Global financial market turbulence, reciprocal tariffs trigger a chain reaction

Market Performance Review

The global financial markets experienced severe fluctuations this week. The US stock market was hit hard, with the S&P 500 index plummeting a total of 10% over two days, marking its largest decline in nearly four years. The Dow Jones Industrial Average fell 7.6% for the week, and the Nasdaq index entered a technical bear market, down 22% from its high in December last year. The fear index VIX briefly surpassed 40, reflecting extreme panic in market sentiment.

Safe-haven assets showed mixed performance. The yield on 10-year U.S. Treasury bonds fell sharply by 32 basis points to 3.93%, marking an 18-month low. Gold prices rose initially before falling, briefly surpassing the $3000 mark before retreating, and ended the week down 1.7%. The U.S. dollar index weakened, declining 1.1% for the week.

The commodity market has suffered a heavy blow. Brent crude oil fell 10.4% to $61.8 per barrel, affected by OPEC+ increasing production and concerns about demand. Copper prices recorded their largest weekly decline in nearly two years, plummeting 13.9%. Iron ore prices also fell by 3.1%.

The cryptocurrency market is highly volatile. Bitcoin briefly rose after the announcement of tariff news, demonstrating certain safe-haven characteristics. However, it subsequently fell again due to the global sell-off of risk assets, reflecting its complex dual nature.

Non-Farm Payroll Data Analysis

The latest non-farm payroll data appears robust on the surface, but structural issues are beginning to emerge. The official unemployment rate remains low at 4.2%, but the broader U6 unemployment rate has risen to 7.9%. Employment growth data has been revised downward, and part-time positions have decreased. Average hourly wage growth has slowed, and the labor force participation rate continues to be weak.

There are certain human distortions in the statistical caliber of data. For example, as long as one works for an hour, they are considered employed, and the group of people who are not actively looking for work is not counted in the unemployed population, etc. These factors may lead to an overestimation of employment data. Overall, the trend of declining employment quality has begun to emerge.

Liquidity and Interest Rate Analysis

The SOFR forward rates have declined significantly, reflecting market expectations that the Federal Reserve may cut interest rates earlier. The yields on 2-year and 10-year U.S. Treasury bonds have both plummeted below 4%, indicating that the market has fully shifted to a "pricing recession" mode.

Federal Reserve Chairman Powell's latest speech was cautious. He acknowledged the risk of stagflation in the economy but has not yet clearly stated whether a shift to easing policies is forthcoming. The current policy is in a wait-and-see phase, and the market lacks clear expectations for the future policy path.

Outlook and Recommendations for Next Week

In the near future, the market faces three major risk factors:

1. The uncertainty of the escalation of tariff countermeasures, especially the responses from China and the European Union.
2. The lagging response of economic data and the data gap period exacerbate the game between policy-making and market expectations.
3. The market lacks clear and priceable policy pathways, with structural vulnerabilities highlighted.

The market pricing logic has shifted from focusing on inflationary pressures to worrying about "high inflation + high tariffs causing demand shrinkage leading to an early recession." The trends in U.S. Treasury rates and risk assets both confirm this pessimistic expectation.

Investors are advised to maintain a neutral stance and respond cautiously to significant market fluctuations. Bitcoin has long-term potential as a "substitute for USD liquidity" and may benefit if the Federal Reserve resumes easing policies. However, in the short term, leverage risks should be controlled while waiting for policy easing and confirmation of market bottom signals.