Risk assets have rebounded sharply, and the gains are approaching the level that has forced even the most stubborn bears to reassess whether this is another dead cat bounce or the beginning of a new bull market. Although we believe that such labels are often misleading, the current market pain trade still seems to favor higher prices, which remains the path of least resistance in the short term.
From a macro perspective, we are indeed gradually moving towards the second half of this tariff drama, with the United States beginning to sign agreements with multiple trading partners. The first agreement came from the United Kingdom, with the biggest highlight being a comprehensive reduction in the US tariff on British steel imports from 25% to 0%, a reduction in automobile tariffs to 10%, and a $10 billion Boeing procurement agreement. It is worth noting that the minimum 10% reciprocal tariff remains in place, but given that the United Kingdom itself is a net importer, the actual impact of this provision is relatively small.
More importantly, the much-anticipated US-China trade talks also seem to be making progress. According to the weekend bilateral meeting, Vice Premier He Lifeng said the talks were constructive, and US Treasury Secretary Bessent also affirmed that the two sides made substantial progress. Benefiting from the easing of the trade situation, the Asian market rebounded strongly in the early trading (Hang Seng Index rose 2%), and the market highly expects that more details of the negotiations will be released during the US session.
Interestingly, China’s shipping volumes to the US have started to pick up since early May. Does this mean that exporters are “betting in advance” on the conclusion of a trade deal, or has the market found a way to pass on tariff costs downstream?
Judging from the resilience of China’s recent export data, it is reasonable to infer that it will be difficult for the United States to truly get rid of its dependence on imported goods in the short term. If there is a direct decline in U.S.-China trade, the gap will most likely be made up by the detour of goods flowing to third-party regions in Southeast Asia.
Before the release of the weekends positive news, risk assets had already rebounded significantly. The stock volatility index (VIX) has fallen back to the level before the liberation day, sending a signal of risk relief, and the SPX index has almost recovered all of its losses in April.
From the situation since the beginning of the year, the partial rebound in prices is reasonable. Although the market has largely gotten over the panic over Trumps tariff farce, concerns about the deteriorating US economic outlook remain. Whether the market can continue to rise and recover its previous highs in the future will depend on the actual trend of the economy.
Who says the market is inefficient?
While the current market optimism about tariffs may be overpriced, it is not easy to buck the trend in the face of resilient U.S. corporate earnings growth and record corporate buybacks. This year, annual U.S. stock buybacks are expected to exceed $1 trillion for the first time.
From the perspective of capital flow, foreign capital has begun to return to the US capital market, and quantitative funds have quickly reversed their selling positions from February to March and re-covered their long stock positions in April.
Retail investors remain extremely bullish, with the Put-Call Ratio for equities falling to multi-year lows, leaving only traditional macro hedge funds to have yet to catch up, still digesting a severe first quarter PL drawdown. We believe the pain trade will remain higher prices until more macro bears throw in the towel.
Speaking of short squeezes, last week ETH experienced its largest weekly rally since 2021, with the troubled token up about 40% for the week, far outpacing BTC’s +10%, which has quietly climbed back to all-time highs.
The market will naturally try to find various reasons for this rebound, whether it is the upcoming Pectra upgrade or other positive news. However, we are more inclined to believe that this is a typical one-sided market short squeeze. According to Coinglass data, more than $1 billion of shorts were liquidated in the second half of last week, which is the largest liquidation in recent times.
At the same time, there has been no subsequent mainstream buying of the ETH ETF, which further supports our view that this wave of growth is still a short squeeze event in the native cryptocurrency market, rather than a significant shift in the long-term narrative.
In terms of volatility, ETHs implied volatility soared after the spot price jumped, but from the perspective of the volatility smile curve, ETH still showed a negative skew, while BTC maintained a positive skew. In other words, despite the price increase, we did not observe the market establishing new leveraged long positions on ETH, indicating that the market currently has no clear direction for the subsequent trend and is in a blank zone.
In general, assuming there is no drastic reversal in the stock market, we expect prices to rise slowly. BTC may encounter technical resistance near $105K in the short term, while ETH is expected to benefit from the rebound of the overall cryptocurrency market.
As for the safe-haven asset argument, we believe that this round of anti-dollar trend is more structural. Investors will continue to seek emerging markets, precious metals and cryptocurrencies as configuration options to hedge against the US dollar. Based on geopolitical uncertainties, any pullback may be seen as an opportunity for layout.
Be patient and go with the flow. I wish you all a smooth trading week!
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