03.03.25 - Dangerous cocktail
At lot of news and latest economic data released reaching us, all have a certain potential of a bigger market impact:
- on Friday evening, the clash between US president Donald Trump and Ukrainian president Volodymyr Zelenskyy.
- on Sunday, in a Truth Social post, US president Donald Trump announced the creation of cryptocurrency reserves and the selected crypto candidates.
- today, higher inflation data out of Europe with leading indicators showing continued weakness.
- announced tariffs should be in place by tomorrow.
Exception is China, where leading indicators start to show a potential acceleration of the economy, with the PMI (Purchasing Manager Index) marking over the 50 threshold, indication growth.
Markets: China’s stock indices trading sideways; in Europe, euphoria seems to continue, stock prices see a big jump today; US Futures continue to rise so far after the late rally on Friday. Interest rates continue to decline with the US 10-year Treasury below 4.2%. Cryptos give up part of the big gains. Euro rises while US dollar weakens; gold rises after the latest profit taking.
My view: Almost no day with news that could negatively impact financial markets. Yet, investors continue to largely ignore them. Geopolitical tensions and uncertainty are steadily rising to levels unseen for years, while economic data increasingly signals some weakness. Consumer data from both Europe and the US, a crucial pillar of the economy, has recently softened, while inflation remains persistently high. The potential introduction of tariffs could even reignite inflationary pressures, raising concerns about a slower-than-expected rate cut cycle.
Regarding cryptos, I would not be surprised if there was some insider trading took place ahead of the weekend announcement. After the recent sell-off and Sunday’s sharp rebound, the question is now on whether the market can establish a sustainable stabilization.
Despite these growing number of risks, which even are becoming more probable, investors seem unfazed.
Given this backdrop, the overall investment view remains unchanged. I refrain from taking an all-in stance, remain a bit cautious. This also means I am keeping most of my short positions in place, lowering my net long equity exposure.
I selectively add positions and some bets, focusing on beaten-down stocks, with strong potential for recovery while shorting overhyped stocks that have surged due to speculation.
Improving economic data from China convince me to keep a focus and therefore a major allocation in Chinese equities as I see more upside from here even after the latest increase. However, should the trade war escalate, China’s markets could hardly withdraw from a correction.
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