The start of 2025 has been marred by a series of false starts and unresolved price action, with risk assets struggling for direction after the game-changing Deepseek narrative and the on-and-off tariff threats from President Trump.
Economic data currently taking somewhat of a backseat with the latest NFP headline coming in slightly lower than expected in January, but that was offset by a drop in the unemployment rate to 4% and leading to a muted risk reaction. Fed fund futures are pricing only 9% of a cut for the March FOMC, with no full cuts priced in until the September meeting (+5 meetings), effectively taking the Fed out of the current narrative at this stage.
On the other hand, the flip-flopping on tariffs continues with Trump announcing plans to levy 25% global tariffs on all steel and aluminum imports as of today (Monday), along with reciprocal tariffs that would be effective immediately. US equities sold off and spot rebounded back near ATHs late Friday as markets are positioning for a challenging US open.
Speaking of gold, the yellow metal has a strong chance of rising to fresh highs, this week on the back of tariff concerns and continued buying from global central banks. PBoC continued its 3rd consecutive monthly purchase and has been adding to its reserves every month ever since Trump took office. Impressively, the rally in gold has been taking place despite a rise in terminal interest rates and easing of crypto momentum, suggesting a structural change in demand that is no longer a just a pure-play on central bank liquidity.
Despite the choppy start, US retail investors and day traders remain heavily involved in equity markets, with 0dte option volumes rebounding to fresh all time highs, while implied equity vol remains low outside of CPI/Powell and Nvidia earnings later this month.
The extreme bullish sentiment is appears to be close to trigger a ‘sell’ signal from various sell-side trading models, while SPX earnings have actually been trending downwards for both 4Q2024 and 2025 forecasts. We are cautious on our near-term equity outlook from here as well.
In crypto, price action has been disappointing beneath the recent volatility, with major altcoins falling anywhere from -15 to -20% YTD despite the rampant excitement over the Bitcoin SDR and institutional adoption. In one of our earlier pieces, we touched on our concerns regarding the $TRUMP memecoin release and the negative connotations it might carry to our space. So far, that concern has been validated as crypto has seen a large drop off in trading volumes since the new year, with anecdotal evidence suggesting a lot of PNL damage to trading accounts given the recent sharp liquidations.
The rise of BTC vs everything else is the most evident in comparison with ETH, which is seeing record short-interest and FUD with the 2nd largest token being down -23% YTD vs a +2.5% gain in BTC. At the risk of sounding like a broken record, but a lack of L1 catalysts and narrative leadership will likely continue to weigh on Ethereum in the foreseeable future.
To add insult to injury, native observers report a whopping $30B+ of altcoin supply to be unlocked over the next 12 months into limited demand and damaged wallets, with the incoming TradFi capital likely to stay strictly within just BTC (or the ‘big 3’) and unlikely to have any ‘alt-season’ spillover. The weakness is permeated through to the weak token performance post listing, even on Binance. It would appear that ‘this time IS different’ for the maturing crypto cycle.
Finally, on a lighter topic, after the $TRUMP issuance, are we going to see more countries issue memecoins of their own to fund raise for their budget? We really hope that this is a tongue-in-cheek joke and not something we are going to normalize to in the brave new future…!
