 2024. This makes Malaysia’s portfolio outflows the fastest-growing in the region compared to historical norms.

 

·         On17/05, the Fed was noted to have quietly vacuuming up $43.6B in US Treasury with $8.8B in 30Y bonds on 08/05 alone plus another $34.8B the week earlier. This monetary easing has helped prop up BTC/$ prices, gold and Latam equities among other risk assets.

 

 

·         On 13/05, China cast itself as defender of the multi-lateral world order wooing Latin American and Caribbean leaders at the China-CELAC Forum citing that “bullying and hegemony will only lead to self-isolation”. Two-thirds of the countries have signed up to the BRI infrastructure drive and China has surpassed the US as the biggest trading partner of Brazil and Chile. Xi’s top diplomat also urged Latin American nations to “join hands” with China to defend their rights against a country that is “using tariffs as a weapon to bully other countries”

 

·         On 14/05, the UK govt hit back as suggestions that the tariff agreement it reached with US last week could be damaging to China. This was triggered by conditions requiring the UK to “promptly meet” US demands on the “security of supply chains” of steel and aluminum products exported to the USA. China is UK’s 5^th biggest trading partner and Beijing fears this arrangement could evolve into being excluded from supplying US-bound goods to the UK stating it was a basic principle that bilateral trade deals should not target other countries

 

 

·         On 15/05, US envoys in Africa will be rated on commercial deals struck, not aid spent touring it as a new strategy for US support shifting the strategy to “trade, not aid”. US ambassadors in Africa have already shepherded 33 agreements worth $6B in Trump first 100 days. However despite Trump’s aggressive spending cuts, Washington has pledged a $550M loan for the Lobita rail corridor, a shortcut for copper and cobalt from Zambia and Congo to Angola’s Atlantic port bypassing China-controlled routes. The US is keen to counter both Chinese and Russian influence in the continent particularly over minerals and trade. In one of China’s latest deals., a $652M loan agreement was agreed with Nigeria through Exim bank for a highway feeding the new Lekki port and Dangote refinery.

 

·         On 19/05, Treasury Secretary Scott Bessent said ratings were a “lagging indicator” and he added that he believes “that’s what everyone thinks” of the grades from credit agencies like Moody. This move has been long coming as Fitch made a similar downgrade in 20223 and S&P as far back as 2011. The agencies highlighted the growing US deficit now unusually high for a full-employment, peacetime economy as a key justification. Moody has maintained a perfect rating on US debt since 1917., making the downgrade historically significant. China has also weighted in urging the US to take responsible policy measures to maintain the stability of the international financial and economic system and safeguard the interest of investors

 

 

·         On 19/05, Japan PM Shigeru Ishiba has rejected rolling out tax cuts funded by additional debt as he argued that Japan financial situation worse than Greece. The backdrop for Ishiba has been the prospect of declining support ahead of a key upper house election in July with calls to slash taxes, including a levy on consumption and increased spending. However, Japan status a foreign creditor and domestic holding of sovereign debt has helped it evade the type of deep fiscal ructions experienced by Greece in 2009.

 

·         On 09/05, Trump did the trade deal with the UK with markets reacting well by rallying upon this development. However, on closer inspection its still early days and a nothingburger as UK constitutes only 3%  of all US trade whilst China is US’ 3^rd largest trading partner. In the UK deal, Bentleys which were to be taxed 27.5% are now only hit with 10% tariff, British companies can now send plane part without tariffs and same goes for steel, aluminum and beef. These are scant details and RSM Chief Economist Joe Brusueles said “a trade agreement where details are still being negotiated is not an agreement”.

 

·         On 08/05, there were concerns that iron ore which is the major commodity most exposed to China would be taking a hit on Trade War 2.0 but surprisingly the prices have been resilient. China buys more than 70% of all seaborne volume which it uses to produce just over 50% of global steel. This dichotomy is most likely due to the fact that China’s steel demand is in sector less exposed to trade namely property and infrastructure which accounts for 60% of total demand. Whilst property sector has struggled in recent years, there are early signs that Beijing’s stimulus efforts have stabilized the market. The trade-exposed part of steel demand includes machinery, automotives and household appliances which together constitute almost a third of consumption.

 

·         On 07/05, Eurizon SLJ Capital’s Jen and Joana Frire wrote that the USD might face a $2.5T selling avalanche as Asian countries unwind their stockpiles to protect themselves from a deepening US-lead trade war. Jen also previously said that $1T could flow back to China as Chinese companies sell their USD-denominated assets when the Fed cuts interest rates. Accelerating this outflow might be “naked long-dollar positions” prevalent amongst Asian countries that run large surpluses such as Taiwan, Malaysia and Vietnam.

 

·         On 12/05, US and China have agreed to 90-day pause and will each lower reciprocal levies according to US Treasury Secretary Scott Bessent. BTC/$ has broken above $100k mark with other risk assets and XAU/$ fell 1% on this recent development. Trump has also signed an executive order to slaash US prescription drug prices by 30% to 80% to align them with the lowest price paid globally.

 

·         On 11/05, Nifty 50 jumped +3% as a US-brokered ceasefire in the Kashmir region appeared to be holding after India stuck several targets in Pakistan. However, Trump’s offer to help broker a deal over the hotly contested Kashmir region appears to have ruffled some feathers in New Delhi which historically remained skeptical of 3^rd party negotiations in the region.

 

·         On 09/05, Trump surprisingly is pushing for a 39.6% tax rate on individuals earnings +$2.5M and couples earning +$5M to help fund his economic package. The plan could raise $67.3B over 10 yrs with additional $6.7B from eliminating the carried interest loophole. The proposal aims to offset the costs of extending Trump’s 2017 tax cuts but final agreement still pending.

 

·         On 08/05, GS maintained its 12M US recession probability at 45% noting its not unusual for hard data to lag event-driven recessions. Lower oil prices are positive for Asian economies which if sustained will improve their current account balance and act as a disinflationary force, providing more room for rate cuts. Also, GS noted that xxx that retail investors bought the last dip, in line with previous periods of major volatility.

 

·         On 07/05, Paul Tudor Jones was on CNBC saying stocks are bound to hit new lows even if Trump tones down his aggressive China tariffs.

 

·         On 07/05, European equities declined on concerns that Germany’s Friedrich Merz will come into power with diminished authority to push forward his agenda. Whilst Merz secured parliamentary backing as Germany’s new chancellor after a 2^nd vote, the setbacks have reduced optimism for investors who were counting on ambitious plans for defense and infrastructure spending. On the tariffs front the EU plans to hit EUR 100B in US goods with additional tariffs in the event ongoing trade talks fail to yield satisfactory results for the bloc.

 

·         On 07/05, LGT Bank noted that current SPX record high in ROE 21.1% ranks in the 99^th percentile since 1975. Also, USD is overvalued by 16% with JPY and CNY being the most undervalued.

 

·         The US trade deficit has worsened during Trump tenure widening to $140.5B in 03/25 driven by significant irse in imports of consumer good, autos and capital goods. Good imports surged 30% y/y with industrial supplies +335% and consumer good +58%. High-frequency data indicates that this import surge particular from the EU and trans-shipment hubs like Vietnam and Thailand peak in mid-April and expected to decline in May. This frontrunning activity, likely in anticipation of potential trade disruptions suggest upcoming trade data will show notable drop in import volumes.

Contrarian Updates on 06 May 2025

 

Global Markets

 

 

 

 

 

US Yield Curve & Fed Rate Monitor

 

Crypto Market Tracker 

 

 

 

Key Macro & Technicals

  

 

 

Market Commentary 

·      FX markets continuing with USD weakness with Dollar Index -2.3% since 23/04. Key mover was TWD which gained 11.2% apparently on FDI inflows and improvement in equity sentiments. There is even a gap in the chart which has since been filled. Other gainers have been AUD/$ and NZD/$ which both appreciated 4.7% whilst KRW and MYR havew rallied 5.8% and 5.6% respectively

 

·       On 02/05, Eurozone manufacturing PMI sees fastest growth in 3Y from low 43 in 06/23 to reach 49 on 04/25 which is significant. On 01/05, BoJ cut its economic growth forecast by ½ for 2025 to 0.5%, which is another piece of evidence that Trump’s escalating trade war with friends and foes is hurting the global economy. It also cut its growth forecast for 2026 to 0.7% from 1% prior projection. China also reported that its factory activity contracted in April at the fatest pace in 16M whilst IMF warned that global trade war will stymie growht particularly in the US.

 

·       On 05/05, Ed Yardeni lowered the probability of a US recession to 35%, reversing a March increase to 45% as he belives China and US both may be ready to suspend their tariffs while they negotiate a trade deal. Yardeni also cited political considerations are Trump may be motivated to resolve trade tensions ahead of midterm elections to help Repulicans preserve their congressional majorities.

 

·       On 04/05, US unemployment rate increased to 4.2% from 3.4% in 2023 and layoffs jumped +60% in April to +105k according to Chalelnger, Gray and Christmas, partially due to DOGE job cuts. US GDP also contracted by 0.3% last quarter driven by companies pulling forward imports to avoid Trump’s tariffs and an increase in gold trading activity. Businesses are increasingly pressing

 

·       On 03/05, economist see a darkening outlook for the US economy but are sticking by projections for 2 interest rate cuts from the Fed. ¾ of them surveyed by Bloomberg predict a recession or a zero-growth scenario that narrowly avoids a recession in the next 12M up from 26% in March. Median estimates still saw the Fed cutting only by 25 bps in Sep and Dec 2025. Fed officials have so far left interest rates unchanged YTD.

 

 

·       For equities, the relief rally due to Trump’s back pedalling has caused SPX and MSCI World to surge 3.5% and 5.4% in a matter of weeks. Key benefiary of this sentiment boost has been MSCI Europe and MSCI Asia ex-Japan which gained 8.5% and 12% respectively. China A-Shares been resilient but only gained 0.9% - 1.5%. Interestingly, HSI and HSCEI surged by 9% and 7.6% demonstrating that foreign capital have come into those market to play the China story this time round. In particular, the HSI is trading well within the existing congestion channel. Indian equities also done well with SENSEX and Nifty both +9.2% and +9.4% respectively.  Sector-wise moemntum stocks are in favor with MTUM +8.1% which makes total sense.

 

·       Volatility indices unsuprisingly have all dropped 15.4 – 35.4% due to the same relief rally except for OVX which gained 16.1%. Upon closer inspection, oil prices been on the downtrend since Ukraine War 2022 which explains the vol spike. Fixed income markets havent been seeing much action given rate pause by the Fed earlier. REITs are all in positive territory gaining 1 – 8.6% with AXSR and IYR being the clear outperformers. AXSR actually continues the long-term flag breakout pattern which happened as far back as 2020.

 

·       US officials are now exploring ways of challenging the tax-exempt status of non-profit organisations headed by new IRS lawyer Andrew De Mello. Trump also said he would revoke Harvard University tax-exempt status as part of his wider attack on elite universities he deems left-wing and anti-American.

 

·       On 02/05, Trump’s de minimis exemption expired and the 145% tariff went into immediate effect onn all products ordered directly from China-based retailers. Almost 1B low-cost packages worth more than $66B were imported to the US in 2023 and 67.4% were from China. Shein, Temu and Amazon and plenty of smallewr firms reply on imports and build their business models about the de minimis exemption. Last month, Shen and Temu started hiking prices which wont help Trump’s approval rating which is down to less than 42% in part due to concerns about the direct of the economy and impact of tariffs. Trump had labelled the de minimis exemption a “big scam” adding “were putting an end to it”.

 

·       On 03/05, US Secretary of Commerce Howard Lutnick says factory gigs are the “great jobs of the future” that Gen Z could work in for the rest of their life and so could their grandkids. Whilst Lutnick says this is all part of Trump’s larger planb to make America more independent from foreign imports and services, the adminstration targeted deportation of immigrants has left many domestic manufacturers scrambling for labor. To keep up with supply, people have to fill the plant jobs and Lutnicks technicians tending to the factory robots are the next hot gig.

 

·       On 23/04, Trumps softened his tone again on China saying he will be “very nice” in negotiations with Beijing in hopes of securing a trade deal. Trump also insisted that XJP called him despite Beijing’s denial and said “I don’t think that a sign of weakness on XJP behalf”. He also back-tracked his threats to fire Fed Chair Powell but added he would like him to be “a little more active” on cutting interest rates. This comes after calling Powell a major loser whose “termination cannot come soon enough”.

 

 

·       On 03/05, Warren Buffet sounded the alam on the USD warning that America’s fiscal recklessness could erode the value of it own currency. He noted that government behaviour increasingly seemed designed to weaken the dollar, not protect it. And whlist he acknowledged the dollar remained dominant globally, he made it clear he is looking elsewhere – point to Berkshire’s increased exposure to JPY as a strategic move. This rare warning comes at a time that Berkshire been selling stocks for 10 straight quarters, dumping $134B in 2024 including trimming its massive Apple and BofA shares. The company’s cash pile now stands at $347B which is a record high, signalling Buffett is bracing for macroeconomic turbulence.

 

·       On 30/04, Mark Mobius said that he is keeping the bulk of his funds’ holdings in cash as he waits out the trade-related uncertainty which is likely to persist for up to 6M. “At this stage, cash is king. So 95% of my money in the funds are in cash” said by Mobius in an interview on Bloomberg TV. He also added that he will not hold so much cash for more than 3 – 4M and start to deploy some of the funds depending on where the opportunities are.

 

·       On 29/04, Trump is tipped to partially ease the effect of his tariffs on autos, bocking duties on cars made overseas from stacking on top of broader levies he has imposed. WSJ also added that some tariffs on froeign parts used to manufacture cars in the US will be relaxed as well. This moves will mean autos will not need to pay higher tariffs for items like steel and alumnium nothing that carmakers will also be able to ask for reimbursement for any tariffs they have already paid. Automakers were able to secure these actions by committing to help advance Trump’s goal of promoting domestic manufacturing

 

·       On 28/04, markets were rattled when US Treasury Secretary Scott Bessent said it “was up to China to de-escalate” tariffs and there are growing worries that unless there is a breakthrough, permanent damage will be wrought on supply chains. China has moved to make some exemptions but has held off stimulus, betting Washington blinks first. Peter Navarro is the hardline pro-tariff advocate on one side whilst Bessent and Lutnick are pro-free trade. Apparently, Beesent and Lutnick pleaded with Trump to paus the reciprocal tariffs as the bond market was starting to falter.

 

·       On 27/04, Scott Bessent also ednied US-China tariffs talks despite Trump claims. Trump has in recent weeks showed some openness to a deescalation in trade tensions with China, amid growing concerns over the eocnomic impact of a trade war. Trump also signalled that tariffs against China could come down althrough this would require Beijing to come to the negotiating table.

 

·       The thesis that the US govt could live off tariff revenue is a big stretch as in 2024, about 50% of all US federal revenue came from individual income taxes and whilst tariff revenue has been pouring into the Treasury at a record amount in 04/25, the revenue may not even be enough to p;ay for the extensions of the Tax Cuts and Jobs Act, let along anything else. SCB strategist Steven Englander said that whilst US collected custom duties $15B in the first 16 business days of April which is +130% from 2024, the increase in tariff revenue is likely tot total a little less than 0.4% of GDP over a fully year. Also, whilst tariffs are lifting government revenue they could also trigger inflation.

 

·       A theory emerging is that the cross-messaging and chaotic nature of the Trump’s tariff rollout could be part of a carefully executed game theory. Bessent is calling it “strategic uncertainty” and that Trump has shown the stick via high tariffs and the carrot is the opponent taking off their tariffs and non-tariff trader barriers.

 

·       On 28/04, there was a rally earlier driven de-escalation of the trade war with China, Trump/Powell feud and rising anticipation for the announcemnt of numerous treade deals and solid Q1 earnings according to the Stevens Report. The strategist also pointed out that tension between Trump and Fed Chair Jerome Powell are far from resolved. Trump understands that firing Powell would hammer markets so he probably wont try it but that doesn’t mean negative headlines are done. Looking ahead, its is very unlikely that the 2025 S&P 500 EPS expectations stay at $270 and reduction to $260 seem appropriate.

 

·       On 28/04, JPM strategist Mislav Matejka maintain a cautious stance amid elevated macro risks, softening data and continued trade policy uncertainty. Stosk may become more attractive to buy in the 2H25 as despite soft economic indicators such as consumer sentiment, future output expectations and labor market perceptions deteriorating, hard data like industrial production and job gains remain resilient. Regionally, Matejka believes international markets currently offer a better risk-reward profile than the US without the potential to outperform in both recessionary and recovery scenarios.

 

 

·       Commodities havent really moved much with SPGCSI -0.3% last few weeks which is unsurprising given the oil futures representing the commodity futures with the highest trading volume continue to trade weak. Only XAU/$ and XAG/% have gained 7% and 5.2% respectively. Crypto currencies also lacklustre with BTC/$ still stuck below $100 handle. Even DOGE/$ only gained 8.8% which is tiny by crypto standards.

 

·       On 04/05, oil prices declined but pared back earlier losses after OPEC+ group singal it will further increase production in the coming months by 411k barrels per day. The increase is nearly 3x the volume initially signaled with key contributors KSA and Russia. Barclays analyst have lowered their Brent forecast to $66/bbl for 2025 and $60/bbl for 2026 on the back of this development.

 

·       On 28/04, JPM has reaffirmed it bullish stance on EMEA gold mining sector, forecasting as much as 60 – 90% upside if gold prices reach $4000 per ounce by mid-2026. The bank also emphasized the macro backdrop namely stagflation risk, recession fears and global policy uncertainty continue to support strong institutional and retail gold demand. They also added  that “increased probabilities and potential for quicker Fed cuts in response further reinforce this bullish narrative”