Breakfast Bites - Some relief
Mixed morning for markets; US Equities are moving higher; Some relief in Commodities
Rise and shine everyone.
Markets are ripping higher this morning. The Nikkei was up 6%, and US Equity Futures are up about 2.5%, with the Russell 2000 leading at about +3%.
Yesterday’s price action was wild. As news came through that there may be a 90-day pause for tariffs. But that was later announced as false. In spite of that, markets continued to remain buoyant, and the NASDAQ actually closed in the green. The funny thing is, just before this news broke, the SPX actually entered a technical bear market.
In fact, President Trump is now talking about an additional 50% tariff on China and further conditions for the EU, including purchasing $350B of Energy.
Nevertheless, the fake news changed sentiment, giving the market the idea that tariffs are actually negotiable. This optimism is did spread to some global equities to global equities as well. Given that markets had become oversold, and there was plenty of shorting, we now seeing a relief rally and short covering.
While sentiment may have changed, nothing has changed in the markets or with tariffs. There have been no negotiations that have gone through, and the impact of tariffs still remains a concern. And the Vix is still at 40. I would think this is more of a tradeable rally, instead of an actual recovery.
Quite a few of the other Asian markets suggest this to be the case. Most Asian regional indices saw significantly sharper declines: Vietnam dropped 6%, Taiwan’s Taiex fell 5% with Foxconn hitting its 10% limit down and TSMC down 6%. Thailand also slid 6%, while Indonesia’s market hit circuit breakers after plunging 9% shortly after reopening following a week-long closure. Both the Rupiah and the Vietnamese Dong continued to hit record lows.
Adding to market pressures is the looming threat of a new round of U.S. tariffs on China, which would effectively raise the total rate to 104%. This escalation is likely to prompt earlier-than-expected stimulus measures from Beijing. There were already reports yesterday suggesting the PBOC may move to cut rates in a bid to support domestic consumption and cushion the economy from external shocks.
Meanwhile, a wave of stock buyback announcements emerged from China, likely at the urging of Beijing in an effort to stabilize the markets, alongside additional planned purchases by state-backed funds. The PBOC issued a statement on one such entity, Central Huijin, affirming its full support for the fund’s investments in the domestic economy. Despite these efforts, the Shanghai Composite and Hang Seng posted only modest recoveries following the previous day’s steep losses. The PBOC also set the Yuan reference rate below 7.20—its weakest since September 11, 2023—as the CNY continued to decline to its lowest level since that same period.
Commodities are also seeing a bit of a rally this morning. WTI is now at $61/bbl, some recovery from yesterday, but still down almost 15% in last month.
The one thing to remember is that uncertainty remains, and this is a market that remain highly suggestive to news announcement. Trades should be done with caution and we would recommend small position sizes with tight stop losses.
Chart of the Day - Some thoughts from GS on the bear market
“The questions investors now face are how deep will the bear market be and how long will it last? Not all bear markets are the same. The type of bear market has some bearing on the triggers, timing and speed of the recovery.
We identify three categories of bear markets (each is a function of different triggers and has distinct characteristics):
Structural bear markets – triggered by structural imbalances and financial bubbles. Very often there is a ‘price’ shock such as deflation and a banking crisis that follows.
Cyclical bear markets – typically triggered by rising interest rates, impending recessions and falls in profits. They are a function of the economic cycle.
Event-driven bear markets – triggered by a one-off ‘shock’ that either does not lead to a domestic recession or temporarily knocks a cycle off course. Common triggers are wars, an oil price shock, an EM crisis or technical market dislocations. The principal driver of an event-driven bear market is higher risk premia rather than a rise in interest rates at the outset.
We argue that we are currently in an event-driven bear market (‘liberation day’ and the sharp rise in tariffs it triggered). However, it could easily morph into a cyclical bear market given the growing recession risk. Our economists have lowered their 2025 Q4/Q4 GDP growth forecast to 0.5% and raised their recession probability to 45%.
The average falls of around 30% are similar for both event-driven and cyclical bear markets, but they differ in terms of duration, with event-driven downturns being shorter and having a faster recovery profile. On that basis, we would expect further downside.”
Calendars
(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)
