Guotai Junan released a research report stating that the U.S. core CPI rose 0.4% month-on-month in January, higher than market expectations, which dampened the market's interest rate cut expectations. Additionally, Powell stated that he is 'not in a hurry to cut rates,' causing the market to push back the timeline for rate cuts this year. Currently, the 'Trump trade' is underperforming, and the movements of dollar assets are confused. In March, the Federal Reserve is likely to skip another rate cut, and U.S. Treasury bonds may remain slightly volatile this month, with the market overall in a state of waiting for new directions.

Guotai Junan's main points are as follows:

U.S. inflation has surged, pushing back market expectations for rate cuts.

U.S. core CPI rose more than expected in January, and combined with Powell's recent statement in a congressional hearing that he is 'not in a hurry to cut rates,' the market has pushed back the timeline for rate cuts this year again, pricing in roughly only one rate cut this year. The market's response has resulted in overall U.S. Treasury yields rising by 7-8 basis points, but the dollar index and U.S. stocks did not experience significant fluctuations.

The 'Trump trade' has performed poorly, and the market lacks visibility.

So far this year, the 'Trump trade' has performed moderately. The dollar and U.S. Treasury bond yields have not risen as expected; instead, there has been some pullback. The Nasdaq has performed reasonably well but also seems to be not as strong as anticipated. Current Treasury Secretary Yellen previously stated that Trump is most concerned about the 10-year U.S. Treasury yield rather than whether to cut rates. Before the January inflation data was released, Trump also stated on social media that interest rates need to be lowered to match the upcoming tariffs.

Overall, Trump's shift towards domestic policy is relatively clear, with controlling inflation and deficits being the main policy objectives at present. However, tariffs seem to drive up inflation and inflation expectations, adding complexity to the current 'Trump trade.'

The market has entered a waiting period, with short-term volatility in U.S. Treasuries.

The market still lacks visibility, which is fundamentally why dollar assets have been performing ambiguously recently. The trend in the 2-year U.S. Treasury yield and overnight SOFR rates also shows that short-term bonds are almost consistent with capital costs, indicating that the market's trading logic has become more focused on certainty.

In the March interest rate meeting, the Federal Reserve is again likely to 'skip' a rate cut, which has become a high-probability event, but the market has also basically digested this expectation. U.S. Treasuries are likely to maintain slight volatility during this month's 'window period.'

The divergence between the dollar index and U.S. Treasury yields has narrowed.

Previously, there was some 'divergence' between the dollar index and U.S. Treasury yields, meaning the dollar index was higher than the level indicated by yields. However, this 'divergence' has gradually narrowed recently, indicating that the 'conflict' between interest rates and exchange rates has also come to a close. Overall, the market appears unsettled but is actually calm, waiting for new driving factors.