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.