HIGHLIGHTS
Dollar dropped this week after the trade policy actions are likely to be on hold, which could have further negotiations and keep the market calm. The likelihood of a peace deal between Ukraine and Russia is rising, and will be discussed this weekend at Munich Security Conference.
US Economy: Retail sales in the US dropped last month because of the pullback in consumer spending. Consumer price index (CPI) is higher than expected while producer price index (PPI) is lower than expected. Market is pricing a full point of rate cut in September this year and a second cut by end of 2026.
China: Markets are expecting a potential recovery in China, supported by the gains in AI and further government stimulus. RMB loan and credit data are better than expected. January CPI exceeded expectations, mainly driven by the jump in Lunar New Year spending. Chinese property crisis is becoming worse, increasing the likelihood of government intervention to prevent collapse of major developer China Vanke.
Tariff Plan: The reciprocal tariff policy has been put on hold, and is expected to be until at least April and no later than August. The proposed Fair and Reciprocal Plan would match the trade policies of other countries, including tariffs, taxes, and non-tariff barriers such as regulatory requirements, exchange rates and subsidies. Overall, it creates room for negotiations.
MARKETS
20,026.77 | +2.58% | |
S&P 500 | 6,114.63 | +1.47% |
Dow | 44,546.08 | +0.55% |
10-Year | 4.47% | -2bps |
Brent | 74.57 | -0.17% |
DXY | 106.79 | -1.21% |
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Equity
Goldman Sachs: Retail stocks have been popular in the US stock market as market participants are expecting high single stock volatility. Chinese stocks also performed well this week, especially AI stocks. KWEB, the Chinese Internet ETF went up 6%, with Alibaba jumped 15% with the news that it would be developing AI for iPhones sold in China.
UBS: We expect market resilience and economic growth to remain intact despite reciprocal tariffs. It should represent a tailwind for equities, with the AI trend also continuing to support earnings and equity markets.
Fixed Income
Morgan Stanley: The valuation gap between mortgages and BB bonds is wide. Mortgage is sticky at around 7%, given the unbalanced supply-demand dynamics, changing household formation rate and rapidly increasing unaffordability. Meanwhile, BB corporate bonds are at 6%, driven by the solid corporate cash flow, high demand and limited recession risk.
J.P. Morgan: It is unlikely that the spending cuts will generate enough savings to offset tax cut plans. Discretionary spending is constrained by the rising mandatory expenditures and interest payments. Thus, fiscal deficits are likely to continue growing, which prevents significant drops in long-term interest rates. Investors are recommended to look at bond market for income and diversification instead of capital appreciation.
Economy
Goldman Sachs: Fed officials mentioned that more work is needed to be done to reduce inflation, as core CPI in January reported the largest increase in one year. The unexpected jump in inflation is contributed by car insurance, prescription drugs and airfare.
Barclays: We expect the Fed to hold the rate in March’s meeting, given the abrupt firming of inflation and softer retail sales. We downplay both developments. Reciprocal tariffs are likely to increase uncertainty, weighing on the growth in the eurozone. The eurozone-US trade surplus is unlikely to be reduced.
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DISCLOSURE
This newsletter is meant for informational purposes only and is not investment advice. Always consult a licensed investment professional before making important investment decisions. Advertising and sponsorship do not influence editorial content or decisions. Market Hedwig is not responsible for the promises made or the quality or reliability of the products or services offered in any advertisement.
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