- Equities: The US Federal Reserve kept rates unchanged; US and Europe posted lacklustre performances while China markets declined
- Credit: Asymmetric upside in IG bonds supports a barbell duration strategy to balance certainty of returns in 2-3Y credit with favourable risk-reward in 7-10Y credit
- FX: FOMC has failed to provide a USDpositive impetus
- Rates: Tariff uncertainty and stagflation risks point to flatter curves and increased demand for 5Y–10Y USTs if sentiments falter further
- The Week Ahead: Keep a lookout for US Change in Initial Jobless Claims; Singapore CPI
US and Europe equity markets posted lacklustre performances while China markets declined. The US Federal Reserve left interest rates unchanged and stated in its March policy meeting that it considered the impact of tariffs on inflation transitory while expecting 50 bps of interest rate cuts this year. The dovish tone boosted market sentiment. The Dow Jones, S&P 500, and NASDAQ gained 1.2%, 0.5%, and 0.2% respectively for the week. In Europe, concerns over US tariffs were offset by optimism on anticipated spending by countries on defense. The STOXX 600 gained 0.6% and the FTSE climbed 0.2% over the week. The BOJ left rates unchanged but the market expects gradual rate hikes; the Nikkei 225 gained 1.7%. China markets retreated after their sharp run-up. The SHCOMP declined 1.6% and the Hang Seng Index dropped 1.1%.
Topic in focus: Trump 2.0 to bring volatility to global autos. US-based automakers could be more vulnerable to trade escalations given their reliance on (i) Mexico/Canada auto production and (ii) imported auto parts. Based on our estimates, Mexico/Canada production make up 10-20% of group production/sales for GM, Honda, and Ford and <10% for Toyota, Volkswagen, and BMW. In the past, US-based automakers (e.g. Ford and Honda) had also cited earnings warnings due to tariffs on steel and aluminium. These concerns were also highlighted in recent 4Q24 earnings calls where US automakers (e.g. GM, Ford, Tesla) delivered a cautious 2025 outlook on weakening Average Selling Price (ASP) pricing, Inflation Reduction Act (IRA) roll-back risks, and tariff uncertainty. Toyota, on the other hand, upgraded its outlook on firm US pricing power and reduced incentives, given its tight inventory.
Furthermore, to position for Trump 2.0, we advocate investors to consider diversification outside of US, such as in China. During 2018-2019 trade war, Chinese automakers outperformed global autos on the back of strong growth drivers such as robust xEV sales. Going forward, we believe Chinese automakers are poised to outperform global autos. This is driven by a robust demand backdrop, driven by key factors such as (i) government auto stimulus extension, (ii) firm xEV demand, and (iii) autonomous driving tailwinds.
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