Big changes are happening as we continue to kickoff 2025.
Big Changes Are Happening
February 18 (King World News) – Peter Boockvar: Just a few thoughts of mine as I think about the changes possibly coming in the macro/micro influences on the market and global economies. I think the DeepSeek news was a lasting news story and not just a one time flash in the pan. I think a stock market regime change is upon us in that the Mag 7 stocks are no longer the dominant force driving returns. All will remain special (we can all debate to the extent) companies in many regards but in terms of stealing all the stock market thunder away from everything else, those days could be over. I emphasize ‘could.’
In a way, the big 7 have become its own reserve currency where foreigners around the world have parked their money in and keeping a bid under the US dollar. For example, the Norges Bank, the central bank of Norway, owns 324 million shares of Nvidia and thus worth about $45 billion at its current quote. The Swiss National Bank owns 69 million shares worth almost $10 billion. What will it mean for the US dollar if these big stocks are not the same incredible market leaders they’ve been? This is really an important question because if a multitude of tariffs get implemented, the US will need to maintain a stronger dollar in order to mitigate its impact on US importers and thus in a way, we need stock market strength in the Mag 7 to keep these foreign holders from selling them.
Shift To Europe
Also as part of this potential shift, Europe’s impressive stock market performance year to date might not be a flash in the pan either. It seems European leaders, and highlighted by a Mario Draghi editorial over the weekend in the FT titled ‘Europe Has Successfully Imposed Tariffs on Itself’ saying that “High internal barriers and regulatory hurdles hurt growth far more than anything the US might do”, finally get the economic ineptitude they have created for themselves via excessive regulation and bureaucracy. Also, they are on the cusp of spending a huge amount of money on upgrading and adding to their defensive capabilities. Their stock market rally likely has legs.
China Bottoming
China’s economy seems to be bottoming, though real estate will still take time to recover. The DeepSeek news seems to have brought some swagger back in their economic step and now we have President Xi meeting with Jack Ma and other entrepreneurs over the weekend realizing that the only economic ticket he has to success is via the private sector, not the state. By the way, more than 80% of employment in China is with private sector companies. That is not to say his authoritarian approach will change much but he’s at least understanding the error of his ways in strangling the private sector it seems. The Hang Seng by the way rose another 1.6% overnight and is up 14.5% year to date.
We also have the likely rebuild of Ukraine and Gaza and just imagine the demand for building materials that this will bring. Commodity prices are likely going higher and bond yields are going to take another leg up as well as inflationary pressures will be well bid.
What this all possibly means is that market attention is in the midst of changing I believe, economic life in depressed regions is about to come alive and it will not all be about 7 stocks anymore.
Meanwhile In Germany
Investor confidence has picked up specifically in Germany in their economy as the February ZEW rose to 26 from 10.3 and was above the estimate of 20. The Current Situation remains tough though as this component was still deeply negative at -88.5 vs -90.4 in January. The ZEW said “This rising optimism is probably due to hopes for a new German government capable of action. Also, after a period of absent demand, private consumption can be expected to gain momentum in the next six months.”
Bond yields have been creeping up again in Europe with the German 10 yr yield now up 9 bps in the past three trading days at 2.51%, a 3 week high.
Australia Cuts Rates
The Reserve Bank of Australia cut rates by 25 bps as expected to 4.10% and this is their first rate reduction since the Covid shutdowns in 2020. But, the usually hawkish Michele Bullock doesn’t seem ready to cut again anytime soon. “While today’s policy decision recognizes the welcome progress on inflation, the board remains cautious on prospects for further policy easing.”
Yields rose in Australia in response and I have to mention yet again, do not stop watching what is going on with Japanese bond yields as they rose again yesterday and today. The 10 yr JGB yield is up 7 bps over the past two days to 1.43%, the highest level since November 2009.
Bond yields are up too in the UK after payrolls there unexpectedly rose in January by 21k instead of falling by 30k as estimated. Also, wage growth was stronger than anticipated in the three months thru December. Their unemployment rate held at 4.4% vs the estimate of 4.5%.
This yield boost in Europe and Asia is why the US 10 yr yield is back above 4.50% again today.
MAJOR GOLD PRICE PREDICTION 2025!
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JUST RELEASED! Gold Hits New Record High This Week!
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