4 Alpha Macro Weekly: Trend Undecided, Non-Farm Divergence, Rebound or Further Bottom?

4 Alpha Core Ideas (3.3-3.8)

I. This week's macro review

1. Market Overview

• Market sentiment is at a stage low, with the US stock SPX falling below the 200-day moving average, triggering a CTA strategy sell-off, but the sell-off is nearing its end.
• The VIX index remained above 20, the Put/Call ratio increased, and the market panic was high.
• The crypto market was stimulated limited by news of Trump's National Strategic Reserve of Crypto Assets, as policy details fell short of expectations and risk appetite contracted overall.

2. Economic Data Analysis

• Manufacturing PMI: The new orders index fell below the boom-bust line, the employment index came in lower than expected, and the manufacturing sector became cautious due to tariffs.
• Non-manufacturing PMI: Beat expectations, indicating that the U.S. economy remains resilient and the services sector is generally stable, but expansion is slowing.
• GDP forecast: The Atlanta Fed lowered Q1 GDP to -2.4%, but the decline was largely dragged down by net exports, while consumer spending remained solid.
• Non-farm payrolls: Employment data diverged, with a slight increase in the unemployment rate, slower job growth, and limited wage growth, suggesting that companies are more inclined to extend working hours rather than create new jobs.

3. Fed Policy & Liquidity

1. Powell's speech:

• The Fed is cautious on the sidelines until tariff policy is unclear.
• The 2% inflation target remains central, and a rise in inflation in the near term will not prompt interest rate hikes.
• Economic fundamentals remain stable, but if employment continues to slow, the likelihood of interest rate cuts increases.

2. Liquidity: The Fed's broad liquidity margins improved, but market sentiment remained weak.

3. Interest rate market: Short-end funding rates fell, with market bets on rate cuts over the next 6 months, and 10-year Treasury yields turned upward, suggesting that recession expectations have eased.

2. Macro outlook for next week

• The market is still in the expectation game stage, the trend is not clear, institutional funds are more inclined to wait and see, and it is difficult for the short-term market to form a clear direction.
• Pay attention to the micro changes in economic data from March to April, the impact of tariffs, government layoffs, interest rates and other impacts are lagging behind, and more data support is needed to confirm market trends.
• The market should not be overly pessimistic, the economy has not deteriorated significantly, investors should manage their positions, maintain a balance between offense and defense, and wait for clearer trend signals.

Key data for next week: Pay attention to key data such as CPI, PPI, and consumer confidence index, and judge changes in inflation and consumption trends.

Undecided trend, non-farm divergence, rebound or further bottom?

I. This week's macro review

1. This Week's Market Roundup

Judging from the volatility of major asset classes, market sentiment is still at a stage trough this week. While Friday's big NFP data and Powell's speech eased the market's pricing in a "recession trade", uncertainty over the tariff outlook offset the data's boosting effect.

From the perspective of U.S. stocks, SPX fell below the 200-day moving average for the first time in 16 months, and the market decline triggered the sell-off of the CTA strategy of U.S. stocks, according to the statistics of Goldman Sachs' trading department, a total of $47 billion has been sold in the past week, but fortunately, the sell-off is nearing the end. From a volatility perspective, the VIX index continues to maintain a high level above 20, well above the level of around 15 at the beginning of the year, while the Put/Call Ratio has once again risen above 0.9, which corroborates each other, reflecting that the market's panic and bearish sentiment are still high.

! [4 Alpha Macro Weekly: Trend Undecided, Non-Farm Divergence, Rebound or Further Bottom?] ](https://img.gateio.im/social/moments-65cd9812e6a9225d29f2daa220111ef9)

Chart 1: The VIX indicator has remained above 20 this week Source: Barchart

**From the perspective of the cryptocurrency market, despite the positive stimulus of Trump's signing of the National Strategic Reserve of Crypto Assets this week, the improvement in the market is not significant. On the one hand, the reason is that the main form of strategic reserves is the confiscated assets of the United States, and there is no hint of new purchases, which is lower than market expectations; On the other hand, the reason is that due to the pullback of major risk assets such as U.S. stocks, the risk appetite has contracted significantly, the overall liquidity is poor, and the BTC rebound is weak. **

**As we warned last week, there is currently no stable trading expectation in the market, and concerns about macro policy uncertainty have dampened the improvement in market sentiment. **

2. Economic Data Analysis

The focus of this week's data analysis remains on the US economy, and a number of data releases this week provide further evidence that the US economy is indeed slowing, but in terms of the microstructure of the data, we think the market's recession fears are exaggerated.

The ISM manufacturing index for February, released on Monday, continued its expansion in January, but at a slower pace, with the composite index coming in at 50.3, missing market expectations. Notably, the new orders index was below the withering line, the first contraction since October last year, the employment index was significantly lower than expected, and the price index was higher than expected. The structural data divergence, indicating that manufacturers are becoming more cautious in production and hiring under the influence of Trump's tariffs, while the demand side is likely to slow further; However, the non-manufacturing PMI, which was released immediately after Wednesday, gave the opposite reading, with readings exceeding market expectations. Two pieces of data point to two facts about the current U.S. economy:

Trump's tariffs have indeed caused significant disruption to U.S. importers/manufacturers and continue to have a negative impact. **

• **The momentum of the U.S. economy has indeed slowed, but it should be noted that the U.S. GDP is mainly dependent on the service sector, and the overall situation of the service sector is still relatively solid, although it has slowed from aggressive expansion in the past to slow growth, indicating that there are no clear signs of deterioration in the fundamentals of the U.S. economy. **

The Atlanta Fed updated its latest GDP forecast on Thursday, which showed that the latest forecast for Q1 GDP came in at -2.4%, slightly higher than the -2.8% forecast on March 3.

! [4 Alpha Macro Weekly: Trend Undecided, Non-Farm Divergence, Rebound or Further Bottom?] ](https://img.gateio.im/social/moments-3cc7afaaad3600cacdd033d47001a716)

Chart 2: GDP forecasts continue to be lower as of March 6

Source: Atlanta Fed

There are concerns about the continued negative GDP forecast, but structurally, US personal consumption expenditures and private investment did not decline in the first quarter, but the contribution of net exports to GDP fell sharply due to a surge in imports due to tariffs, which is the core reason for the lower GDP forecast. This also suggests that as long as consumer spending remains at a steady pace, concerns about fundamentals may be overly pessimistic.

Friday's non-farm payrolls data slightly reversed the pessimism of the market and partially weakened the market's recession expectations. Looking at the unemployment rate in February, the released data was slightly higher than market expectations at 4.1%; seasonally adjusted non-farm payrolls were 151,000, lower than market expectations of 160,000; In terms of wages, the annual rate of growth was lower than expected, while the monthly rate was flat but lower than the previous value. At the same time, further analysis of the given breakdown data shows the following key conclusions:

• **Despite the increase in net employment, the underemployment rate and the number of newly unemployed people increased at a faster pace, reflecting a more pronounced weakness in the overall employment situation, but not a deterioration. **
• **Limited wage increases and changes in longer working hours indicate that companies are now more willing to increase the working hours of existing employees rather than hiring new ones; The limited increase in wages reflects a slowdown on the demand side and an increase in the demand for companies to control costs. **

! [4 Alpha Macro Weekly: Trend Undecided, Non-Farm Divergence, Rebound or Further Bottom?] ](https://img.gateio.im/social/moments-03ec6c415ea244ae5ae826872bcc6331)

Chart 3: U.S. Nonfarm Payrolls Change 2019-2025 Source: Mish Talk

Fed Chairman Jerome Powell's speech at the 18th Monetary Policy Forum on Friday attracted much attention from the market, and the market was generally stable after the speech. Powell's remarks essentially gave a few key guiding messages:

Implying that the Fed is inclined to be cautious and wait-and-see until Trump's tariff policy is not clear, the exact phrase is: the cost of remaining cautious is very low. **

• **Reiterate the 2% inflation target; At the same time, it specifically hinted that the Fed is more concerned about long-term inflation expectations, and if short-term inflation expectations rise, it will not lead to the Fed restarting interest rate hikes. **
• **The Fed is relatively optimistic about the current state of the economy, believing that despite the slowdown in consumer spending, economic growth is relatively stable and the labor market is broadly robust. ** If more data points to a slowdown in the labor market, it will be possible for the Fed to resume rate cuts. **

Taken together, these four points actually convey relatively loose monetary policy expectations to the market. In other words, Powell's speech gave the current Fed's decision-making path: first, under the stability of long-term inflation expectations, the Fed has no pressure to raise interest rates; Against the backdrop of a continued slowdown in employment data, the Fed is likely to tolerate short-term above-target inflation and remain accommodative. **

3. Liquidity and Interest Rate

In terms of the Fed's balance sheet, the Fed's broad liquidity margin continued to improve this week, reaching $6 trillion as of March 6, and the scale of the improvement was not enough to offset the decline in market sentiment."

From the perspective of the interest rate market, the interest rate derivatives market is clearly betting on interest rate cuts in the next six months, measured by short-term funding rates, and the downward slope of the SOFR 6-month term rate is significant. From a Treasury yield perspective, the market is pricing in the next 3 rate cuts of 25 bp each, but at the same time the 10-year yield has turned upward, suggesting that the market's recession fears have dissipated somewhat in Powell's speech.

! [4 Alpha Macro Weekly: Trend Undecided, Non-Farm Divergence, Rebound or Further Bottom?] ](https://img.gateio.im/social/moments-f73a6747b5ef214a786f022d7cd0768d)

Chart 4: Changes in U.S. overnight funding rates and Treasury yields Source: Wind

2. Macro outlook for next week

Based on the conclusions of the interest rate market, risk market and economic data, we believe that the market is still in a critical period of digesting risk expectations, and the reflation and recession risks caused by tariffs cannot be falsified by the existing data, which means that more realistic data is still needed to correct the trend of the market.

Based on the foregoing analysis, our overall view is:

• The current main line of the market is still the "game of expectations", rather than the confirmation of the trend, so from the perspective of risk logic, the market cannot give a clear direction in the short term, and for investors, it will have a higher profit and loss ratio to either wait or make a decision when it pulls back to a reasonable position.
• Due to the lag in the impact of tariffs, U.S. government layoffs, interest rates and other factors on the market, investors should pay attention to the micro changes in various economic data in March and April, and the macro variables will also gradually become clear in the next two months.
• The micro data does not point to a sharp deterioration of the economy, and should not be overly pessimistic, the market always accumulates risks in the rise, and mitigates the risks in the fall, and it is still recommended that investors manage the position risk of the portfolio, increase the defensive allocation, and do a good balance of offense and defense in the violent market fluctuations.

Key macro data for next week are as follows:

! [4 Alpha Macro Weekly: Trend Undecided, Non-Farm Divergence, Rebound or Further Bottom?] ](https://img.gateio.im/social/moments-7bbb8d6d82a550f58f17aa533398406f)