Under Currents in the Global Economy: Market Anxiety Amidst Tripartite Competition

Recently, actions taken by institutions on Wall Street have drawn market attention—multiple investment banks are quietly reducing their positions in US dollar bonds. Meanwhile, European countries appear to maintain a negotiating stance, but are privately developing contingency plans, while the Federal Reserve continues to release hawkish signals, attempting to force the world to bear the costs of inflation through interest rate hikes.

This situation inevitably brings to mind the market turbulence in early April. At that time, the so-called 'temporary fluctuations' caught many investors off guard. Now, the competition among the three major economies—China, the US, and Europe—has entered a heated stage. The German Chancellor has just visited China with a €20 billion order seeking cooperation, only to face pressure from the US, being asked to clarify its stance on trade issues.

Market sentiment is gradually warming up. Europe is adopting a 'time for space' strategy, attempting to delay the negotiation process; the US is creating tightening expectations through continuous interest rate hikes, shifting the inflation pressure onto the globe; and from the Chinese side, the transaction volume of the Cross-Border Interbank Payment System (CIPS) has surged by 43% in a single month, indicating subtle changes in the direction of capital flows. It is noteworthy that many experienced investors have begun to adjust their asset allocations.

Goldman's latest report frequently mentions 'technical adjustments,' with the term appearing 27 times, far exceeding its frequency prior to the 2008 financial crisis. This is not a coincidence, but rather a harbinger of the three major economies restructuring the global economic order. As revealed by the liquidity crisis in US Treasuries in early April, market fluctuations often erupt suddenly when things seem calm.

Currently, the most concerning issue is not open conflict, but rather the covert maneuvering of all parties beneath the surface of negotiations. Just as a cheetah retracts its claws before hunting, when Wall Street collectively turns bullish, extra caution is warranted. Hidden risks of debt defaults may lie behind this, or it could be the last counterattack faced by the dollar system.

The date of June 1 is particularly critical, being both the tipping point of the US debt ceiling standoff and possibly the trigger for global industrial chain adjustments. Market participants are closely monitoring the direction of this multilateral contest, as any slight movement could trigger a chain reaction.