SignalPlus Macro Analysis Special Edition: Quiet Calm

The May non-farm payroll report was robust, with an increase of 139,000 jobs, surpassing Wall Street's expectation of 126,000. However, the new jobs were mainly concentrated in the leisure and healthcare sectors, while the government and manufacturing sectors experienced a net loss. The data details were somewhat weak, with the unemployment rate rising from 4.19% to 4.24%. If not for the decline in the labor force participation rate, the unemployment rate could have approached 4.6%.

The non-farm payroll data outperformed recent unemployment claims data, with the stock market and U.S. Treasury yields rising in tandem, even as hard data finally began to align with weak survey data. Additionally, as geopolitical risks have cooled since "Liberation Day," coupled with internal tensions within the Trump camp, the market has once again entered a "bad news = good news" mode, continuously seeking reasons for further rate cuts from the Federal Reserve.

Although there are still risks regarding the passage of the "Big Beautiful Bill" legislation, 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 on record, even surpassing that during the pandemic, with the main victim being the significantly weakened dollar due to the policy fluctuations post-Liberation Day.

Speaking of the dollar, we are entering a new correlation mechanism where stock prices begin to move positively with the dollar. This situation is extremely rare and marks the first sustained structural change since the pandemic. It reflects the market's focus on the potential implications of Trump's policy fluctuations 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, which historically indicates future rate cuts 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 an important litmus test for market risks. A long-term U.S. Treasury auction is set for mid-week, accompanied by the resumption of U.S.-China trade negotiations following recent escalations. Any progress in the trade talks is expected to focus on breakthroughs related to rare earth supply, while the bond market will also need to contend with the upcoming CPI data and supply pressures from 10-year and 30-year bonds.

The market currently expects core CPI to grow by 0.25% month-on-month, while the cost-push effects from tariffs may not become apparent until late summer, providing a basis for the Federal Reserve to restart rate cuts from late Q3 to early Q4 this year.

In the cryptocurrency space, overall volatility was high last week, with not many highlights in the blockchain-native sector. The main focus was on traditional finance, including Circle's IPO and developments in banking. ETF fund flows in BTC showed mixed results, 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 its stock price soaring nearly fourfold post-listing, reaching a market capitalization of approximately $32 billion. Cryptocurrency banking activities were also very active, with Robinhood completing a $200 million acquisition of Bitstamp, and Gemini filing for an IPO in the hot public market atmosphere.

It is worth noting that we do not believe this constitutes a unilateral 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 set to emerge. As cryptocurrency assets gradually mature into an investable macro asset class, the current cycle will only become more complex and diverse.

Wishing everyone successful trading and good luck this week!