Easing of US-China tariffs boosts market optimism, rising expectations for interest rate cuts

Last week, significant progress was made in talks between the United States and China held in Switzerland, with both sides reaching a 90-day tariff reduction agreement. This breakthrough development marks a new phase in bilateral economic and trade frictions, and the market reacted positively.

Stimulated by this positive news, the U.S. stock market and the cryptocurrency market quickly absorbed the previous negative expectations regarding the tariff war, with increases that exceeded general expectations. Traders began to shift their focus to a new trading logic - whether the U.S. economy will fall into recession and when the Federal Reserve will restart the rate cut cycle.

The latest released inflation and employment data indicate that inflation continues to decline, and the job market remains stable, suggesting that the impact of tariff shocks is lower than expected. These better-than-expected figures have driven a significant rise in U.S. stocks this week, while gold prices have seen a pullback.

Federal Reserve Chairman Jerome Powell delivered an important speech this week, mentioning that he would revisit the monetary policy framework. This statement may hint at the imminent restart of a rate-cutting cycle. However, a certain rating agency downgraded the U.S. government bond rating from the highest level, further highlighting the severity of the long-term debt issues in the United States.

Macroeconomic Trends and Policy Directions

On May 12, significant breakthroughs were achieved in the talks between China and the United States in Switzerland. Both sides announced a temporary tariff reduction agreement lasting 90 days. The United States will reduce tariffs on Chinese goods from a maximum of 145% to 30%, which includes a special tariff of 20% and a basic tariff of 10%. China will reduce tariffs on American goods from a maximum of 125% to 10%, and will suspend or cancel a series of non-tariff countermeasures that have been implemented since April.

This development indicates that bilateral economic and trade frictions have entered a new phase. In conjunction with other recent information, analyses suggest that the impact of the tariff war may be gradually weakening, and the short-term shock to the global economy may not exceed expectations.

Driven by this positive news, the U.S. stock market surged significantly this week. The Nasdaq, S&P 500, 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 continue to rise, the likelihood of breaking historical highs in the short term increases.

The economic data released in the United States this week is mixed. The April CPI shows a seasonally adjusted monthly rate of 2.3%, which is lower than expected and has declined for three consecutive months. In terms of employment data, the number of first-time unemployment claims is 229,000, which meets expectations. The PPI, reflecting business trends, is at 2.4%, slightly below expectations. Overall, this data indicates that the tariff war has not yet had a substantial impact on consumption, while inflationary pressures continue to ease, creating favorable conditions for a resumption of interest rate cuts.

Federal Reserve Chairman Powell stated in his speech this week that the monetary policy framework introduced in 2020 may need to be adjusted given the current economic environment. He pointed out that frequent supply shocks have made it difficult to meet the average inflation target, necessitating a policy adjustment to better balance inflation and employment goals. This statement may indicate that the Federal Reserve will adopt a more flexible policy stance to respond to fluctuations in economic data.

At the same time, the U.S. debt issue remains a significant factor affecting policy-making. According to analysis, the U.S. has added $1.9 trillion in debt this year, with the scale of debt due for refinancing possibly reaching $9.2 trillion. If interest rate cuts are not initiated soon, the U.S. government will not only continue to bear high interest costs but may also face auction difficulties in the primary market.

It is worth noting that a certain rating agency has downgraded the long-term issuer and senior unsecured debt rating of the U.S. government by one level from the highest rating. This is the first downgrade of the U.S. Treasury rating by this agency since 1917, marking the loss of the highest credit rating from all three major rating agencies.

Cryptocurrency Market Dynamics

Bitcoin performed relatively steadily this week, maintaining high levels for most of the time. Until Sunday, the price suddenly surged to $106,692.97, ultimately rising 2.24% for the week. From a technical perspective, Bitcoin operated above the first ascending trend line throughout the week, approaching a significant resistance level. The overbought indicator saw some correction, and trading volume was roughly on par with last week.

In terms of capital flow, the cryptocurrency market as a whole has maintained strong capital inflows this week. A total of $2.527 billion flowed into stablecoins and Bitcoin and Ethereum ETFs. It is noteworthy that the capital inflow into ETF channels has shown a downward trend over the past four weeks. On the other hand, the on-chain lending funds and the contract market are in an expansion phase.

After the price returned to $100,000, some bottom-buying funds took profits. At the same time, with the improvement of liquidity, some long-term holders also made small-scale reductions. Overall, the market has not yet fully entered the "long hands reducing positions while short hands increasing positions" phase, and experienced long-term investors seem to be waiting for higher prices.

Data shows that the number of Bitcoins flowing into exchanges this week is 127,226, marking a decline for four consecutive weeks. The outflow of Bitcoins from exchanges reached 27,965, the highest so far this year. With a decrease in selling pressure and an increase in buying pressure, this usually indicates that prices may rise sharply under favorable external conditions.

According to a certain indicator, the Bitcoin cycle indicator is 0.875, in an upward phase.