SignalPlus Macro Analysis Special Edition: Squeeze Up

Risk assets have rebounded significantly, with gains approaching levels that even the most stubborn bears must reassess. Is this another "dead cat bounce," or the beginning of a new bull market? While we believe such labels are often misleading, the current painful trading in the market seems to favor rising prices, which remains the path of least resistance in the short term.

From a macro perspective, we are indeed gradually moving into the second half of this tariff drama, with agreements between the U.S. and several trading partners beginning to be signed. The first agreement comes from the UK, with the biggest highlight being the U.S. reducing tariffs on UK steel imports from 25% to 0%, along with a reduction in auto tariffs to 10%, and a $10 billion Boeing procurement agreement. It is worth noting that a minimum 10% reciprocal tariff remains, but given that the UK is a net importer, the actual impact of this clause is relatively small.

More critically, the highly anticipated U.S.-China trade negotiations seem to be making progress. According to the bilateral meeting over the weekend, Vice Premier He Lifeng stated that the talks were "constructive," and U.S. Treasury Secretary Bessent also confirmed that both sides had "made substantial progress." Benefiting from the easing trade situation, Asian markets rebounded strongly in early trading (the Hang Seng Index rose by 2%), with the market highly anticipating more negotiation details to be released during the U.S. session.

Interestingly, since early May, China's shipping volume to the U.S. has begun to rise. Does this indicate that exporters are "betting early" on the achievement of a trade agreement, or has the market found a way to pass on tariff costs downstream?

From the resilience of China's recent export data, it can be reasonably inferred that the U.S. will find it difficult to truly escape its dependence on imported goods in the short term. If U.S.-China trade were to decline directly, it is likely that the gap would be filled by rerouting goods to third-party regions in Southeast Asia.

Before the positive news was released over the weekend, risk assets had already shown a significant rebound. The Volatility Index (VIX) has fallen back to levels seen before the liberation day, signaling "risk alleviation," while the SPX index has nearly recovered all of its losses from April.

Looking at the situation from the beginning of the year, the partial rebound in prices seems reasonable. Although the market has largely moved past the panic over the Trump tariff drama, concerns about the deterioration of the U.S. economic outlook remain. Whether the market can continue to recover to previous highs will depend on the actual economic trajectory.

Who says the market is inefficient?

While the current optimism in the market regarding tariffs may be somewhat overvalued, it is not easy to go against the trend given the resilient growth in U.S. corporate earnings and the backdrop of record-high corporate buybacks. This year, the annual stock buyback scale in the U.S. is expected to exceed $1 trillion for the first time.

From the perspective of capital flows, foreign capital has begun to return to the U.S. capital markets, with quantitative funds quickly reversing their sell positions from February and March, and re-establishing long positions in stocks in April.

Retail investors remain extremely bullish, with the put-call ratio for stocks dropping to a multi-year low. Only traditional macro hedge funds have yet to catch up with the market, still digesting the severe losses from the first quarter. We believe that until more macro bears capitulate, painful trading will continue to drive prices higher.

Speaking of short squeezes, last week ETH experienced its largest single-week rebound since 2021, with the troubled token rising about 40% over the week, far exceeding BTC's +10%, while the latter has quietly begun to rise back to historical highs.

The market will naturally attempt to find various reasons for this rebound, whether it be the upcoming Pectra upgrade or other positive news. However, we are more inclined to believe this is a typical short squeeze in a one-sided market. According to Coinglass data, over the second half of last week, more than $1 billion in shorts were liquidated, marking the largest liquidation in recent times.

At the same time, there has not been a follow-up of mainstream capital buying into ETH ETFs, which further supports our view that this surge still belongs to a short squeeze event in the native cryptocurrency market, rather than a significant shift in the long-term narrative.

In terms of volatility, ETH's implied volatility surged after the spot price jumped, but from the volatility smile curve, ETH still shows a negative skew, while BTC maintains a positive skew. In other words, despite the price increase, we have not observed the market establishing new leveraged long positions in ETH, indicating that the market currently lacks a clear direction for future trends and is in a "blank zone."

Overall, as long as there is no dramatic reversal in the stock market, we expect prices to gradually rise. BTC may encounter technical resistance around $105K in the short term, while ETH is likely to benefit from the overall rebound in the cryptocurrency market.

Regarding the argument for safe-haven assets, we believe this round of "anti-dollar" sentiment is more structural, with investors continuing to seek emerging markets, precious metals, and cryptocurrencies as hedging options against dollar positions. Given the geopolitical uncertainties, any pullback may be seen as an opportunity to position.

Stay patient and go with the flow. Wishing everyone successful trading this week!