March seventeenth, two thousand twenty-five to March eighteenth, two thousand twenty-five

I. Foundation

resistance to change and hence greater dependability for the results shown in the past.

II. Insights

Our Viewpoints and ideas on market.

The Fed’s dilemma

Before FOMC, the mismatch between market pricing and macroeconomic reality is widening.Core PCE is above the Fed’s comfort range, while signs of slowing economic data are accumulating. In particular, the recent correction in risk assets, combined with policy uncertainty, could further weigh on consumer spending and business investment. These data are lagging, and waiting for lagging data would leave the Fed increasingly behind the economic cycle.

The policy rate is most likely to remain unchanged this time, but the key question is whether FOMC is willing to offer a possible dovish option. The current expectation is a firm decision with a soft tone (further expressing confidence in the economy while emphasizing that the policy rate will remain at a restrictive level),If signals of slowing market growth continue to strengthen, dovish expectations will rise.

Treasury Secretary Bessent confirmed over the weekend that the new tariffs will take effect on 4 2, while hinted that trading partners may lower tariffs during 4-6, something the market has not fully priced in. Meanwhile, he described the correction in U.S. equities as “healthy”, and continue to emphasize that the economy needs transition to less expansionary government policy——shift toward a model that relies less on expansionary fiscal policy.

If we focus on growth, the latest surveys show that businesses and consumers are pull back on spending; signs of slowing economic growth have emerged since the start of the year, and the underlying weakness in the labor market deserves particular attention. The impact of government layoffs could exceed expectations. If the economic data continue to weaken, the core of the FOMC debate will shift from “higher-for-longer” to “when to ease.”

In the baseline scenario, the median of this round’s dot plot may be lowered, implying three 25bps rate cuts this year rather than the two previously expected by the market. The risk is that if the dot plot is unchanged, the market may react hawkishly. Even so, Powell is likely to emphasize that the focus is shifting more toward growth risks rather than renewed emphasis on inflation risks. In other words, even if the Fed does not appear overtly dovish, its bias is already changing.In other words, even if the Fed does not appear overtly dovish, its bias is already changing.

From a trading perspective, rate volatility may rise in the short term. The market is indeed pricing in expectations of three rate cuts, and if FOMC does not clearly signal a more dovish stance, the short end may see a brief repricing. But given the growing risks to growth, any hawkish reaction could be an opportunity, the U.S. equity market is currently in a policy window marked by uncertainty; the key is whether Powell’s guidance can manage market sentiment.

2025.03.17

Trump’s immigration policy and the data issue

The tightening of U.S. immigration policy under 25 Q1 directly cut the annualized inflow of humanitarian and other immigrants from 140 ten thousand to 20 ten thousand, while total annualized net immigration fell from 2024 12, 170 ten thousand, to 2025 2, 70 ten thousand.

For immigrant workers already in the United States, the effects of tighter immigration policy are more complex.

The household survey in the employment report shows that The labor force participation rate of recent immigrants has remained broadly unchanged, the unemployment rate has edged down, and the job-finding rate for immigrants overall ticked up slightly in 2.However, during the first two months of 2025, the number of immigrant respondents in the household survey fell significantly, suggesting that tighter immigration policy may have made some immigrants reluctant to respond to government surveys out of concern.Tighter immigration policy may cause some immigrants to be too concerned to respond to government surveys. If these nonrespondents are also afraid to go to work, their unemployment will not be captured in official data, The supply shock could later have a lagged effect on the labor market, and the actual contraction in labor supply may be more severe than the official data indicate.

Chart: Declining survey response rate

Based on the range of forecasts currently available, by the end of 2025, the “breakeven rate” for nonfarm payroll growth is expected to fall from 13 ten thousand in 3 to 8 ten thousand.

2025.03.18

III. Market Pulse

Our latest Comments on the economic and market environment

Action plan to boost consumption

The CN-issued Action Plan to Boost Consumption includes these key measures: (1) raise household income, moderately increase minimum wages, broaden income sources from financial markets and rural housing, and speed up repayment of corporate arrears; (2) increase social spending, establish childcare subsidies, raise basic pension benefits and basic medical insurance subsidies for residents, and encourage people in flexible employment to participate in social insurance; (3) expand the supply of services for consumption, focusing on eldercare, childcare, housekeeping, culture, sports, and tourism, and promote the application of AI technology in consumption; (4) steadily open the services sector to foreign participation, including telecommunications, healthcare, and education, while increasing imports of services such as healthcare, culture, and entertainment; (5) double subsidies for consumer-goods trade-ins to RMB 3000 hundred million and encourage local governments to provide more support; (6) allow local governments to use special local government bonds to purchase existing housing stock and lower provident fund loan rates; (7) implement paid leave and remove consumption restrictions such as those on car purchases; (8) increase central government investment in services and skills training, provide interest subsidies, and expand personal consumer lending.

The action plan broadly follows the policy direction set at the national meeting and further details the policy measures. Specific details remain to be announced, such as the size and scope of the widely anticipated childcare subsidies and how local governments will use special-purpose local government bonds to reduce housing inventory.

However, local fiscal capacity remains a challenge, so the scale of consumption stimulus will certainly remain relatively modest in the short term, and the scale of the trade-in subsidies is in line with market expectations, with little that exceeds them. This remains a long-term allocation position; it will not move quickly in the short term. At least, after everyone has gone through a technology cycle, coming back to this will certainly feel unfamiliar.

2025.03.17

Indian markets post their biggest one-day gain in nearly two months

Indian markets posted their biggest one-day gain in nearly two months, with the Nifty index up nearly 1.5%, closing at a one-month high and breaking above 22,800 points.Boosted by global market sentiment, the index opened higher and extended its gains, continuing yesterday’s rebound. Easing concerns about a U.S. recession, China’s introduction of stimulus measures, and strong domestic fundamentals in India have together lifted market sentiment recently.

Further reading: Notes 250313 What an Indian trade can look like

Be sure to read this supplementary article if you haven’t already!

The index held its gains throughout the day, with bank stocks providing the main support, driven by an overnight rise in ADR. The market advanced broadly, with all sectors closing higher. Real estate, automobiles, and metals led the gains, while IT, consumer staples, and energy posted relatively smaller advances.

Small- and mid-cap stocks performed more strongly, with the Midcap index up 2.2% and the Smallcap index up 2.7%. Sentiment was clearly bullish, with an advance-decline ratio of 3:1.The India volatility index (India VIX) fell 1.5%, indicating an increase in risk appetite.