Daily Newsletter 5/9/25
The announcement of the U.S.-U.K. trade agreement, remarks by Fed Chair Powell, and growing optimism about upcoming U.S.-China negotiations boosted stocks yesterday. Markets are cautiously optimistic, with equities steady and gold consolidating as investors await critical U.S.-China trade talks and digest recent macro news. While the rally could continue on positive developments, risks of a pullback remain elevated if sentiment shifts or economic data disappoints.
U.S. and Chinese officials are set to meet this weekend in Switzerland to initiate discussions aimed at laying the foundation for broader negotiations on tariffs. Both parties have emphasized that the primary goal of this meeting is to reduce tensions between the two countries.
China’s April 2025 trade report shows robust overall export growth despite a sharp decline in trade with the U.S., underscoring the ongoing impact of tariffs and the country’s efforts to diversify its export markets.Exports rose more than expected, despite a 21% drop in shipments to the United States. Imports from the U.S. also decreased. The impact of tariffs could become even more pronounced in the coming months.
This surge was largely attributed to companies rushing to ship goods before new U.S. tariffs took effect, as well as transshipment through intermediary countries and contracts signed before the tariffs.
Given that previous data showed a decline in Q1 2025 U.S. GDP, partly due to a surge in imports ahead of new tariffs, it’s clear that both economies are beginning to experience strains domestically. We are hoping for significant progress from the talks scheduled for this weekend. Nevertheless, because of the persistent inflationary pressures caused by tariffs, We continue to expect a high likelihood of a mild U.S. recession in the coming months, regardless of the outcome of the upcoming talks. The recent recovery might have been exaggerated.
The surge in gold prices and the weakening of the dollar indicate that significant fear persists in the market. While we anticipate that this fear may subside for a few days, it is likely to resurface as the underlying problems remain unresolved.
European stocks are climbing as tariff tensions ease and a European Central Bank policymaker signals that another interest-rate cut could be on the table next month.
We are closely monitoring several key developments in Europe. One is the Polish election on May 18, 2025. Another is how shifting public confidence in German politics will influence the country's direction following recent elections and ongoing political fragmentation.
Furthermore, the United Kingdom and the European Union are set to hold a summit in London on May 19, 2025. At this meeting, both sides are expected to agree on holding annual UK-EU summits to review and strengthen their bilateral relationship. We believe this meeting may not yield significant immediate outcomes; however, it is important as it represents a key step in shaping trade and geopolitical relations in the near future.
The intensifying India-Pakistan conflict is a showcase for the latest advances in military technology and defense industry strategies. China’s support has transformed Pakistan’s military capabilities, while India’s push for indigenization and Western partnerships is rapidly modernizing its own forces. The region is now a critical testing ground for rival defense technologies and doctrines, with broader implications for global security and the future of arms development in Asia.
Indian defense stocks have surged sharply. Chinese defense stocks have also rallied strongly, with some gaining up to 36%.
The rally in defense stocks is being driven by heightened geopolitical risk, expectations of increased defense spending, and a focus on domestic manufacturing in India and China. However, valuations are elevated.
OUR TRADES
Yesterday, we made substantial changes to our portfolio. Although we still expect a mild recession in the US, the recent easing of trade war tensions seems to be giving the US stock market a lift, at least for the time being. We anticipate that another bearish period could occur in the coming days, weeks, or months if tariff regulations become overly complicated.
Over the past month, we've updated our portfolio much more frequently than usual. However, our medium- to long-term holdings have remained largely unchanged. Most of the adjustments have been made to our tactical portfolio, while our strategic portfolio has stayed consistent.
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