Macroeconomic Weekly Report: Market Adjustment Continues, Follow Credit Risk Signals

1. Macro Review of This Week

1. The market is generally pulling back, and defensive sentiment is rising.

This week, the major indices of the US stock market fell across the board, with the Dow Jones Industrial Average down 3.1%, the Nasdaq down 2.6%, and the Russell 2000 down 1.8%. The utilities sector rose 1.4% against the trend, becoming the only industry to gain, reflecting a shift of funds towards defensive assets. The VIX volatility index remained above 20, indicating cautious market sentiment but not extreme panic.

2. The differentiation in the commodity market is evident.

Gold broke through $3000/ounce to reach a historic high, indicating an increase in safe-haven demand. Copper prices rose by 3.9%, suggesting that manufacturing demand still has support. Crude oil prices stabilized around $67, but futures net positions decreased by more than 9.6%, reflecting a weak market expectation for global demand growth. Natural gas prices continued to decline, mainly influenced by oversupply and weak industrial demand.

3. The cryptocurrency market adjusts synchronously.

Although Bitcoin is still showing a downward trend, the amplitude has narrowed, and short-term selling pressure has eased. Altcoins like Ethereum and Solana are performing weakly, reflecting a decline in market risk appetite. The market capitalization of stablecoins continues to grow, but net inflows have slowed, indicating that market liquidity is becoming more cautious.

4. Global supply chain acceleration and adjustments

The Baltic Dry Index ( BDI ) continues to rise, reflecting strong shipping demand in the Asia-Europe region and the potential acceleration of manufacturing capacity shifting overseas. The US transportation index fell by 6.5%, indicating weak domestic demand. This divergence suggests that the global supply chain is undergoing regional restructuring, putting pressure on the US domestic economy.

5. Inflation data cools but expectations diverge

CPI and PPI data fell short of expectations, strengthening market expectations for interest rate cuts. However, the University of Michigan's consumer inflation expectations survey showed a significant increase and there is a clear partisan divide. The divergence between actual inflation data and expectations has increased market uncertainty.

6. Liquidity is marginally eased but credit risk is increasing.

The outflow from the U.S. Treasury's TGA account and the decline in the usage of the Federal Reserve's discount window have led to overall liquidity stabilizing. However, corporate credit spreads are widening, with North American investment-grade credit default swaps ( CDX IG ) rising over 7%. U.S. sovereign CDS and high-yield bond credit default swaps have also increased, reflecting growing concerns in the market about the sustainability of corporate and government debt.

2. Macro Outlook for Next Week

1. Key Variables

Next week, the market will focus on the FOMC meeting, retail sales data, and the direction of major global central banks. Special attention will be paid to the Fed's dot plot guidance on interest rate cuts (expected 2-3 cuts) and whether to pause quantitative tightening (QT).

2. Strategy Suggestions

• Global Stock Markets: Reduce high β asset allocation, increase defensive sector holdings, and follow mispriced opportunities. Appropriately increase allocations to the Asia-Europe markets to hedge against uncertainties in the US market.

• Crypto Market: Bitcoin still has long-term allocation value, and it is recommended to reduce exposure to altcoins. Follow the flow of stablecoin funds to assess the liquidity conditions in the market.

• Credit Market: Be cautious of the widening credit spreads, reduce allocations to high-leverage corporate bonds, and increase allocations to high-rated bonds and US mid-to-long-term government bonds. Follow the potential impact of the US debt deficit issue on market sentiment.

Overall, the market is still looking for a new balance, and investors need to remain cautious while seizing potential opportunities from mispriced quality assets. Keep a close eye on the results of the FOMC meeting and its impact on the market, especially regarding the dot plot expectations and whether there will be a pause in QT.