New quarter. New Blood. New money. Less Fed cuts expected. China's optimism is rising. Bets are on for the S&P500 to pull back and the ASX200 to rise
New quarter. New Blood. New money. And repricing for less cuts.
Markets still seem at risk of a hair cut in the US, with more options suggesting the S&P500 $S&P 500 Index (.SPX.US)$ $SPDR S&P 500 ETF (SPY.US)$ will be lower in three weeks, instead of higher.
It comes as the Feds preferred inflation gauge (PCE) came in line with the Fed's expectations, but manufacturing data came out stronger than expected. So, now bets have been slashed for the Fed Fund to only cut rates by 0.7% this year, instead of 1% (which is what the market thought coming into this year). Two weeks ago the market expected 0.8% of Fed cuts this year. On top of that the chance of a June cut is now slimmer, with 50% chance. If that reduces again, we could see profit taking. Plus there's just an over 60% chance of a cut in September and December. So there is caution in the air. Based on what the Fed Chair Jay Powell said at the weekend, and reading between the lines, the next catalyst might been to look for labour conditions strengthening. If they do they’d you’d probably see bets paired back AGAIN for Fed rate cuts.
Why do I say this? Well, the Fed said it would not overreact to the recent two months of higher CPI. But would react if it sees any unexpected weakness in the labour market. So instead of reducing rates too soon (which could cause inflation to pop back up and the Fed would have to rush in), it would prefer to assess and monitor and then respond. Jay Powell also said, that if the Fed however held off too late in cutting rates, that could also damage the labour market.
But either way, for investors there are two schools of thought....hear me out...new Investors will likely come into the market with the new quarter and take advantage of some stocks taking a breather and pairing back. While some sophisticated investors are preparing for a potential pullback (by taking profits and using hedging).
So we are seeing some investors using options, that essential book profits should the S&P500 potentially fall. Some retail investors may be looking at buying bearish ETFs that profit from market falls, such as BEAR $BetaShares Aus Equities Bear Hedge ETF (BEAR.AU)$, BBOZ $BetaShares Australian Eqs Strong BrH ETF (BBOZ.AU)$ and $BetaShares US Eqs Strong Bear H CcyH ETF (BBUS.AU)$. And thirdly, you probably see buying pick up in Gold stocks pick up.
What is most interesting is that China's optimism is rising. This optimism that China's economy is clawing back, comes at a time when the RBA has walked away from its hawkish tone and with Australia's house prices are extending their gains (supporting the wealth effect). So many are betting the Australian share market will hit new records this month. A stark contrast to the bets we are seeing in the US, where there are more bets of a pullback. So do we say hello to a new bull market?
China's data shows vigor and life is returning. Australia looks set to benefit. You could be expecting more love to return to metals, miners and coal miners
China's manufacturing sectors appear to have started strong in 2024 – and we saw strong numbers across the board, adding to signs the economy is stabilizing. The Caixin manufacturing purchasing managers index rose to 51.1, the highest in more than a year. Industrial output rose 7% in January-February from the same period a year earlier, the National Bureau of Statistics said earlier, the fastest growth in two years and significantly topping estimates. And lastly - we're seeing building activity hold up remarkably well.
This is why the road ahead looks long for metal demand, solar panels, EVs and wind farms.
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Moomoo Official Market Strategist
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