Zero Equilibrium Q1 Financial Markets Review and Q2 Expectations

Summary:

The financial markets have had an exciting Q1 that with asset classes reacting to economic data and political concerns around trade and government policy round the globe.

Equities were more volatile than expected, with China and Japan moving in the opposite direction we assumed in Zero Equilibrium Q1 Financial Markets Outlook.

Commodities on our watchlist have moved as expected given the conditions surrounding the predictions made in the outlook.

Crypto has been as volatile as expected, save for gold backed cryptos, and fixed income has been mixed with the US 10yr and  EM proxy Bloomberg SPDR® Local EM Bonds ETF recording gains, and European Sovereigns moving in an opposite direction with rising yeikds.

1.0 Commodities:

Since crude prices per our Q1 2025 outlook hinged in the strenght of the consumer, and supply dynamics.

 

Given the supply increases announced by OPEC+ and the prospects of US Crude supply increases m, oil retreated from its January highs, back into the prior (Q3/4 2024) support resistance range for both BRENT and WTI.

Retail sales in the US declining -1.2% in January (and only recovering to +0.3% in February) coupled with inflation expectations in March, points to a weaker US consumer or a lower US consumer confidence.

 

Add that to the tepid industrial growth out of China, and the Japanese inflation, and it explains the price drop from the initial rise in January. Core PCE out of the US was up 0.37% in March and inflation expectations rose, whilst consumer sentiments declined as well.

Gold on the other hand is benefitting from safe-haven demand, and would continue to do so as it currently stands above $3,000, and looks poised for a breakout towards our set target

 
2.0 Equities:

US Major Indexes:

America Major Indexes have been the most volatile, and having been rocked by weaker consumer data and gloomy business outlook, US markets were hits in March. The Dow has traded sideways in the quarter, retreating from the $43k level seen in February to $41,483.90 as at March 27th close.

 

The S&P500 has also been negative in the quarter, after faiking to hold above the $6k mark hit late December through February. The NASDAQ decline has been the steoest amongst major US Indexes.

 

 

With the ongoing tariff environment and scare, and with over 80% of American manufacturing companies exposed to trade, it is no surprise that equities didn't turn out as we hoped –i.e., the most stable or least volatile as VIX hit 20 and currently at 21.65, from 16. In January, as US companies face increased costs for a large number of US firms that outsource.

 

 

Europe & UK:

Major European indexes experienced a steep rise from the beginning of the quarter (or year) in January through the end of February, the DAX, FTSE100, CAC, FTSEMIB, have experienced some resistance in the month of March ending the bull run earlier in the year.

This is in no small part due to Tarrif, uncertainty and an impending cost of the Ukraine -Russia conflict as President Trump threatens to pull out.

 

Asia:

Japan's Nikkei, Australian S&P/ASX200, Indonesia's IDX Composite and Indias Nifty Index are all in he red for the quarter with the steepest declines observed in the IDX Composite and Nifty. India's Nifty has been on a rise since the beginning of the month of March.

China and Hong Kong are also up, the former due to the excessive stimulus by the PBOC and the latter gaining the most am amongst the group of Asian Markets reviewed.

Inflation and uncertainty weighs on Japanese stocks, as the country is exposed to international in a unique way. Japanese companies have a lot of fixed capital investment in foreign countries and so are not only exposed to home Tarrifs, but tariffs imposed on other countries.

 

3.0 Crypto:

In the midst of this uncertainty have seen major dips across BTC and other Alt coins. Only Gold-backed crypto assets in our watchkist have posted gains, mirroring gold movements.

 

Crypto is living up to its bidding as the most volatile asset class, per our Q1 Outlook. Whether Bitcoin and other rebound in the year would depend greatly on the over economic, and sectoral peorfirmance.

 

Should economies and markets tank, liquidity rush, safe-haven demand depletes price, as investors, in a risk-off sentiment, cut losses and/or take profits in risker asset classes of which crypto tops the list.

Gold-backed cryptos however would continue to mirror the metal as would gold ETFs, as such, we've cut our loses in the alcoins in our crypto portfolio and reinvested (added) in PAXG and XAUT, as we await a bottom in BTC.

 

4.0 Fixed Income:

The SPDR Emerging Market local Bond ETF, our proxy for EM Soverigns has risen steadily in the quarter to $24.12. As posited in our Q1 Outlook, it provided —in the fixed income space— the best risk-reward balance.

 

This has proven true as the rise in Q1 coincides with a fall in the US Dollar amongst its major peers, per the DXY (Dollar Index) chart below. The dollar index has dipped from its January highs of near 110 to about 103.710

The US 10yr yields dipped in the quarter to 4.25% this translate to a price appreciation for bond traders who gained exposure at the begining of the aurer as the ten year note—which moves inversely with the yield—has moved up in the same period from 107.76 to 110.56 from the beginning of January to yesterday's close.

 

Bondholders of European Soverigns would have taking an unrealized hit to their asset holdings as Germany, France, Italy and UK 10 yr yields have moved in the opposite direction in the quarter. This is as rotation into stocks and worries about the debt burden on European governments weigh in on investor sentiments towards European Sovereigns.

 

Q2 2025 Outlook:

In light of the new developments, in policy and gliabla macro indicators we lay out expectations for the four asset classes in the next quarter.

 

Commodities:

Gold: The yeliwnmetal is expected to continue it's upward trend towards our $3,300 targets as safe-haven demand and economic uncertainties drive prices. Only thing prospects of a rate hike in the coming months might see Gold retreat significantly.

Oil: Barring a recession, Oil prices could stay above technical support levels. But further weakening and deteroriation of consumer strength and sentiments in key markets (US, China and Europe)), would continue to kut pressure on prices above resistance.

Silver: Is expected to follow goods momentum ak eit with a lot of ground to cover, but out price targets for the end of Q2 stands at the $35 - $40 range.

 

Equties:

Tarrifs, a weak consumer sentiment and prospects of rate hikes in the US and Japan offsets any effects of stimulus in Europe and China. As a result US major ndexes are likely to move marginally downwards but Europe could see as rebound in the quarter.

Our outlook for Asian stocks re mixed and extremely volatile. We are bearish in Japan and China, because the former grapples with inflation and tarrif effects which outs the BoJ in a tightening course, and the latter is supported more by stimulus than real industrial output.

The Nifty, IDX Composite could find abbakance whilst KOSPI AND Hang Seng are expected to be the most stable in the Asian segment.

 

Fixed Income:

EM Soverigns continue to offer a decent risk reward balance with exchange rate risks the most significant headwind. If the Federal Reserve is forced into a Hmong cycle Treasuries can take a hit as well as US 10yrs, this might offer bond traders and opportunity tonkc in near 5% yields in short asnd long duration government securities.

Corporate Bonds would be determined company specific factors but fouk also suffer from a rate hike.

Crypto:

This is still expected to be more volatile than other segments and sentiments seemed to have tuned bearish. Only the return of aa risk-on sentiment could push Alt coins upwards in the ewuarr. Though a heddge with gold-backed cryptos would stabilize ones portfolio.