Trump’s second term is about to reach its 100th day, but the geopolitical situation has changed dramatically compared to a few months ago. The question is no longer whether the United States will decouple from the world, but how it will decouple; and the United States’ “exorbitant privilege” in the dollar’s role as the global reserve currency system has begun to face substantial challenges.
Correlations between assets are breaking down, capital flows are starting to run in the opposite direction, and Bitcoin is (finally) starting to diverge from stocks. The President is even threatening to treat the Fed Chair like a contestant on (The Apprentice), and large U.S. endowments are dumping illiquid private equity assets at the industry’s most difficult time. Have we truly reached a critical turning point in financial history?
US dollar safe haven asset
One of the most pressing questions in the market today is whether the dollar and U.S. Treasuries have lost their long-standing safe-haven status? Has Trump caused irreparable structural damage to the global security and financial system established after the war?
Investors are pulling out of U.S. dollar assets in favor of the euro and yen, while also selling U.S. stocks and allocating to Chinese stocks. Market uncertainty over the end of "American exceptionalism" has caused the dollar index to fall to a three-year low, while the University of Michigan consumer confidence index has also fallen to a near-record low due to growing inflation concerns.
Foreign investors' allocation to U.S. stocks has also slowed significantly, with ETF inflows almost to zero in the past three months.
At the same time, macro asset correlations are also collapsing. The yen has appreciated significantly (USD/JPY ~140), but the Nikkei index has risen instead of falling, indicating that this wave of yen appreciation is not driven by the typical carry trade unwinding, but the result of a weaker dollar.
The most important "known unknown" is still US Treasuries. The rise in 10-year US Treasury yields on the back of a weaker dollar, stock markets and underlying economy looks like emerging markets. Although we disagree, it is undeniable that the current US financial situation is tightening and bonds are not playing their role in hedging risks. Until the Trump administration's tariff game cools down, the market may find it difficult to find a clear solution.
Foreign investors have continued to reduce their holdings of U.S. Treasuries over the past six months, and central banks may be selling U.S. dollar assets to defend their currencies.
Despite the recent sharp pullback in US stocks, they still trade at a significant premium to emerging markets and other international equities, which have made little progress (in terms of valuation multiples) since the global financial crisis. Given that the trade war is unlikely to benefit any country completely, we do not believe that foreign markets will be able to narrow the valuation gap with U.S. stocks on their own. In this case, if U.S. stocks eventually "correct downward" to narrow the valuation gap, it will mean the destruction of wealth, which is not a positive development that the market would like to see. The market should be cautious, after all, wishes coming true may not necessarily be a good thing.
Uncertainty about trade deals
The tariff turmoil continues, and US President Trump, as usual, vacillates between tough threats and an imminent deal. Last Friday, he claimed that he was "very confident of reaching a trade deal with the European Union... a good deal with China... everyone is on my priority list", which once pushed up a rebound in risky assets, but subsequent progress was limited as the first trade agreement was still a long way off.
We still believe that the apparent tariff figures are not as important as the "minimum tariff rate" set in the preliminary agreement. What is more worrying is that the United States has not yet been able to reach a preliminary agreement with Japan, which shows that the negotiation goals and scope may not be clear yet.
However, following Chinese President Xi Jinping's visit to Southeast Asia, the US is also expected to hold bilateral trade talks with Japan, South Korea, Thailand and India this week during the IMF Spring Meetings. The UK is also reportedly expected to finalize a deal with the US within three weeks. Watch closely to see if any concrete progress can be made in the coming weeks.
(Who is the successor / Apprentice) Season 2
"Fed Chairman Jerome Powell is always a step behind and full of mistakes, and yesterday he delivered another typical "disaster" report... I can't wait to remove him!" "The Fed should lower interest rates for the American people. This is the only thing he can do... I am very dissatisfied with him. If I want him to step down, believe me, he will be gone soon."
-- Trump via Truth Social, 17 Apr l2 025
"If the Fed chairman knew what he was doing, rates would have come down a long time ago. He should have done it immediately."
-- Trump at the Oval Office on 19 Apri l2 025
"Prices are falling as I predicted, with little inflation, but the economy could slow down if Mr. Slow doesn't cut rates soon. Europe has already cut rates seven times. Powell is always too slow, but he was quick to cut rates during the election when he helped Biden and then Kamala Harris."
-- Trump via Truth Social, 21 Apr l2 025
Despite previous White House statements that it was willing to endure some economic pain in response to the trade war, Trump returned to his familiar script, pointing the finger at the Federal Reserve, criticizing it for not cutting interest rates faster.
While we agree that it is prudent to push long-dated rates lower as financial conditions ease, there seems to be no benefit in urging the Fed to cut rates amid a weaker dollar and import-cost driven inflation.
The market seemed to agree, with the SPX falling 2% on Monday while yields moved higher again, with market participants clearly not buying into the latest threatening rhetoric.
On the other hand, Fed Chairman Powell took the situation in stride and responded professionally, firmly maintaining the independence of the Fed:
"The independence of the Federal Reserve is widely understood and supported in Washington and Congress."
"People can say whatever they want, that's fine. That's fine, but our decision-making is not influenced by politics or other external factors at all."
-- Powell at the Economic Club of Chicago, 17 Apr 2025
Nevertheless, market concerns about an economic slowdown are growing, and interest rate market pricing reflects a much higher number of rate cuts this year than the Fed predicts (4 vs 2). Against this backdrop, we think it is unwise for the president to put more pressure on the Fed, but looking back over the past two months, we have heard more outrageous remarks.
An economic slowdown is imminent
By some measures, uncertainty about economic policy is now at its highest level ever, even higher than at the start of the pandemic. This uncertainty has led to a sharp decline in business outlooks, with the New York Fed’s manufacturing survey showing that business activity expectations have fallen to their lowest level in more than a decade.
Sub-indicators also show similar situations. Forward-looking shipment and capital expenditure indicators have fallen sharply, while payment prices have risen significantly. At the same time, corporate earnings have continued to be revised downward, and profit growth has been compressed, casting a shadow on the stock market.
Poison Pill
While markets tend to listen to officials, the so-called “Trump 2.0 trade” has been a disaster so far, with most policy narratives ultimately resulting in significant losses. A picture is worth a thousand words:
Once bitten, one will be afraid of the rope for ten years. The market will probably not easily accept Trump’s remarks in the future.
Brave hero or cannon fodder?
While hedge funds have been busy deleveraging and reducing risk as they suffered heavy losses in 2025, retail investors have been doing the opposite, with leveraged Nasdaq ETFs seeing record inflows over the past two weeks.
There is ample evidence that retail and passive funds have vastly outperformed active funds and professional fund managers over the past five years, will history repeat itself, as doubtful as it seems at the moment?
As retail investors increase their bets, a considerable number of companies have lowered their earnings expectations, and the market depth (liquidity) of the SPX index has approached a historical low.
Gold shines again
This wave of gold's rise has almost made up for the lag of the past decade in one go. Spot prices have risen by about 150% since the beginning of 2024. As investors seek a safe haven for capital in this upside-down world, gold has shown a vertical upward momentum in recent times.
Ironically, President Trump recently made a revealing comment on social media: “He who owns the gold makes the rules,” possibly referring to his negotiating tactics, further pushing the spot price of gold to a new high above $3,400.
In addition, data shows that this wave of gold price increases mainly occurred in the Asian session, indicating that there may be capital flows from official or central banks, which are shifting from the US dollar to other safe-haven assets. Compared with the past, the decoupling of the US dollar seems to be more obvious.
BTC Narrative Reboot - No Longer Just Nasdaq, But Not Yet Gold
Decoupling from the US dollar may bring the long-term bullish narrative of BTC as a means of storing value back into the market's attention. Although we have criticized BTC for becoming more and more like a highly leveraged version of the Nasdaq index in the past year, it has finally begun to show signs of decoupling from the stock market recently. Last week, the overall performance of the US stock market was weak, but the price of BTC still approached the $90,000 range.
Of course, we can’t be too optimistic. Since the beginning of the year, BTC’s performance is still significantly behind spot gold, so at most it can be said that it is gradually evolving into a hybrid of gold and leveraged Nasdaq, but such a development has already surpassed the positioning of “a beautified version of TQQQ”.
JPM data shows that gold futures positions have increased significantly recently, while BTC's capital flow has stagnated. If BTC's prospects as a safe-haven asset are to be truly realized, the market still needs to observe whether funds will flow back.
Small hit to U.S. endowments
In addition to issuing threats internationally, the Trump administration has also recently been wrestling with American endowment funds at home, represented by Harvard, which may have a negative impact on market liquidity.
Yale University's endowment is reportedly set to sell about $6 billion of its private equity holdings at a difficult time when liquidity in the private market is at historic lows and investment returns are weak.
Non-US observers may not realize the size and importance of the US endowment system, which has historically been one of the most influential "permanent" holders in the capital markets. Will the ongoing political struggle lead to a slowdown in their investments, or even a change in their capital allocation structure? Life is never boring when dealing with the Trump administration. Times are indeed changing...
I wish you all a successful trading week!
