Records Galore Again Amid 1-400 Event!

Market participants sighed with relief as “wild wild” April ended, but who knew that the volatility would strike hard again?

“Only 0.25% of the time in the past century has the S&P 500 managed to rise nine consecutive days. A 1-in-400 or three sigma event!”

The recent rise in the equity markets caught everybody by surprise (we weren’t) as it was a three-sigma event, and thus, it’s been called the most hated rally of recent times.

We also saw explosive moves in the FX market in Asia, where Friday morning (Asia time), TWD, CNH, KRW, and INR witnessed a huge gap against the USD.

Nobody knows what triggered the “sudden” moves (some market participants are speculating that it was the Japanese FM comment about the USTs), but one thing is sure: after the trade deals are concluded with all the countries, including China, the dollar will be devalued to levels similar to the “Plaza Accord” as the Trump administration is hell-bent on reducing the US trade deficit by hook or by crook.

Just see yesterday’s move in USDTWD.

In fact, the Hong Kong Central Bank was buying dollars to maintain the peg!!!

It was literally a crazy day in Asian FX markets, and we expect many more such days with a string of records yet to be broken in the next three years.

We continue to outperform our benchmark and are now up in double digits YTD.

PS: The benchmark is 60% MSCI ACWI Ex-US and 40% BBG Global Aggregate.

Let’s begin this week’s newsletter and thoroughly analyse the macro data!

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US/ Oil/ Gold/ FX!

This week was one of the most crucial as a streak of macro data was released.

As the Great Tariff Disruption™ leads to higher prices, the Fed’s preferred measure (PCE) was released this week.

One must appreciate that higher prices due to tariffs will be reflected in the next few months.

The number was slightly cooler than the street’s expectations.

Overall, the trend is encouraging as we witness a broad-based fall in the inflationary numbers. However, again, everybody should be prepared for a sudden rise due to the tariffs.

The ISM Manufacturing print was the second most important data point of the week. We track it closely to gauge the cyclical economy.

The headline print was better than expected. Furthermore, Orders Less Inventories jumped higher as the effect of the front-loading of goods ended.

We wrote last month that macro data cannot be extrapolated as it is distorted by the enormous front-loading that occurred in Q1 (GDP data also was an anomaly).

We expect normalisation (the macro trend) to happen next month.

Nevertheless, unsurprisingly, the Consumer Confidence saw its largest fall since COVID as the US equity markets plunged by more than 10%, and the tariffs led to pain among small businesses.

Since consumer confidence has seen a dive, let us closely look at the big piece of the puzzle.