Market Overview

Abnormal Signal

This week, the financial markets experienced significant volatility:

• The stock market, bond market, and foreign exchange market all fell simultaneously, with the S&P 500 index rising by as much as 5% during the week, but with significant volatility.
• The 10-year U.S. Treasury yield surged to 4.47%, hitting a recent high.
• The US Dollar Index fell below the 100 mark, hitting a new low in nearly 10 months.

Divergence in safe-haven asset performance:

• Gold surged past $3200/ounce
• The Japanese Yen and Swiss Franc strengthen
• The status of the US dollar as a traditional safe-haven asset is being questioned.

Economic Data Contradictions

Inflation data shows early signs of stagflation:

• Overall CPI declined, mainly due to the decrease in gasoline prices.
• Housing and food prices continue to rise in core inflation.
• PPI decreased by 0.4% month-on-month, reflecting both shrinking demand and rigid costs.

The current data has not yet reflected the impact of the new tariffs, and the market's pessimistic expectations for the future economic outlook are intensifying.

Liquidity pressure emerges

The U.S. bond market is experiencing a selling spiral:

• The sharp decline in long-term bond prices has led to a decrease in the value of collateral.
• Hedge funds are forced to sell off, further driving up yields.

Increasing pressure in the repurchase market:

• The spread between BGCR and SOFR has widened
• Reflect the sharp rise in collateral financing costs
• Liquidity stratification intensifies

Policies and External Risks

Trade friction escalates:

• The U.S. has raised tariffs on China to 145%.
• China's counter-tariff raised to 125%
• The trade war has partially eased, but long-term risks remain.

Pressure of refinancing US debt:

• Approximately 9 trillion U.S. Treasury bonds will mature in 2025.
• If foreign holders sell off in large quantities, it will exacerbate liquidity pressure.

Next Week Outlook

Market Shift to Defensive Logic

• Capital flows into non-USD safe-haven assets, such as gold, yen, Swiss franc, etc.
• Stagflation trades dominate, with long-term U.S. Treasuries and high-leverage equity assets facing sell-off risks.

Key Monitoring Indicators

• US Treasury liquidity ( focus on whether the 10-year yield breaks 5% )
• Changes in Chinese Holdings of US Treasuries
• Bank of Japan currency intervention
• High-yield bond spread trend