The May non-farm payroll report was robust, adding 139,000 jobs, exceeding Wall Street's expectation of 126,000 jobs. However, the new positions were mainly concentrated in the leisure and healthcare sectors, while government and manufacturing sectors experienced net losses. The data details showed slight weakness, with the unemployment rate rising from 4.19% to 4.24%. If not for the decline in the labor participation rate, the unemployment rate could have approached 4.6%.
The non-farm employment data outperformed recent unemployment claims data, with the stock market and U.S. Treasury yields rising in tandem, although hard data has finally begun to align with the weak survey data. Additionally, with geopolitical risks cooling since 'Liberation Day,' along with internal tensions within Trump's camp, the market has once again entered a 'bad news = good news' mode, continuously seeking reasons for further rate cuts by the Federal Reserve.
Although there are still risks regarding the passage of the 'Big Beautiful Bill,' market sentiment has rebounded to a high point, with both the volatility index and credit spreads retreating to historical lows. The rapid decline of the VIX is one of the fastest in history, even surpassing that during the pandemic, with the main victim being the dollar, which has weakened significantly due to fluctuating policies after Liberation Day.
Speaking of the dollar, we are entering a new correlation mechanism, with stock prices beginning to positively correlate with the dollar. This situation is extremely rare and marks the first sustained structural change since the pandemic. This reflects the market's concern about the potential implications of Trump's fluctuating policies on U.S. assets, making the current performance of U.S. stocks more influenced by international capital flows rather than expectations of Federal Reserve interest rate changes.
In the bond market, under non-crisis conditions, yields typically move in sync with the dollar. However, since 'Liberation Day,' this correlation has been broken, with yields continuing to rise despite a weakening dollar. A weak dollar historically indicates a future rate cut by the Federal Reserve. This divergence may persist until there are clearer results regarding the budget spending bill and whether the Trump administration can reach a trade agreement in the coming months.
This week will serve as a significant litmus test for market risks. A long-term U.S. Treasury auction will take place mid-week, accompanied by the resumption of U.S.-China trade negotiations following the recent escalation of tensions. Any progress in the trade talks is expected to focus on breakthroughs related to rare earth supply, while the bond market will need to respond to the upcoming CPI data and the supply pressure from 10-year and 30-year bonds.
The market currently expects a month-on-month increase of 0.25% in core CPI, while the cost-push effect from tariffs may not become apparent until late summer. This provides a basis for the Federal Reserve to consider restarting interest rate cuts from late Q3 to early Q4 this year.
In terms of cryptocurrency, the overall volatility was significant last week, with few highlights in the blockchain native sector. The main focus was on the traditional financial sector, including Circle's IPO and developments in the banking business. ETF fund flows showed mixed results for BTC, while ETH performed positively, recording net inflows for 14 consecutive days, totaling over $800 million. Meanwhile, CME's ETH futures open interest also reached a historical high.
Circle's IPO was a tremendous success, with the stock price soaring nearly 4 times after listing, reaching a market capitalization of approximately $32 billion. The cryptocurrency banking sector was also very active, with Robinhood completing a $200 million acquisition of Bitstamp, and Gemini filing for an IPO amid a hot public market atmosphere.
It is worth noting that we do not believe this constitutes a one-sided bullish reason for assets like BTC or ETH, as general investors now have more ways to access cryptocurrency assets, whether through ETFs, MSTR, or other BTC proxy tools. Compliant exchanges and regulated stablecoin issuers are also about to emerge. As cryptocurrency assets gradually mature and become investable macro asset classes, the current cycle will only become more complex and diverse.
Wishing everyone a successful trading week and good luck!
