SignalPlus Macro Analysis Special Edition: Deal No Deal

After announcing a pause on tariff increases against China, President Trump suddenly posted on social media that EU trade negotiations are 'making no progress', and therefore he 'suggests imposing a 50% tariff on the EU starting June 1, 2025'. Trump pointed out that the EU has 'strong trade barriers, value-added tax, ridiculous corporate fines, non-monetary trade barriers, currency manipulation, and unfair and unreasonable lawsuits against US companies', and believes these measures have led to an 'unacceptable' trade deficit of over $250 billion annually.

As the market prepared to respond to EU retaliation, Trump quickly changed his position after a call with the President of the European Commission, announcing that the tariff implementation date would be postponed to July 9. We are back to square one, but the dollar is already under greater pressure at the start of this week.

Simplifying the overall logic, if the goal of the United States is to eliminate trade deficits with trading partners, it essentially requires the European Union to pay about $200 billion each year as an 'entrance fee' to access the US market, which is clearly an unacceptable cost for most people.

In fact, according to Citigroup's analysis, under the framework of game theory, the final 'Nash Equilibrium' result reached by both the US and Europe is likely to involve mutual imposition of 50% tariffs.

In the case of Japan, according to the same analysis, considering the extremely limited impact on its net exports, a 'no agreement' status may actually be most favorable for Japan. Ironically, reaching a 'comprehensive agreement' with the US under current conditions may be the worst outcome, so it is not surprising that negotiations between the two sides may become stalled in the future.

Of course, there are many dynamic factors that market participants and economists have not grasped (such as reliance on rare earths, etc.). Just like the situation with China, the US side seems to have ultimately chosen to make comprehensive concessions, accepting a less than ideal outcome. Similar to Japan, economists generally believe that China is likely to reach a comprehensive agreement with the US, and the best approach is to delay the negotiation process to secure more concessions from the US side, which are indeed happening.

For the global macro market, this is also the 'optimal solution': the US withdraws policies that force a synchronized slowdown of the global economy, the US dollar becomes the main pressure point, while the strong performance of overseas stock markets somewhat offsets the impact.

Back to the market level, apart from the US dollar, the biggest loser is global fixed income assets. Recent credit rating downgrades, disappointing budget results, and a series of weak US Treasury auctions have pushed bond yields back to the upper range.

The dual blow of soaring bond yields and fiscal budget concerns has led to SPX underperforming other global markets and macro asset classes, suffering its largest single-week decline (-1.6%) since early April, with all sectors experiencing selling pressure.

The recent correction in US stocks occurred at a time when overall market sentiment had risen to overheating levels, especially in the US, China, and European markets.

While growth stocks and real estate are most sensitive to yields, as geopolitical and economic recession tail risks have gradually subsided over the past month, higher term premiums have also dragged down spot gold prices.

In the short term, we believe that the current market's concerns about the US budget and spending issues may be exaggerated, just like the previous panic over an economic recession. As the government's tariff measures are gradually implemented, it is expected to bring considerable revenue to the finances in the future, which should offset some short-term deficit pressures.

In contrast, cryptocurrencies have shown remarkable resilience in the past two weeks, with BTC prices outperforming US stocks and US Treasury bonds by about 15% over the past three weeks.

In terms of ETF fund flows, the weekly net inflow reached $2.75 billion, the third highest in history, with ETH also attracting a net inflow of $248 million.

The passage of the GENIUS stablecoin bill is widely regarded as an important milestone in the development of the cryptocurrency industry, although the cost is the strengthening of oversight and regulation of institutions, moving further away from the initially emphasized decentralized spirit of cryptocurrency.

The volatility skew of BTC and ETH has returned to a more normal level, leaning upwards, and overall implied volatility has also rebounded, indicating that investors are no longer shorting the rebound, but are shifting towards more sustained upward breakout trends.

Meanwhile, MicroStrategy announced the launch of the latest round of $2.1 billion preferred stock issuance at market price to increase its BTC holdings. The current macro environment still provides a tailwind, and momentum seems to favor the cryptocurrency side. Moreover, recent price trends are structurally healthier, with a significant reduction in chasing highs sentiment, which is conducive to a sustained upward breakout and the potential to reach new highs in the coming weeks.

Wishing everyone good luck and smooth trading!

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After announcing a pause on tariff increases against China, President Trump suddenly posted on social media that EU trade negotiations are 'making no progress', and therefore he 'suggests imposing a 50% tariff on the EU starting June 1, 2025'. Trump pointed out that the EU has 'strong trade barriers, value-added tax, ridiculous corporate fines, non-monetary trade barriers, currency manipulation, and unfair and unreasonable lawsuits against US companies', and believes these measures have led to an 'unacceptable' trade deficit of over $250 billion annually.

As the market prepared to respond to EU retaliation, Trump quickly changed his position after a call with the President of the European Commission, announcing that the tariff implementation date would be postponed to July 9. We are back to square one, but the dollar is already under greater pressure at the start of this week.

Simplifying the overall logic, if the goal of the United States is to eliminate trade deficits with trading partners, it essentially requires the European Union to pay about $200 billion each year as an 'entrance fee' to access the US market, which is clearly an unacceptable cost for most people.

In fact, according to Citigroup's analysis, under the framework of game theory, the final 'Nash Equilibrium' result reached by both the US and Europe is likely to involve mutual imposition of 50% tariffs.

In the case of Japan, according to the same analysis, considering the extremely limited impact on its net exports, a 'no agreement' status may actually be most favorable for Japan. Ironically, reaching a 'comprehensive agreement' with the US under current conditions may be the worst outcome, so it is not surprising that negotiations between the two sides may become stalled in the future.

Of course, there are many dynamic factors that market participants and economists have not grasped (such as reliance on rare earths, etc.). Just like the situation with China, the US side seems to have ultimately chosen to make comprehensive concessions, accepting a less than ideal outcome. Similar to Japan, economists generally believe that China is likely to reach a comprehensive agreement with the US, and the best approach is to delay the negotiation process to secure more concessions from the US side, which are indeed happening.

For the global macro market, this is also the 'optimal solution': the US withdraws policies that force a synchronized slowdown of the global economy, the US dollar becomes the main pressure point, while the strong performance of overseas stock markets somewhat offsets the impact.

Back to the market level, apart from the US dollar, the biggest loser is global fixed income assets. Recent credit rating downgrades, disappointing budget results, and a series of weak US Treasury auctions have pushed bond yields back to the upper range.

The dual blow of soaring bond yields and fiscal budget concerns has led to SPX underperforming other global markets and macro asset classes, suffering its largest single-week decline (-1.6%) since early April, with all sectors experiencing selling pressure.

The recent correction in US stocks occurred at a time when overall market sentiment had risen to overheating levels, especially in the US, China, and European markets.

While growth stocks and real estate are most sensitive to yields, as geopolitical and economic recession tail risks have gradually subsided over the past month, higher term premiums have also dragged down spot gold prices.

In the short term, we believe that the current market's concerns about the US budget and spending issues may be exaggerated, just like the previous panic over an economic recession. As the government's tariff measures are gradually implemented, it is expected to bring considerable revenue to the finances in the future, which should offset some short-term deficit pressures.

In contrast, cryptocurrencies have shown remarkable resilience in the past two weeks, with BTC prices outperforming US stocks and US Treasury bonds by about 15% over the past three weeks.

In terms of ETF fund flows, the weekly net inflow reached $2.75 billion, the third highest in history, with ETH also attracting a net inflow of $248 million.

The passage of the GENIUS stablecoin bill is widely regarded as an important milestone in the development of the cryptocurrency industry, although the cost is the strengthening of oversight and regulation of institutions, moving further away from the initially emphasized decentralized spirit of cryptocurrency.

The volatility skew of BTC and ETH has returned to a more normal level, leaning upwards, and overall implied volatility has also rebounded, indicating that investors are no longer shorting the rebound, but are shifting towards more sustained upward breakout trends.

Meanwhile, MicroStrategy announced the launch of the latest round of $2.1 billion preferred stock issuance at market price to increase its BTC holdings. The current macro environment still provides a tailwind, and momentum seems to favor the cryptocurrency side. Moreover, recent price trends are structurally healthier, with a significant reduction in chasing highs sentiment, which is conducive to a sustained upward breakout and the potential to reach new highs in the coming weeks.

Wishing everyone good luck and smooth trading!