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

Ahead of FOMC, the gap between market pricing and macroeconomic reality is widening.Core PCE is above the Fed’s comfort zone, while signs of slowing economic data are accumulating. In particular, the recent correction in risk assets, combined with policy uncertainty, may further affect consumer spending and business investment. These data are lagging, and waiting for lagging data would mean the Fed falls further and further behind the economic cycle.

The policy rate will most likely 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 restrictive),If signs of slowing growth in the market continue to strengthen, dovish expectations will increase.

Treasury Secretary Bessent confirmed over the weekend that the new tariffs will take effect on 4 2, while suggesting that trading partners may lower tariffs during 4-6, a possibility the market has not fully priced in. Meanwhile, he described the correction in U.S. equities as “healthy”, and continued to emphasize that the economy needs to transition to less expansionary government policy——Transition to 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. Potential weakness in the labor market warrants particular attention; the impact of government layoffs could exceed expectations. If the economy data continue to weaken, the core of the FOMC debate will shift from “higher-for-longer” to “when to ease.”

In the base case, the median of this round’s dot plot may be revised lower, implying three 25bps rate cuts this year rather than the two the market previously expected. The risk is that if the dot plot is unchanged, the market may react hawkishly. Even so, Powell will most likely emphasize that attention is shifting more toward growth risks than inflation risks.In other words, even if it does not look clearly dovish on the surface, the Fed’s bias is already shifting.

In market trading, rate volatility may rise in the short term. The market is indeed pricing in expectations of three rate cuts, while If FOMC does not clearly signal a more dovish stance, the short end may see a brief repricing. But given the increased growth risks, 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 the market’s tone.

2025.03.17

Trump’s immigration policy and issues with the data

The tightening of U.S. 25 Q1 immigration policy directly compressed the annualized inflow of humanitarian and other immigrants, which plunged from 140 ten thousand to 20 ten thousand. Total annualized net immigration fell from 2024 12, at 170 ten thousand, to 2025 2, at 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, in the first two months of 2025, the number of immigrant respondents in the household survey fell significantly, suggesting that Tighter immigration policy may make some immigrants unwilling to respond to government surveys out of fear. If these nonrespondents are also afraid to go to work, their unemployment will not be captured in official data, A lagged supply shock may subsequently emerge on the labor side, and the actual labor supply contraction may be more severe than official data indicate.

Chart: Declining survey response rate

Based on the range of forecasts from various institutions, 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

FOMC Eve & FED Put

On the eve of FOMC, market sentiment remained cautious. Powell said on 1 29:

“Looking back, we can see that the current policy is restrictive. Compared with before we began cutting rates, policy is now considerably less restrictive, by about 100 basis points. So, before considering a policy adjustment, we will focus on actual progress on inflation or signs of some weakness in the labor market.”

Fed Stance & Macro Setup

Based on this January statement, the Fed views policy as still being in restrictive territory. The Fed is maintaining optionality in the near term, but elevated core PCE means the dot plot may face upside risk; the key market trade is a recalibration of the policy path versus asset pricing. For earlier discussion, see Notes 250317 The Fed’s Dilemma。

Market Reaction: Relief Rally or Pain Trade?

A relief rally requires a QT soft pause and a dot plot in line with expectations. In this scenario, risk assets would be relatively strong, equities and FI would rebound, and volatility would decline. Conversely, If the Fed only signals one rate cut and QT remains unchanged, the market will see a bull-flattening move. Combined with a resurgence of risk aversion, risk-off trading would dominate (this is the biggest risk).

Directional positioning is currently limited, and the market does not really believe this meeting will be a major catalyst.

QT Matters More than Dots

Current market pricing indicates a 60% probability of a pause at QT, Two possible scenarios:

1. Soft Pause: reduce runoff to $10B–$20B per month.

2. Stronger Pause: reinvest maturing MBS funds into UST.

Compared with the number of rate cuts, QT adjustments have a greater impact on liquidity, The Fed’s core objective is to control market volatility amid current economic uncertainty, so QT adjustments may take priority over rate-cut expectations, If there is a strong QT pause plus two rate cuts, the relative rebound in cyclical stocks will begin, and cyclical-versus-defensive pair trades will reach a short-term inflection point.

In fact, the market’s current preliminary reaction to a hawkish decision is still to buy the dip, On the one hand, the market is currently more focused on growth than on near-term inflation pressure; on the other, even if hawkish signals push rates higher, that effect will be short-lived while risk assets remain fragile.

To reiterate the base-case expectation: a modest relief rally and lower volatility

Flows remain cautious, with selling in front-end USTs and buying at the long end. Equity cash volume is below its recent average by 20%, and client risk appetite is cooling. The market remains in wait-and-see mode; after growth expectations have weakened, asset prices lack directional trading in the short term.

2025.03.19

BOJ meeting: a rate hike in 7 is the base case

The BOJ held its monetary policy meeting on 3 18-19, and, in line with market expectations, decided to keep its policy rate at 0.5%.

Kazuo Ueda said:Wage and price trends are broadly within expectations... The results of the spring labor negotiations announced last week were within expectations, though slightly stronger than expected... Core inflation monitored by the BOJ is rising moderately. It has now exceeded 1%, but has not yet reached 2%.

Addressing the rise in prices of food items such as rice, he stressed that Prices will not be forcibly suppressed through rate hikes that have broad effects on the economy and prices.He added that, The current gradual pace of rate hikes will not significantly increase the risk of the central bank “falling behind the curve”The risk of that rising significantly.

He believes uncertainty about U.S. tariff policy and its effects is rising rapidly. At the same time, the virtuous cycle in Japan’s domestic economy is strengthening. He views the recent rise in long-term interest rates as part of the market’s normal rate-setting process, and said that the current situation has not yet reached the point where the BOJ would need to expand its purchases of government bonds further.

The BOJ still has no urgent reason to accelerate rate hikes and will continue its gradual pace of increases. Against this backdrop, A rate hike in 7 remains the base case. However, if the yen depreciates sharply and rapidly, the hike could come sooner; conversely, if the Upper House election before the 7 policy meeting leads to political instability, the timing of the hike could be delayed.

2025.03.19

III. Market Pulse

Our latest Comments on the economic and market environment

Action Plan to Boost Consumption

CN released the Action Plan to Promote Consumption. Key measures include: (1) raising household incomes, moderately increasing the minimum wage, expanding income sources from financial markets and rural housing, and accelerating repayment of corporate arrears; (2) increasing social spending, establishing childcare subsidies, raising basic pension and basic medical insurance subsidies for residents, and promoting social insurance coverage for people in flexible employment; (3) expanding the supply of services for consumption, with a focus on eldercare, childcare, housekeeping, culture, sports, and tourism, and promoting the use of AI technology in consumption; (4) steadily opening the services sector to foreign participation, including telecommunications, healthcare, and education, while increasing imports of services in healthcare, culture, entertainment, and other areas; (5) doubling subsidies for consumer-goods trade-ins to RMB 3000 hundred million and encouraging local governments to provide more support; (6) allowing local governments to use special-purpose local government bonds to purchase existing homes and lowering provident-fund loan rates; (7) implementing paid leave and removing consumption restrictions such as those on car purchases; and (8) increasing central government investment in services and skills training, providing interest subsidies, and expanding personal consumer lending.

The action plan broadly follows the policy direction set at the national meeting and further details the policy measures. Specific details have yet to be announced, including the much-discussed scale and scope of childcare subsidies and how local governments will use special-purpose local government bonds to reduce housing inventories.

However, Local fiscal capacity remains a challenge, so the boost to consumption will certainly remain fairly modest in the short term, and the scale of the trade-in subsidies is in line with market expectations, with few surprises. This is still a long-term allocation position; this segment will not move quickly in the short term. At least, after everyone has completed a round of tech trades and then comes back to this, it will certainly feel unfamiliar.

2025.03.17

The Indian market posted its biggest single-day gain in nearly two months

The Indian market posted its biggest single-day gain in nearly two months, with the Nifty index rising nearly 1.5% to close at a one-month high, above 22,800 points.Buoyed by global market sentiment, the index opened higher and climbed throughout the session, extending yesterday’s rebound. Easing concerns about a U.S. recession, China’s stimulus measures, and strong domestic fundamentals in India have together lifted market sentiment recently.

Further reading: Notes 250313 What Indian Trading Can Look Like

If you haven’t read this supplementary article, make sure to take a look!

The index maintained its gains throughout the session, Bank stocks were the main support, driven by the overnight rise in ADR. The market advanced broadly, with every sector closing higher. Real estate, autos, and metals led, while IT, consumer staples, and energy posted relatively smaller gains.

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