Market sentiment shifts: recession fears dominate trading, employment data may set the tone for future trends.

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Market Expectations Shift: Recession Concerns Dominate Trading Logic

Current Market Trading Logic: Economic Slowdown Expectations Dominate

The interest rate market is sending clear signals: the 2-year U.S. Treasury yield has rapidly declined, widening the gap with short-term financing rates, and the 10-year yield has fallen below short-term rate levels. This reflects the market's anticipation of a slowdown in economic growth, expecting the Federal Reserve to be forced to cut interest rates. The inversion of long-term rates further reinforces warnings of recession risks.

Liquidity presents a contradictory situation: Although government account expenditures promote a marginal improvement in US dollar liquidity, market risk aversion leads to funds being withdrawn from high-risk assets and flowing into the treasury market. This creates a contradictory scenario of "loose liquidity but shrinking risk appetite."

Roots of Volatility in Risk Assets: Weak Economic Data and Policy Uncertainty Combined

Economic cracks are gradually emerging: the consumer confidence index has significantly declined, and there are clear signs of a cooling job market. Coupled with potential tariff policy risks, market concerns about a "hard landing" of the economy are intensifying.

Artificial intelligence narratives face skepticism: A well-known chip company's financial report has sparked controversy over the path of technological development, coupled with an AI company's technological iteration raising market doubts about the feasibility of AI commercialization, leading to a sell-off in technology stocks, especially in the computing power-related sector.

Chain reaction in the crypto market: A reverse futures structure has emerged in the futures market, weakening the attractiveness of arbitrage. Coupled with outflows from investment products, this has led to a synchronized decline of digital assets and the stock market, with market sentiment indicators entering an extreme fear zone.

Key Game Points for Next Week: Employment Data Will Set the Tone for the Strength of "Recession Trades"

Data Focus: If the February employment data continues to exceed expectations, or if the manufacturing PMI continues to decline, it will strengthen recession pricing expectations, pushing bond yields further down and putting pressure on risk assets. Conversely, better-than-expected data may temporarily restore market expectations for an economic "soft landing."

Policy risk: Potential details of tariff policies and statements from Federal Reserve officials regarding the interest rate cut path may trigger significant market volatility.

Strategic suggestion: Focus on defense and wait for opportunities to counterattack. The short-term selling pressure in the crypto industry stems from the withdrawal of leveraged funds, but the improvement in the regulatory environment and technological innovation still support long-term growth potential.

Stagnation or Recession: Analysis of Market Trading Logic

Macroeconomic Environment Review

  1. Liquidity and interest rate changes

The marginal improvement in liquidity is mainly due to government account consumption. The base liquidity of the US dollar increased by $39 billion compared to last week, but still remains below the level of the same period last year. Government accounts have decreased from $800 billion in mid-February to currently over $530 billion.

The interest rate market has begun to price in interest rate cuts, and the yield on long-term government bonds reflects expectations of economic slowdown. The gap between the 2-year government bond yield and short-term financing rates has widened; the 10-year government bond yield is significantly lower than short-term financing rates. This reflects the following facts:

  • Against the backdrop of deteriorating economic data, market expectations for the Federal Reserve to cut interest rates this year have risen sharply.
  • The short-term financing rate remains unpriced for interest rate cuts, indicating that the Federal Reserve is still maintaining a certain level of tightening through open market operations.
  • The downward slope of government bond yields is relatively large, reflecting strong market risk aversion.

Overall, the market is pricing in expectations that "economic slowdown forces the Federal Reserve to cut interest rates."

【Macro Weekly┃4 Alpha】Stagflation or Recession, What Is the Market Trading?

  1. Risk Market Review

Stock market volatility has intensified, with the VIX index remaining at a high level. Weak economic data and a significant drop in the consumer confidence index have heightened market concerns about a recession. Only with the release of inflation data on Friday did some of the market's worries ease.

Tech stocks face challenges from the AI narrative. The earnings report of a leading chip company has sparked controversy over the path of technological development, compounded by the technological iterations of AI companies, raising market doubts about the feasibility of AI commercialization.

The cryptocurrency market is facing a sell-off. The decline in risk appetite in the US stock market has led to a flow of funds into safe-haven assets, resulting in a significant pullback in the crypto industry. A backwardation structure has appeared in the futures market, weakening the appeal of arbitrage and leading to outflows from investment products, exacerbating the market sell-off.

【Macro Weekly Report┃4 Alpha】Stagflation or Recession, What is the Market Trading?

Next week's outlook

The market is currently in a period of expected severe adjustment, with complex speculative factors. It is necessary to closely monitor the latest data and adjust expectations in a timely manner.

A certain institution has rarely predicted the GDP for the first quarter of 2025 to be -1.5%. Although partly due to seasonal factors, it reflects an increased risk of economic slowdown under the potential threat of tariff policies.

The market is at a critical period of dual expectation adjustment between "recession expectation reinforcement" and "policy impact." Next week's non-farm data will determine whether the market further strengthens the "recession trade."

【Macroeconomic Weekly┃4 Alpha】Stagflation or Recession, what is the market trading?

Investment advice:

  • Stay cautious with risks and avoid chasing highs.
  • Diversified allocation, increase defensive assets/quantitative arbitrage products.
  • Closely monitor economic data, macro interest rates, liquidity, and market expectation adjustments brought about by policies.

【Macro Weekly Report┃4 Alpha】Stagflation or Recession, What is the Market Trading?

Despite the short-term market sentiment being dampened, the easing of regulations brings growth momentum and space for the crypto industry in the long run. The short-term decline is mainly due to capital seeking safety and triggering risk management measures, which does not imply a pessimistic outlook on the industry's prospects. We remain confident in the long-term development of Bitcoin and the crypto industry.

【Macro Weekly Report┃4 Alpha】Stagflation or Recession, what is the market trading?

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MoonRocketTeamvip
· 07-18 10:59
The rocket launch failed, the ground control center called, and suggested evacuating the orbit.
View OriginalReply0
PumpDoctrinevip
· 07-18 07:23
Hurry up and buy the dip, long positions charge!
View OriginalReply0
TokenVelocityvip
· 07-18 07:20
Sideways employment data is here.
View OriginalReply0
0xLostKeyvip
· 07-18 07:20
Buy the dip also depends on timing.
View OriginalReply0
AirdropHarvestervip
· 07-18 07:06
What the hell, eating noodles again overnight.
View OriginalReply0
AlgoAlchemistvip
· 07-18 06:59
Ah, the buy the dip mode is on again.
View OriginalReply0
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