Market Musings 020325: Chartstorm (end-month)

Market Musings 020325:
Chartstorm (end-month)

So apologies this week, I have been working on a follow-up to my article last week about how to invest using an ETF-based system for my friend Tony.

But I haven’t finished the work yet, so I will write the article (part 2) next week.

In the meantime, here are some interesting charts and my conclusions…

Podcast this week:
German elections: implications for the economy and markets (click link to listen)

Stephan Kemper, Chief Investment Strategist, and Guy Ertz, Deputy Global Chief Investment Officer, discuss the impact of the German elections from a macroeconomic perspective and the implications for the markets..

Short report (1):
Frequently asked questions: February 2025 (click link to read)

1. Can the eurozone improve economic growth through key reforms? We expect initiatives in the coming months to improve the economy, particularly through deregulation. We continue to believe that investors are too pessimistic about the eurozone. High savings rates in the EU, moderating inflation and growing confidence in EU reforms and investment programmes, could drive real GDP growth close to 1%.

2. Are US and eurozone government debt burdens sustainable? There is no universal threshold for how much debt a country can sustain before facing sustainability concerns or the risk of default. In theory, there are three ways to reduce public debt: i) faster economic growth; ii) fiscal consolidation and iii) financial repression. At this stage, deficits and debt burdens do not pose a major source of stress.

3. What does the DeepSeek announcement mean for the AI investment theme? So far, there has been no suggestion of slower AI investment growth by the big 4 US hyperscalers. We expect the commoditisation of AI with the rapid introduction of competing generative AI models to lower entry costs for end users. This should accelerate widescale adoption of this technology in the wider economy. Economies could benefit from faster productivity growth with attendant disinflationary pressures on labour costs.

4. Should investors hold or take profits on gold? The gold price has risen to a new all-time-high, close to our USD 3000 target. Aside from ongoing buying by central banks (diversifying their reserves away from USD assets), the gold price is mainly supported by investors’ flight to safe havens due to high geopolitical uncertainties, mainly due to President Trump’s policies. Longer term, we still expect the uptrend to continue, supported by further gold reserves accumulation by central banks, combined with the likely continuation of geopolitical and economic uncertainties. Hence, we slightly increase our 12-month target for gold from USD 3000/oz to USD 3200/oz and maintain our Positive view.

Short report (2):
What if? Implications of a ceasefire in Ukraine (click link to read)

1. The chances of a solution in the form of a ceasefire are rising. While the general impact may be positive, the details will determine its magnitude.

2. A durable solution would likely lead to lower gas prices in Europe.

3. Defence spending is poised to rise in either scenario (i.e. ceasefire or durable agreement) to secure compliance with a deal.

4. Peace of mind – Lower geopolitical risks could increase consumer confidence, lower savings rates and boost discretionary consumption.

5. We remain Neutral on Europe as there may be some offsetting factors. Prefer sectors (e.g. Construction & Materials or Industrials) to benefit from a halt of hostilities.

Chartstorm using monthly charts

1 S&P 500 index: Struggling in 2025 but still in an uptrend
(above the 200-day moving average - blue line)

2 Surprisingly, US retail investors are bearish, according to the weekly AAII survey of investor sentiment
Typically a good time to buy US stocks when this survey points to investor pessimism

3 Euro STOXX 50: a further 3% gain in February, 11% year-to-date and finally back to the March 2000 high
Despite the pessimism around the Eurozone economy, European stocks continue to beat the US

The German DAX index is still looking strong; will the new government help?

4 UK FTSE 100: +8% year to date, making new highs
The UK remains an unloved destination for international investors, remains cheap at 10x P/E

5 Chinese Tech stocks boost the Hong Kong Hang Seng Index
While most of this optimism has come from mainland chinese inverter buying,.not international investors

Still a way to go for leading China Tech stocks to recover from the 2021-23 bear market losses

6 Eurozone Banks still leading the charge higher, but a long way to go to recover from the
2007-2020 Banks bear market
Quarterly results have been strong, dividend yields are still high and dividends are increasing

7 Gold still looks great on a monthly chart despite retreating from the $2900/ounce level this month
I still think $3000 will be reached soon

8 Bitcoin down sharply from its all-time high, but this hardly registers on the long-term chart
And now President Trump is talking of setting up a US Crypto Reserve…

Have a great week,

Edmund