Progress on the US-China Tariff Protocol Encourages Market Repricing

Recently, a significant breakthrough was achieved in the high-level meeting between the US and China held in Switzerland, where both sides reached a 90-day temporary tariff reduction protocol. This marks a new phase in the trade relationship between the two countries, and the market reacted swiftly.

The US stock market and the cryptocurrency market quickly digested this positive news, erasing the negative pricing that had arisen from trade frictions. Market participants are now more focused on whether the US economy will enter a recession and when the Federal Reserve will restart its interest rate cut cycle, the two core issues.

The inflation and employment data released this week indicate that inflation continues to decline and employment remains temporarily stable, suggesting that the impact of tariff shocks is lower than expected. These better-than-expected data drove a significant rise in US stocks this week, while gold prices saw a noticeable decline.

In a recent important speech, Federal Reserve Chairman Powell mentioned that he would reevaluate the "monetary policy framework," which could accelerate the restart of the rate cut cycle. However, the rating agency Moody's downgraded the U.S. national debt rating from Aaa to Aa1, highlighting the severity of the long-term debt issues in the United States.

Macroeconomics and Policy Trends

On May 12, both the U.S. and China announced a 90-day temporary tariff reduction protocol, with the U.S. lowering the highest tariff on Chinese goods from 145% to 30%, and China reducing the highest tariff on U.S. goods from 125% to 10%. This marks a new phase in trade friction, and its impact may not cause an unexpectedly severe short-term shock to the global economy.

Driven by this positive news, U.S. stocks rebounded strongly this week. The Nasdaq Index, S&P 500 Index, and Dow Jones Industrial Average rose by 7.15%, 5.27%, and 3.41%, respectively, achieving four consecutive weeks of gains. If expectations for interest rate cuts further strengthen, U.S. stocks are likely to break historical highs in the short term.

In April, the US CPI data showed a seasonally adjusted month-on-month rate of 2.3%, lower than expected and declining for three consecutive months. In terms of employment data, the number of first-time unemployment claims was 229,000, in line with expectations. The producer price index (PPI) was 2.4%, slightly below expectations. These data collectively indicate that the impact of tariffs has not yet had a substantial effect on consumption, while inflation continues to decline, creating favorable conditions for a restart of interest rate cuts.

In a recent speech, Powell stated that the monetary policy framework introduced in 2020 needs to be adjusted in the current economic environment. He pointed out that frequent supply shocks have made it difficult for the average inflation targeting regime to cope, necessitating policy adjustments to better balance inflation and employment goals. This may mean that the Federal Reserve will formulate policy based on shorter-term or even monthly CPI data, increasing the flexibility to respond to economic fluctuations.

However, the U.S. debt issue remains a potential risk factor. This year, the U.S. is expected to add $1.9 trillion in debt, with the amount needing to be rolled over potentially reaching $9.2 trillion. If interest rate cuts are not initiated promptly, the U.S. government will not only continue to bear high-interest costs but may also face difficulties in auctioning in the primary market.

On May 16, Moody's downgraded the long-term issuer and senior unsecured debt rating of the U.S. government from Aaa to Aa1. This is the first downgrade of the U.S. government bond rating by Moody's since 1917, marking the loss of the highest credit rating from the three major rating agencies.

Cryptocurrency Market Performance

Bitcoin has maintained a high-level consolidation for most of the week, suddenly surging to $106,692.97 on Sunday, with an overall increase of 2.24% for the week. From a technical perspective, Bitcoin has been trading above the "first upward trend line" throughout the week, nearing the upper edge of the "Trump bottom." The overbought indicators have seen some correction, with trading volume similar to last week.

This week, the cryptocurrency market as a whole maintained a net inflow of funds, with a total inflow of $2.527 billion through two channels: stablecoins and ETFs. Among them, stablecoins accounted for $1.88 billion, while Bitcoin ETFs and Ethereum ETFs combined accounted for $647 million. It is worth noting that the fund inflow through the ETF channel has shown a decreasing trend over the past four weeks.

The on-chain lending funds are in an expansion phase, and the contract market has also entered the second expansion phase of this round of market conditions.

After Bitcoin returned to $100,000, some bottom-buying funds took profit. As liquidity recovers, some long-term holders also made small sell-offs. Overall, the phase of "long hands reducing holdings while short hands increasing holdings" has not yet fully unfolded, and experienced long-term investors are still waiting for higher prices.

This week, the inflow of Bitcoin to exchanges was 127,226 coins, continuing a decline for four consecutive weeks; the outflow of Bitcoin from exchanges reached 27,965 coins, the highest this year. The reduction in selling pressure combined with an increase in buying volume, under favorable external conditions, usually indicates that prices could rise rapidly in the future.

According to eMerge Engine data, the EMC BTC Cycle Metrics indicator is 0.875, in an upward phase.