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

1. Macroeconomic Review of This Week

1. Overall Market Performance

This week, the market overall showed a trend of adjustment, with investors entering a phase of correction in the pricing of risk assets. The main manifestations are as follows:

• The three major U.S. stock indices generally retreated, with the Dow Jones Industrial Average falling by 3.1%, the Nasdaq index dropping by 2.6%, and the Russell 2000 index decreasing by 1.8%. The utilities sector rose against the trend by 1.4%, reflecting a shift of funds towards defensive assets.

• The VIX volatility index remains above 20, indicating that market sentiment is in a cautious adjustment phase but has not yet entered the extreme panic range.

• The performance of the commodity market is diverging. Gold has broken through $3000/oz, reaching a historic high, indicating an increase in safe-haven demand. Copper prices rose by 3.9%, reflecting continued support from manufacturing demand. Crude oil prices stabilized around $67, but futures net positions decreased by over 9.6%, suggesting a weak market expectation for global demand growth.

• The cryptocurrency market is adjusting in sync with the US stock market. Bitcoin's volatility has narrowed, and short-term selling pressure has eased. Mainstream altcoins are showing weak performance, reflecting a decline in market risk appetite. The market capitalization of stablecoins continues to grow, but net inflows are slowing down, indicating a cautious trend in market liquidity.

2. The trend of supply chain adjustment is obvious.

The global supply chain is undergoing rapid adjustments, mainly reflected in:

• The Baltic Dry Index ( BDI ) continues to rise, indicating strong shipping demand in the Asia-Europe region, and manufacturing capacity may accelerate its shift overseas.

• The U.S. transportation industry index fell by 6.5%, reflecting weak domestic demand in the U.S. and a decrease in local logistics demand.

• The rise in copper prices and the stability of crude oil prices indicate that there are still divergences in market pricing regarding economic recession, and the future demand outlook is highly uncertain.

3. Inflation Data Analysis

The inflation-related data released this week presents a dual signal of "real inflation cooling" and "divergence in inflation expectations":

• Both CPI and PPI data were below expectations. In February, the CPI increased by 0.2% month-on-month, lower than the expected 0.3%; the PPI decreased by 0.1% month-on-month, while an increase of 0.3% was expected.

• The University of Michigan's consumer inflation expectations data has risen. The preliminary one-year inflation expectation has increased to 3.9%, higher than the expected 3.4%. However, there are significant partisan differences in this data, which adds to the uncertainty in the market.

4. Changes in the liquidity and interest rate markets

• The scale of the Federal Reserve's balance sheet has marginally increased for two consecutive weeks, mainly influenced by the outflow from the U.S. Treasury's TGA account.

• The usage of the Federal Reserve's discount window continues to decline, indicating that the overall macro liquidity is stabilizing.

• In the interest rate market, the federal funds futures market has very low expectations for a rate cut in March, but the 6-month term interest rates and the yield curve of government bonds still suggest that there may be 2-3 rate cuts this year.

5. The changes in the credit market are worth following.

• The corporate credit spread has widened. North American investment-grade credit default swaps (CDX IG) rose over 7% this week.

• The credit default swaps (CDS) on U.S. sovereign debt and high-yield bonds have both risen to varying degrees, reflecting increased market concerns over the sustainability of U.S. debt and corporate credit risk.

2. Macroeconomic Outlook for Next Week

1. Key Variables

Key variables in the market next week include:

• FOMC Meeting: Follow the dot plot's interest rate cut guidance (expecting 2-3 rate cuts) and whether to announce a pause in QT.

• Retail data: reflects consumer spending.

• Global central bank dynamics: The policy orientation of other major economy central banks.

2. Investment Strategy Suggestions

Based on the current market conditions, it is recommended to adopt the following strategies:

• US Stocks: Reduce allocation to high β assets and increase holdings in defensive sectors (such as utilities, healthcare, and consumer staples). Follow quality blue-chip stocks with falling valuations to seize possible mispricing opportunities.

• Cryptocurrency Market: Hold Bitcoin for the long term and reduce the allocation of altcoins. Follow the capital flow of stablecoins to assess the market liquidity situation.

• Credit Market: Reduce exposure to high-leverage corporate bonds and increase allocation to high-rated bonds. Be wary of the impact of the U.S. debt deficit issue on market sentiment.

• Follow the repair of the credit market or the FOMC releasing more clear easing signals as a potential turning point.

Overall, the market is still in the process of finding a new balance, and investors need to maintain a cautious attitude while closely following potential investment opportunities.