March 5, 2025 | Risk/Reward

MARKETS

S&P 500: Up +64 points to 5842, VIX: 23.26

Asia: Japan +0.23%, China +0.53%, Hong Kong +2.84%

Europe: Euro Stoxx 50 +2.19%, FTSE +0.29%, DAX +3.43%

FX: USD (DXY) down 1.12%, EUR up 1.32%, GBP up 0.53%, JPY up 0.48%, CNY up 0.41%

Energy: WTI Crude down 3.55% to $65.84, Brent down 3.01% to $68.81

Cross markets: CDX Investment Grade spread +0.84 at 50.52, CDX High Yield spread +6.38 at 320.85

Treasuries: 2-year yields down ~4bp at 3.955%, 10-year yields up ~2bp at 4.265%, 30-year yields up ~3bp at 4.57%

SNAPSHOT

Snapshot: US equities are now higher after a volatile session yesterday resulted in the S&P 500 (SPX) giving back post-election gains. Energy E&P and refiners are weakest on higher US crude/gasoline inventories. ?Regional banks extend losses on US growth concerns, while capital goods and chemical names lift on China/German fiscal stimulus headlines. CRWD is the worst performing stock in the SPX after reporting a decline in Q4 ARR and disappointing Q1 revenue guidance. ?GD and HII outperform after Trump pledged to resurrect the US shipbuilding industry in last night's SOTU address. ?Other outperforming groups include auto parts, homebuilders, and travel/leisure. ?Airlines also rebound from deep oversold levels. Treasury yields are mixed with more curve steepening. The Dollar Index is notably lower on a policy-induced backup in Eurozone yields. ?Gold is little changed despite dollar weakness, while copper gains >5% after Trump suggested imports could be subject to a 25% tariff.

·???????? Trade headlines are still the dominant driver with tentative strength attributed to Commerce Secretary Lutnick telling reporters there may be some industry exceptions (autos) to CAN/MEX tariffs. ?Yesterday’s intraday rally followed similar dovish tariff comments from Lutnick that failed to develop.??

·???????? February Services ISM surprised to the upside following a series of weaker US growth data.? The headline number came in at 53.5 vs. expectations for 52.5 with business activity, new orders, employment (best levels since 12/21), and prices all higher.??

·???????? February ADP private payrolls offered a less encouraging update on labor markets, coming in at +77,000 vs. consensus for +143,000 and down from +186,000 in January. Details of the report were clearly disinflationary with wage growth slowing for job-changers and remaining unchanged for job-stayers. Severe weather and policy uncertainty were cited as possible grounds for the slowdown in hiring.

·???????? Tomorrow brings weekly jobless claims and Q4 data on the trade balance, final non-farm productivity and unit labor costs. The Fed's Harker, Waller and Bostic are also scheduled to speak tomorrow. The February Jobs report on Friday is the weekly macro highlight followed by comments from the Fed's Powell, Williams and Kugler.??

·???????? European equity markets are higher on expectations for increased fiscal stimulus after Germany eased restrictions on its debt break and EU talks to ramp defense spending by €800B. January Eurozone PPI was a bit hotter than expected at +1.8% YoY vs. consensus for only +1.3%.

·???????? China’s ’25 growth target coming out of the NPC remained unchanged at 5% despite US trade pressure, which markets interpret as a sign that Beijing plans aggressive stimulus measures. ?

·???????? BF/B, FL and ROST are your overnight earnings-driven winners, while ANF, AVAV, BOX, CPB, INGM and THO join CRWD on the list of disappointments. Earnings highlights this afternoon include results from MDB, MRVL, VEEV and VSCO.? MRVL’s report will be the one to watch given its AI exposure.? AI ASIC leader AVGO reports tomorrow afternoon.??

JSC PERSPECTIVE

Chartist: The SPX tested levels below 5772 support (January 13 low) earlier this morning but is now higher. ?We keep a bullish tactical bias at closing levels above 5772. ?A break below the 200-day moving average at 5728 would likely trigger CTA selling/accelerate downside momentum to challenge the September upside breakout at 5640. ?In our view, closing levels below 5640 would reverse the bullish technical trend. Risk/reward: Markets are now priced for a growth slowdown that surpasses what’s implied by recent US growth data. ?The US Economic Surprise Index (ESI) is in negative territory at -9.8 but recovering from last Friday’s low of -16.5 with risk/reward skewed to the upside into Friday’s Jobs Report. Last week’s AAII poll also suggests an increased risk of a recovery after bearish sentiment reached its fourth highest level in history with positioning metrics now below neutral.

FACT OF THE DAY

Bloodhounds have 300 million olfactory receptors compared to average human who has 5 million.

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CATALYST CALENDAR

Tomorrow: 1) US trade balance for January; 2) US unit labor costs and nonfarm productivity for Q4; 3) US weekly jobless claims; 4) US wholesale inventories/trade sales for January; 5) Eurozone retail sales for January; 6) China import/exports for February; 7) Earnings before the open: BJ, BURL, CBRL, GMS, JD, KR, M, TTC, VG. After the close: AVGO, COO, COST, GAP, GWRE, HCP, HPE, IOT. EU earnings: Deutsche Post, Entain, Informa, ITV, Lufthansa, Merck KGaA, Reckitt Benckiser, Rentokil, Zalando.

Friday: 1) US jobs report for February; 2) US consumer credit for January; 3) Germany factory orders for January; 4) Taiwan CPI and exports for February; 5) Eurozone GDP revisions for Q4.

Next Week: 1) US JOLTs report for January Tuesday; 2) US CPI for February Wednesday; 3) Bank of Canada rate decision Wednesday; 4) US February PPI for Thursday; 5) Michigan sentiment report for March Friday. Earnings Highlights: 1) Monday PM: ASAN, MTN; 2) Tuesday AM: CIEN, DKS, KSS; 3) Wednesday PM: AEO, CCI; 4) Thursday AM: DG; 5) Thursday PM: DOCU, ULTA.