(14 -18 April 2025)

1. Markets

When monetary policy meets trade politics

Regime Change: Financial Markets Fracture

Traditional market correlations are breaking down as Treasury yields surge (10-year up 5.2bps to 4.33%) despite mixed economic data and weakening growth signals. The unusual trio of falling stocks, selling sovereign bonds, and weakening currency resembles emerging market crises more than developed market behavior. Gold's surge to record highs while the dollar posts its third consecutive week of decline completes this puzzling picture.

China's response to Trump's tariffs has been swift and comprehensive. Beijing's "National Team" has deployed record ETF buying, implemented 50 million yuan limits on daily stock sales, ordered banks to support the yuan, and cut deposit rates to encourage risk asset investment. Without these aggressive interventions, Chinese markets would likely be in freefall. The artificial stability serves one purpose: maintaining the appearance of not losing the trade war.

The monetary-trade policy standoff creates an impossible dilemma for central banks. Trump's criticism of Powell for being "slow" to cut rates highlights the fundamental tension – tariffs are inherently inflationary, yet the administration demands looser monetary policy. Meanwhile, China's export redirection away from tariff-restricted US markets threatens to create what BCA Research calls a "deflationary tsunami" for Europe, potentially forcing divergent policy paths on either side of the Atlantic.

Market plumbing shows signs of severe strain. The "basis trade unwind" continues behind the scenes as Treasury market liquidity deteriorates to alarming levels. Extreme positioning data (2nd percentile since 2010) suggests capitulation, yet the VIX's failure to break below 30 signals persistent uncertainty. Traditional safe havens are being redefined, with gold outperforming as Treasury volatility rises.

This isn't merely a correction but a fundamental regime shift. When the world's deepest financial markets fragment along geopolitical lines, traditional portfolio construction assumptions require rethinking. Smart investors will recognize that neither globalization's disinflationary effect nor central bank support can be taken for granted. The coming adjustment period promises to be more protracted and complex than consensus expects.

2. Macro Data

US Economic Indicators

‍

Key Takeaways:

· Manufacturing Weakness vs Consumer Strength: The economy shows a clear dichotomy with deteriorating manufacturing indicators (especially the Philly Fed's dramatic drop) contrasted against robust consumer spending and a resilient labor market.

· Inflation Expectations Moderating: The lower yield at the 5-year TIPS auction (1.702% vs. previous 2.121%) suggests markets are pricing in declining inflation expectations despite trade-related pressures.

· Fed Taking Wait-and-See Approach: Powell has signaled the central bank will delay policy easing until it can better assess the impact of trade tensions on both growth and inflation.

· Selective Tariff Implementation: Critical tech sectors like semiconductors currently face moderate 20% tariffs rather than the highest bands, though more targeted semiconductor tariffs may be coming.

· Negotiation Window Critical: With a 90-day tariff pause in place, the market will focus intensely on whether trade tensions can be resolved before this grace period expires, creating potential volatility around key negotiation milestones.

‍

3. Corporate spotlight

a. Taiwan Semiconductor (TSM): Reinforcing its Moat

Taiwan Semiconductor delivered a solid quarter that reinforces its position as the indispensable bedrock of the AI revolution. Revenue missed analyst estimates by a marginal 0.7% but beat the company's own guidance by 0.5%. More impressively, TSM delivered gross margins of 58.8%, beating estimates by 70 basis points despite a 60bp earthquake-related headwind.

The chipmaker's Q2 guidance suggests confidence amid geopolitical uncertainties, projecting revenue 5.9% above consensus estimates while maintaining its full-year outlook of 25% growth. This steadfastness is particularly notable given the company's exposure to China (approximately 10% of next-gen chip shipments) and ongoing export restrictions.

TSM continues its aggressive global expansion with a fresh $100 billion investment in Arizona, bringing its total U.S. commitment to $165 billion. This strategic repositioning will eventually locate 30% of its advanced N2 production stateside, hedging against geopolitical risks while creating "geographic flexibility" for customers.

The company's ability to maintain its industry-leading position while juggling international expansion, geopolitical tensions, and the cyclical nature of semiconductor demand speaks to its exceptional execution. Trading at 14x forward earnings with a projected 24% two-year EPS CAGR, TSM offers compelling value for investors willing to accept Taiwan invasion risk.

b. Netflix (NFLX): Streaming into Strength

Netflix delivered another quarter of disciplined growth, with revenues beating estimates by a modest 0.4% while free cash flow surged 30% above expectations. The streaming giant's earnings per share of $6.61 handily surpassed the $5.66 consensus, though some of this outperformance came from timing of content and marketing expenses.

Management maintained its annual revenue guidance despite Q1 outperformance and favorable foreign exchange tailwinds, a prudent approach in the current environment of global economic uncertainty. The company remains on track for 100% YoY growth in its advertising business, which appears increasingly valuable as both a revenue driver and a hedge against potential economic headwinds.

Netflix continues to diversify its content portfolio, with strategic expansions into live sports (WWE RAW and NFL Christmas games) and strengthening its position in unscripted programming. "Love is Blind" has become the most popular unscripted streaming show ever, spawning local versions in multiple countries – a playbook reminiscent of Disney's franchise approach.

Despite its mature status in many markets, Netflix demonstrated it can still gain share in established territories, with UK screen time market share rising from 8% to 9% YoY. At 39x forward earnings (likely to fall to around 35x after estimate revisions), Netflix trades at a premium but offers a compelling combination of growth, resilience, and execution in an uncertain global environment.

c. Bank of America (BAC): Stable Amid Uncertainty

Bank of America delivered a robust quarter, exceeding revenue estimates by 1.7% and beating EPS expectations by nearly 10%. The outperformance came despite slightly higher non-interest expenses, demonstrating the bank's ability to generate positive operating leverage in a challenging environment.

Credit quality metrics paint a relatively reassuring picture, with delinquency rates actually declining quarter-over-quarter and showing only modest year-over-year increases. While credit card net charge-offs continue to rise, management expressed confidence that they could be "a touch lower next quarter on the consumer side," citing improvements in both early and late-stage delinquencies.

The bank's shift toward commercial lending since the Global Financial Crisis appears to be paying dividends, with its non-performing loan rate at just 0.55% compared to 3.75% in Q4 2009. Similarly, net charge-offs stand at $1.5 billion versus $11 billion during that earlier crisis.

Looking forward, Bank of America maintained its guidance for quarterly net interest income to reach $15.6 billion by year-end, implying approximately 6.5% YoY. The bank's research team does not currently forecast a recession in 2025, though they have lowered GDP growth expectations and now anticipate rate cuts may not materialize until 2026. CEO Brian Moynihan hinted at potential market stress ahead, noting that the bank's "strong position allows us to better serve our clients in times of stress, which may come ahead according to our projections."

‍

4. Other News

A. Nvidia: Caught in the Crossfire of US-China Tech War

Nvidia's AI chips have become America's most valuable bargaining chip in its strategic rivalry with China. The latest export ban extension to include the H20 GPU—specifically designed to comply with previous restrictions—signals Washington's determination to maintain a technological edge, regardless of commercial consequences.

The financial impact appears contained but not insignificant. A $5.5 billion inventory charge will dent next quarter's GAAP profits, with the China market representing roughly 10% of Nvidia's total revenue. Analysts expect a high single-digit hit to Q2 revenue, with margins suffering somewhat less due to the lower economies of scale for these China-specific chips.

Jensen Huang's swift diplomatic mission to China demonstrates both the importance of the market and Nvidia's commitment to finding compliant solutions. Meanwhile, the company's planned $500 billion investment in domestic AI infrastructure serves as a strategic hedge—positioning Nvidia as a patriotic actor while diversifying revenue streams away from increasingly precarious international markets.

For investors, the question remains whether Nvidia's explosive growth in AI infrastructure can outpace the headwinds from geopolitical tensions. The bet on domestic manufacturing suggests Huang sees the AI revolution as sufficiently robust to withstand—and perhaps even benefit from—a fragmenting global technology landscape.

B. SoFi: Capital Markets Vote of Confidence Amid Credit Uncertainty

SoFi's securing of $3.2 billion in funding deals comes at a critical juncture for financial markets. The twin agreements—$2 billion with Fortress and another $1.2 billion two-year deal with Fortress and Edge Focus—bring Fortress's total commitment to over $5 billion, a remarkable endorsement of SoFi's credit quality.

The timing could hardly be more significant. While bond markets flash warning signs and credit spreads widen amid geopolitical uncertainty, capital market partners are doubling down on SoFi. This resilience likely stems from the company's focus on ultra-prime customers—borrowers with stratospheric FICO scores above 770 and annual incomes exceeding $150,000.

These deals enable SoFi to pursue a capital-light growth strategy in its lending business while potentially generating approximately $65 million in annual high-margin revenue over the next two years (assuming conservative 4% revenue take rates).

For investors, this development offers dual reassurance: operational flexibility through secured funding and a powerful third-party validation of SoFi's credit quality at a moment when financial markets are increasingly discerning about risk. The question remains whether SoFi can translate this funding advantage into sustained profitability growth in an increasingly competitive fintech landscape.

C. Tesla: The Perils of Delayed Innovation

Tesla's California market share decline—from 55.5% to 43.9% in a year—raises questions about the sustainability of its premium pricing strategy. While the 15% YoY registration drop partly reflects the ongoing Model Y refresh, the contrast with the sector's overall 8% growth suggests deeper challenges in consumer sentiment.

More worrying is the global nature of this market share erosion and the delay of Tesla's crucial $25,000 mass-market vehicle. Originally slated for early 2025, this potential volume driver now faces a release window between Q3 2025 and 2026—with a US-first strategy that delays addressing competitive pressures in China and Europe.

These developments heighten the importance of Tesla's moonshot projects—energy storage, humanoid robots, and autonomous taxis—to justify its valuation. Investors now face a more binary proposition: either these ambitious ventures materialize and propel Tesla to new heights, or the company struggles to maintain its premium as a conventional automaker with diminishing market share.

For Tesla bulls, the company remains an American innovation engine with multiple potential avenues for transformative growth. For skeptics, the investment case increasingly relies on products that aren't yet in production, creating a risk profile at odds with a $600+ billion market capitalization. The widening gap between Tesla's current business performance and its valuation suggests markets are pricing in significant optionality value from projects still years from meaningful revenue contribution.

D. Google: Ad-Tech Monopoly Ruling Creates Noise, Not Existential Risk

The district judge ruling that Google's ad-tech business constitutes an illegal monopoly represents another regulatory setback for the search giant. The decision, which Google will likely appeal, focuses on the inherent conflicts of interest created by Google's presence across multiple segments of the advertising value chain.

However, the potential forced restructuring would likely have minimal impact on Google's fundamental growth drivers, which increasingly center on search, YouTube, and cloud services. The company had already been deprioritizing its ad network and campaign-building business segments well before this ruling.

For the broader digital advertising ecosystem, the ruling could potentially benefit independent ad-tech players by creating a more level playing field. For Google investors, this represents another example of regulatory pressure that creates headlines but may have limited impact on the company's fundamental value proposition.

The case illustrates the growing divergence between regulatory concerns about Google's historic dominance and the company's evolving business priorities. While regulators focus on past market power, investors are more concerned with Google's position in AI and cloud computing—areas where the company faces significant competition and has yet to establish the same level of dominance it achieved in search and digital advertising.

E. Amazon shows acceleration in North American sales growth from 8% to 12% year-over-year, potentially reflecting consumer anxiety about upcoming tariffs—a rare instance where trade tensions might temporarily boost consumption.

F. Uber's exploration of purchasing Trendyol Go, a Turkish delivery subsidiary with 2.3 million weekly active users, signals continued international expansion despite geopolitical headwinds.

G. Mercado Libre's plans to grow headcount by 33% year-over-year in 2025 suggests confidence in its business model and regional growth prospects, seemingly unconcerned about potential trade war impacts.

H. Meta's monopoly case brought by the FTC appears less substantive than Google's ad-tech challenges, given the proliferation of scaled competitors including X, YouTube, LinkedIn, Snapchat, Pinterest, and TikTok.

I. PayPal continues its platform enhancement strategy with OpenAI integration while facing a downgrade to "sell" from Seaport specifically citing trade war concerns—highlighting the market's inconsistent assessment of geopolitical risks across the fintech landscape.

J. Palantir's deal with NATO for its Maven product and partnership with Anthropic for FedRamp accreditation reinforces its position at the intersection of AI and government contracting—a potentially resilient niche amid broader market uncertainty.

Disclaimer: This musing is for informational purposes only and should not be considered as investment advice.

‍

Kristal Advisors

April 22, 2025

Liked it?
Share it with your friends & colleagues!

Market Update

April 22, 2025

Market Musings – When monetary policy meets trade politics

Kristal Advisors

Market Update

April 14, 2025

Market Musings – Market discipline meets economic nationalism

Kristal Advisors

Articles

April 11, 2025

The Lithography Inflection Point - How Two Different Approaches to EUV Could Reshape the Semiconductor Industry

Kristal Investment Desk

Go to Blog

Ready to start investing?

A fully digital onboarding process that can be completed within 15 minutes.
No more voluminous paperwork and queuing!

Investment Solutions

Invest with us

Company

Resources

+65 92391022

Partnerships

cp@kristal.ai

Customer Support

support@kristal.ai

We are licensed in Singapore, Hong Kong and India. Kristal Advisors (SG) Pte. Ltd. presently operates under the CMS license by the Monetary Authority of Singapore (MAS). Kristal Advisors (HK) Ltd is licensed and regulated by the Securities and Futures Commission (SFC) to carry out Type 4 and Type 9 regulated activities and is not involved in the discretionary management of any collective investment scheme. Kristal Advisors Private Ltd. presently operates as a Registered Investment Advisor under the jurisdiction of the Securities and Exchange Board of India (SEBI).

Read more about our privacy policy - Here

Copyright © 2023 Kristal Advisors (SG) Pte. Ltd. UEN: 201711235E

Investors

Institutional Clients

Partner with us

Wealth-tech Platform

Kristal PaaS