14 March 2025
Weekly Market View
Where is the Trump put?
Recent comments from US President Trump confirm our concerns raised two weeks ago that the administration may tolerate a moderate economic slowdown if that helps achieve its primary objective of lowering bond yields. The tolerance of short-term pain raises the risk of further 4-5% US stock market downside.
We believe any such pullback is likely to create an opportunity for long-term investors as Trump is likely to reverse some of his contentious policies as the pain threshold is reached. History shows equities typically generate positive returns 6-12 months after a 10% drawdown, even if there is a recession.
While our base case is ‘no-recession’, conservative investors can protect any equity downside via US government bonds, defensive equity sectors and alternative market-neutral strategies in a diversified portfolio.
Exposure to non-US assets, including the haven JPY and cheaper Europe and China equity markets, which should benefit from increased fiscal spending, may help reduce portfolio volatility. Gold and commodities likely to do well in a stagflation scenario.
How should we position in China’s technology sector ahead of the earnings season?
Historically, what were the 6- and 12-month returns after a 10% pullback in US equities?
What is the JPY’s outlook as Japan’s government bond yields surge to 17-year highs?
Charts of the week: Short-term pain vs. long-term gain
US equities have corrected amid concern President Trump is willing to tolerate short-term pain to push his policy agenda
S&P500 index, with key support and resistance levels*
US one-year recession probability and 2025 growth estimate**
Source: Bloomberg, Standard Chartered; *based on our technical model; **based on consensus estimates
Editorial
Where is the Trump put?
Two weeks ago, we raised the prospect in these columns that President Trump may tolerate a moderate economic slowdown if that helps him achieve his primary objective of lowering bond yields. Lower bond yields and a weaker USD will help him implement proposed tax cuts and other pro-growth policies. Recent comments from Trump and his Treasury Secretary Bessent confirm our concerns. The tolerance of short-term pain raises the risk of further 4-5% US stock market downside. We believe any such pullback is likely to create an opportunity for long-term investors as Trump is likely to reverse some of his contentious policies as the pain threshold is reached.
Short-term pain. The S&P500 index has undergone a 10% peak-to-trough correction since its record high on 19 February, breaking below its 200-day moving average. The primary driver is concern that Trump’s agenda, including deregulation and cutting government waste, using tariffs to win concessions and investments and curbing immigration, are starting to hurt consumer and business confidence. Trump’s latest comment, “What I have to do is build a strong country….you can’t really watch the stock market”, suggests he is willing to risk short-term pain to pursue his policy agenda. This suggests further near-term downside for US stocks. On technical charts, the S&P500 index has next support at 5,302, followed by 5,082.
Long-term gain. The US equity drawdown is an opportunity for long-term investors. This week’s data shows the US job market remains healthy. Disinflation continued in February. A healthy job market should support consumption (retail sales data next week should show a bounce back from January’s weather-related slump). Add to that easing financial conditions due to the sharp decline in bond yields and the USD and we see still-low risk of a near-term recession. Although the Fed is likely to hold rates next week, it has enough leeway to cut rates if growth slows sharply. We also expect Trump to extend personal tax cuts expiring this year and reverse his hawkish fiscal spending and trade policies if equity markets fall another 5%.
Hedging risks. While our base case is ‘no-recession’, conservative investors can protect any equity downside via US government bonds, defensive equity sectors and alternative market-neutral strategies in a diversified portfolio. Exposure to non-US assets, including the haven JPY and cheaper Europe and China equity markets, which should benefit from increased fiscal spending, may help reduce portfolio volatility. We remain bullish on gold on structural demand from central banks. Gold and commodities are likely to do well in a stagflation scenario.
Europe’s improving prospects. Trump’s pressure on Europe to boost regional defence spending as he forced Ukraine to agree to a ceasefire with Russia is likely to lead to far-reaching changes. One of the fallouts is Germany’s incoming coalition partners proposing to ease constitutional debt limits to enable higher defence and infrastructure spending. While they still require the support of other parties for the two-thirds majority needed to make constitutional changes, these developments are potentially structurally positive for Europe’s growth outlook.
Use pullbacks to build Europe exposure. European equities and EUR have benefitted this year as investors rotated away from more expensive US equities and reduced their bearish positions on Europe as the region’s prospects improved. However, European assets are showing signs of fatigue, with increasing risk of a near-term pullback. Investors with no exposure to the region could use any such reversal and a bounce in the USD to build positions in European equities.
Renewed optimism about China’s technology sector. The emergence of China’s low-cost AI-powered chatbot DeepSeek has boosted its technology sector. This was followed by President Xi’s rare meeting with private sector business leaders and the National People’s Congress prioritising technology and the digital economy. These developments suggest regulators are turning more supportive of private businesses. They support our overweight stance on China’s technology and communication services sectors and our opportunistic view on the Hang Seng Technology index (see page 4).
The weekly macro balance sheet
Our weekly net assessment: On balance, we see the past week’s data and policy as negative for risk assets in the near-term
(+) factors: Softer US inflation, potential Ukraine-Russia ceasefire
(-) factors: Rising US unemployment, China deflationary pressures, rising tariff risks
US inflation eased more than expected in February, although still-elevated levels are likely to keep the Fed on hold at next week’s meeting
US core, supercore and shelter inflation
US unemployment rate rose in February, but remained below the Fed’s 4.2% long-run target, while job creation missed expectations
US non-farm payrolls, unemployment rate
China’s consumer inflation fell back to negative territory, while producer price deflation continued
China consumer and producer price inflation
Source: Bloomberg, Standard Chartered
Top client questions
How should we position ahead of the earnings release of major Chinese tech and e-commerce companies?
We remain Overweight China’s technology and communication services sectors ahead of the earnings releases, driven by rising AI adoption and developments on lower-cost large language models. Projected EPS growth for the sectors are -14.5% and 30.9%, respectively in 2024, followed by 58% and 10.9% in 2025.
While we remain Neutral China equities within Asia ex-Japan on a 6–12-month horizon on deflation and tariff concerns, we see a slew of catalysts to support growth sector stocks. For instance, officials’ prioritisation of technology development in the NPC meeting, with a pledge to raise the core output of the digital economy and continued investments in the private sector, should bolster investor sentiment.
Potential fiscal policies to boost consumption and the integration of AI functions are likely to support top-line growth across e-commerce platforms. Despite the valuation re-rating since mid-January, China’s communication services sector is still trading at a 11.9% discount vs the US. We also maintain our opportunistic buy idea on the Hang Seng Technology index.
— Michelle Kam, Investment Strategist
Where do you see opportunity for bond investors?
US government bonds are benefiting as investors seek safer, less risky assets. The 10-year US government bond yield is 4.3%, down from 4.6% in February. The market is now implying nearly 1% in policy rate cuts by end-2025. Amid the uncertainty surrounding Trump and his tariff policies, the market has begun to price in a potential recession, which is likely another factor driving US yields lower. However, a US recession is not our base case, which means the downside to bond yields appears limited. Against this backdrop, our Overweight to DM High Yield bonds holds, as we expect the economy to remain robust enough to keep default risks contained.
In a more risk-off scenario, we recommend our opportunistic buy idea in Agency Mortgage-Backed Securities (MBS). We view this as an attractive yield pick-up over US government bonds. Agency MBS have a very high correlation with risk-free US government bonds and should benefit in a similar manner under risk aversion.
Closing bullish Euro Government Bond opportunistic idea
While we continue to expect the European Central Bank (ECB) to implement two more cuts this year, the recent shift in expectations and the volatility in bond yields have made the risk-reward of our European government bond (FX-hedged) opportunistic buy idea less favourable. We are closing this buy idea for a small 1.5% gain.
— Ray Heung, Senior Investment Strategist
China technology and communication services sectors’ earnings are expected to exceed the broader market in 2025
Consensus EPS growth projections for MSCI China, MSCI China Technology, and MSCI China Communication Services indices in 2024-25
Source: FactSet, Standard Chartered
US agency mortgage-backed securities are likely to benefit in a risk-off scenario
Total returns of US agency asset-backed securities vs. US government bonds
We close our bullish Euro area government bond opportunistic idea
Euro area government bond total return (FX hedged)
Source: Bloomberg, Standard Chartered
Top client questions (cont’d)
Japan’s 10-year government bond yield has risen to a 17-year high. What is your JPY outlook and positioning strategy?
Japan’s 10-year government bond yield has risen to its highest level since 2008, despite Japan Q4 2024 GDP growth coming in at 0.6%, slightly below consensus forecasts. USD/JPY has remained below all key moving averages for nearly a month. Given the prevailing risk-off sentiment, the pair is likely to be reinforced to test lower at 144.9. With increasing uncertainty surrounding US tariff policies, we see better risk-adjusted opportunities in JPY crosses. In particular, AUD/JPY presents an attractive set-up lately, in our opinion.
Despite Australia’s economic growth surpassing expectations, marking its first acceleration in over a year, consumer inflation expectations declined to 3.6% in March from 4.6% in February. Meanwhile, Australia has opted not to impose retaliatory tariffs in response to new US duties on aluminium and steel, as Prime Minister Anthony Albanese emphasised such measures could raise domestic costs and fuel inflation. We see softer inflation ahead likely to support a dovish tilted RBA. Should AUD/USD break below its 50-day moving average at 0.6270, short-term downside momentum could strengthen, potentially driving the pair toward the five-week low of 0.6187. Overall, this scenario could favour a bearish AUD/JPY, particularly if risk sentiment remains fragile.
— Iris Yuen, Investment Strategist
AUD/JPY trading in downtrend channel; further downside likely
AUD/JPY and technical levels
Source: Bloomberg, Standard Chartered
Historically, what were the 6- and 12-month returns following a 10% decline in US equities from its peak? Which sectors would be most impacted if sentiment worsens?
Since 1970, we have seen 24 instances of the S&P500 index correcting by more than 10% from its all-time high. Such corrections were followed by a recession in the next 6 months in only 7 instances. After a correction that is followed by a recession, the S&P500 would go on to deliver an average return of 2.3% / 1.9% over the next 6 / 12 months. If the correction is not followed by a recession, the average returns are 10.8% / 14.4% over the next 6 / 12 months. Unconditionally, the S&P500 delivers an average return of 4.6% / 9.4% over a 6 / 12 months period. Overall, we can infer that a recession occurs in the minority of cases following such pullbacks. US equities generally go on to deliver better than usual returns following a 10% pullback if the economy can avoid a recession, but as expected, returns would be lower if a recession materialises.
Typically, technology and consumer discretionary would be the most volatile sectors (highest beta) compared to the market while the consumer staples and utilities sectors would be the least volatile. Our current preference in the US are for technology software companies, that we see as less impacted by the trade war. In addition, we favour the communication services sector, small caps and US banks.
— Fook Hien Yap, Senior Investment Strategist
— Jason Wong, Equity Strategist
A US recession follows a 10% equity pullback in the minority of cases; following such a pullback, US equities typically go on to deliver better than usual returns if the economy avoids a recession
S&P500 returns following a 10% pullback from its all-time highs
Market performance summary*
Sources: MSCI, JP Morgan, Barclays Capital, Citigroup, Dow Jones, HFRX, FTSE, Bloomberg, Standard Chartered. *Performance in USD terms unless otherwise stated, 2025 YTD performance from 31 Dec 2024 – 13 Mar 2025; 1-week period: 6-13 Mar 2025
Our 12-month asset class views at a glance
Economic and market calendar
The S&P500 has next interim support at 5,302
Technical indicators for key markets as of 13 Mar close
Investor diversity has normalised across asset classes
Our proprietary market diversity indicators as of 13 Mar close
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Uganda: Our Investment products and services are distributed by Standard Chartered Bank Uganda Limited, which is licensed by the Capital Markets Authority as an investment adviser. United Kingdom: In the UK, Standard Chartered Bank is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. This communication has been approved by Standard Chartered Bank for the purposes of Section 21 (2) (b) of the United Kingdom’s Financial Services and Markets Act 2000 (“FSMA”) as amended in 2010 and 2012 only. Standard Chartered Bank (trading as Standard Chartered Private Bank) is also an authorised financial services provider (license number 45747) in terms of the South African Financial Advisory and Intermediary Services Act, 2002. The Materials have not been prepared in accordance with UK legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research. Vietnam: This document is being distributed in Vietnam by, and is attributable to, Standard Chartered Bank (Vietnam) Limited which is mainly regulated by State Bank of Vietnam (SBV). Recipients in Vietnam should contact Standard Chartered Bank (Vietnam) Limited for any queries regarding any content of this document. Zambia: This document is distributed by Standard Chartered Bank Zambia Plc, a company incorporated in Zambia and registered as a commercial bank and licensed by the Bank of Zambia under the Banking and Financial Services Act Chapter 387 of the Laws of Zambia.