Macro observations on the eve of tariff policy after the FOMC meeting

1. Macroeconomic Review of This Week

1. Market Overview

Market sentiment remains cautious this week, but there are some opportunities for rebounds from oversold conditions. The performance of various assets shows slight differences:

• U.S. stocks edged higher, with the Dow Jones being the best performer, rising 1.2%. The overall trend is still in a downward trend, and the trading activity is not high. The Put/call ratio in the options market fell to 0.86, indicating that some funds began to buy the bottom.

• In commodities, gold continued to rise after breaking above $3,000 an ounce. Copper prices rose 0.8%, with a cumulative increase of more than 11% in the past three months. Crude oil prices stabilized near $68 a barrel, while natural gas prices fell.

• The cryptocurrency market is overall sluggish. Bitcoin is fluctuating around $84,000, with insufficient upward momentum. Other cryptocurrencies are following Bitcoin's fluctuations.

2. FOMC Meeting Analysis

The Federal Reserve faces multiple challenges, including the risk of stagflation, political uncertainty, and liquidity tightening among financial institutions. To address these issues, the Federal Reserve has made a series of adjustments at both the strategic and tactical levels:

Strategic level: Adhere to the "data-dependent" principle, avoid committing to specific interest rate cut timelines, and maintain policy flexibility.

Three key measures at the tactical level:

1. Adjust Inflation Expectations Management: Emphasize the New York Fed's 5-year inflation expectations data and downplay the University of Michigan Consumer Sentiment Index to reduce market noise.

2. Re-emphasis on "transitory inflation": Downplaying the long-term impact of tariffs on inflation, providing policy space for interest rate cuts and preventing markets from falling into stagflationary panics.

3. Adjust QT pace: Although liquidity is ample, slow down QT to address potential liquidity shocks.

! [Macro Weekly┃4 Alpha] After the FOMC meeting, before the reciprocal tariffs landed

3. Changes in Liquidity and Interest Rate Markets

• Liquidity recovery: Broad liquidity reached $6.1 trillion, primarily driven by outflows from TGA accounts. The decline in the use of the Fed's discount window indicates that the pressure on market funds has eased.

• Interest rate market: 67% probability of interest rate cut in June, 3 rate cuts are expected throughout the year. Short-end interest rates have fallen faster than long-end, and the yield curve has steepened, reflecting the market's increased certainty of interest rate cuts, but there are still doubts about a rebound in inflation.

• Credit Market: Investment-grade credit spreads have widened, credit risk has slightly increased, market risk appetite has decreased, but there are no signs of systemic risk yet.

2. Macro outlook for next week

1. The equal tariff policy has become the focus.

The reciprocal tariff policy, which came into effect on April 2, is the focus of the market:

• Tariff intensity: The tax rate and coverage will directly affect the prices of goods, inflation, and corporate profits. If it exceeds expectations, it may drive up import costs, pressure corporate profits, and put pressure on the stock and bond markets.

• Global trade impact: Retaliation from other countries could exacerbate supply chain tensions, push up inflation, threaten global economic growth, and potentially trigger panic selling.

2. The market's cautious sentiment continues.

Despite the decline in the VIX, the credit market risk signals have intensified, indicating that the market has not yet escaped panic mode. Investors tend to reduce risk exposure and increase holdings in safe-haven assets such as gold and government bonds.

The direction of the Federal Reserve's policy will be influenced by tariffs:

• If tariffs push inflation higher, the Fed may tighten policy ahead of schedule, leading to tighter market liquidity and increased volatility.
• If inflation is controllable, the Federal Reserve may maintain a dovish stance, providing a buffer for the market.

3. Strategy Suggestions

The market is in an uncertain phase of policy and risk pricing. The short-term strategy should focus on "defense + flexible offense" to avoid tail risks while seizing stage-specific opportunities.