July thirteenth, two thousand twenty-five (250707-250713)
Nvidia and Bitcoin both hit record highs; copper also hit a record high, silver reached a high not seen in 14 years, and platinum reached a high not seen in 11 years. Tariffs have been postponed until 8, which means the actual data will not be available until 10/11 to properly assess the inflationary effects of tariffs and a weaker dollar. Until then, goods that were rushed into the country will remain in supply chains longer...
The process of growing tired of market discussion is the process of the market fully digesting current expectations.，Echoes of past victories often bring future failures. What truly matters is not clinging to your views behind closed doors, but listening to what prices are saying.
Panda said something very well put a little while ago:Traders are destined to be ahead of the crowd, which means spending your entire career searching for new stories, new threads, and new contradictions, never able to stop I know this can wear you out. If you get too tired, just look at your P&L moving up and down, and I’m sure your motivation will be reignited right away.
One at a time. I’ll try not to repeat things I’ve already discussed.
1. The dollar index, front-end rates, data shocks starting next week, and U.S. equity trading
The basic guiding framework for this section is:The Fed’s scope for repricing * the degree of uncertainty in U.S. policy * the difficulty of deficit financing * the pace of growth slowing relative to other economies Fluctuations in all these factors determine short-term swings in the dollar’s trajectory under long-term structural pressure.
A large number of tariff-related announcements came out early this week, yet the dollar rose instead., which is completely different from the trading logic in April and May:
Chart: This week, the dollar definitively broke above its downtrend line and shifted to a sideways range.
The market leaves no arbitrage opportunities for those who fail to adapt., in Notes250708, “THE ONLY WAY TO BE RIGHT IS TO BE RIGHT ON TIME,” about how we anticipated a dollar rebound near the bottom of this downturn and closed our FX positions for profit The reasoning behind this was explained in detail; I will not repeat it at length here.
Today, only new material..
One clear change is that short-term rates (the front end) are replacing other factors as the main driver of the dollar. Over the past week, despite numerous tariff announcements, front-end rates have not been significantly repriced. This also explains why the dollar did not fall; in fact, it even rose on Monday.
Before this week began, the market was in an extremely concentrated short-dollar position, Against the backdrop of rising risk aversion early this week, widely held short positions were naturally incentivized to deleverage and reduce risk exposure, which also helps explain why the dollar reacted so strongly to tariffs this week.
Another reason the trading logic differs from before is that the context for this round of tariff letters is completely different from that in 4:At the time, there was broader uncertainty in the market about U.S. relations with its major trading partners, including China, Canada, Mexico, the United Kingdom, and even the European Union.Now, those relationships appear either to be in a wait-and-see phase or on the verge of some kind of agreement, and these countries do not seem likely to face substantial import tariffs in the near term.
In other words, the marginal new information this time is focused more on countries such as Malaysia and Brazil. If the United States really imposes large-scale tariffs on imports from these countries, the actual threat to the U.S. economy would still be far smaller than the market feared in 4. As with the previously discussed downward repricing of the Fed, the actual impact of tariffs this time is small and the economic shock limited, so there is naturally no need for the dollar to weaken.
With that explanation out of the way, the next question is whether the dollar’s decline will slow in the second half of the year, or even reverse?
In this environment, which assets might offer trading opportunities through increased volatility?
A key potential catalyst is whether the Fed will actually cut rates., against a backdrop in which short-term rates (the front end) have replaced other factors as the main driver of the dollar, Fed rate cuts this year are an important driver of dollar weakness.
This echoes the opening introduction: tariffs have been postponed until 8, which means Real data will not be available until 10/11 to formally assess the inflationary effects of tariffs and a weaker dollar, while Until then, the goods that were rushed in will spend longer in the supply chain...
The relatively clear logic is that a softer outcome is indeed the direction we prefer.
...
Under uncertainty about the conditions for the final decision, two things are certain to happen..
1）Micro-level trading will dominate the U.S. equity market:The data blackout caused by repeated delays, combined with the arrival of earnings season, With the U.S. equity market shedding the burden of macro shocks, it will linger near the highs for longer. In the near term, the only remaining possibility for the smooth decline we expected is a wave of “earnings results far below expectations” surfacing one after another at the micro level.
2) From today until the release of the real assessment data in 10/11, the market will focus on the path of rate cuts this year and the terminal rate to engage in more intense positioning battles and debate, which means volatility on data-release days will rise again——This data-driven trading comes after nearly half a year of quiet, The corresponding macro trading proxies will be concentrated in FX, Crypto, and commodity markets.
The key factor determining Fed pricing in the near term will be next week’s release of 6-month CPI and CPI data for 7.Bloomberg consensus pricing currently expects year-over-year growth of 2.7% for the 6 reading, while CPI swap-market pricing implies a slightly lower surprise (CPI swaps have a solid historical track record in predicting the direction of actual releases).
If this pattern of downside surprises recurs and CPI is soft in 6, the market will continue to pressure the dollar and price in more rate cuts in 25 -26. It would also trigger strength in BTC and commodities. Conversely, stronger data would lead to the opposite outcome with greater volatility, bringing the dollar into a genuine period of fluctuation.(Summer data, after all, always has the potential to blow past expectations.)
Note: A further point about the terminal rate: even if the rate cuts we see this year are fewer than the market originally expected, if this near-term hawkish stance shifts more rate-cut expectations to 26, that could still offset the impact of reduced expectations for cuts this year and help maintain the dollar’s downward trend.
...
Those trading the U.S. session can come back to this chart repeatedly over the coming period (pay even more attention to earnings results):
Chart: Correlation between sectors and the nominal yield on 10-year U.S. Treasuries
2. Tariff pass-through + fiscal expansion = clear inflation risk (Part One): Crypto trading
Another point worth watching is the current CPI Swaps...
Chart: The market is still pricing in higher inflation in the future
Looking at the inflation path implied by the CPI swap market, we can see that it stays steadily above 3% from the end of this year through 26, This means that even if this summer’s CPI is somewhat softer, the market still expects inflation to reaccelerate toward year-end—perhaps because of tariffs, perhaps because of legislation. All we know is what is priced in.
Chart: Copper versus 5-year CPI swaps
Inflation risk and the debate over rate cuts are two key factors for crypto and commodity markets, producing different price responses under different scenarios. Relatively speaking, moderate inflation combined with accommodative policy is the most favorable environment for crypto, whereas the rate tightening caused by extreme inflation is unfavorable; the market is more inclined to use real interest rates as its trading benchmark..
Chart: Bitcoin at the final hurdle
Bitco is at the final hurdle. As noted above, the softer growth bias and the tendency for data to be soft ahead of 10 and 11 months, give us the idea of trying to bet further on new highs after 9 weeks, but this trade will also set a tight stop-loss, and use spot positions only.
Chart: Eric’s posts are another source of frustration
Eric Trump continues to post messages that tend to be contrarian, which has somewhat eroded my confidence in this trade. The Cheer Hedge is a fairly clear example of a trading crowd behavior, Crowd cheering is often a reversal signal..
Cheering, as an emotional response, appears only when sentiment is extreme. And extreme sentiment often coincides with price extremes.When you hear people around you cheering, it likely means two things: 1) you feel invincible because your positions have substantial unrealized gains and strong momentum; 2) others around the world who hold the same directional position are likely caught up in the same euphoria.
3. Tariff pass-through + fiscal expansion = clear inflation risk (Part Two): commodity trading
Continuing from the previous section, inflation risk and the debate over rate cuts are two key factors for crypto and commodity markets, producing different price responses under different scenarios.Generally speaking, Rising inflation expectations lift the price level of commodities (which means a breakout in BCI may also be delayed until year-end), while bets on the rate path are a strong catalyst for directional opportunities.
Different price responses are often reflected in the composition of commodity markets,
A simple distinction is to divide commodities into precious metals and industrial commodities:
1）Precious metals tend to be more sensitive to real interest rates, with gold and the white precious metals serving as trading proxies for this group, which means that moderate-inflation trades that do not imply higher rates, along with behavioral bets on the rate path, will both serve as positive catalysts.
2) Industrial commodities such as copper, oil, and iron are more sensitive to growth expectations; cyclical commodities are often held back in inflation trades driven by slowing demand-led economic growth, except in cost-push inflation trades, because in those trades industrial commodities are often the source of the rise itself.
Chart: Platinum breaks out again (daily)
Chart: Silver breaks out again (daily)
For the renewed breakouts in silver and platinum, we used other trading proxies (ETF + individual-stock basket)to re-enter the trade, with the rationale explained in detail in Notes250610, where we briefly discuss precious metals (gold and white precious metals):
Chart: Why we use other trading proxies
Of course, this is simply our own preference, for reference only,
The community is only intended to help you think independently as reading material; do not blindly follow trades!!
The white metals’high-volatility, speculation-driven characteristics also means views can change at any time; a flexible stance is not a bad thing.
As for gold, a new price high may have to wait until 10/11, that is, after the real data are released, which is also the expected timing we mentioned earlier for XAU/SPX is the expected timing for the upswing in the gold–U.S. dollar index pair trade (long gold, short the dollar index):
Chart: If gold breaks to a new all-time high again, we will choose to re-enter
4. Chinese assets
Notes250710《From Brazil to China: A Market Tour》says that, relative to other indices in the market, the price of the Shanghai Composite 50 matters more to us; a stable weekly close above 2760 is the primary condition for a subsequent entry.
Once it establishes itself firmly, Chinese assets may see a catch-up rally over the coming weeks.
On Friday, we were waiting for the last trade, but unfortunately things did not go as hoped.
Chart: Failure
5. Some fun images
1) Nvidia reaches a new high, AI CAPEX camp is nevertheless diverging:
Chart: Diverging price trends
2) Under a dovish policy shock，the currencies that performed best were the New Zealand dollar, Swedish krona, Norwegian krone, and Australian dollar:
Chart: FX market path under a dovish policy shock
3) Only about 12% of Brazil’s exports go to the United States, while nearly 30% of exports go to China：
Chart: Brazil’s merchandise exports by trading partner
4) Over the past six months, for overseas investors,, holding U.S. equity assets with FX hedging would have significantly improved overall returns, a stark contrast with the trend in recent years:
Chart: Effective hedging is not just a narrative; it is reality
5）Volatility is driven mainly by uncertainty over U.S. inflation：
Chart: Inflation indicators have gained significantly in importance amid macro volatility shocks
6）Market breadth indicators show an exceptionally narrow market structure compared with the past several decades of market structure.One possible implication of narrow market breadth is that if investors’ confidence in the overall operating environment continues to improve, most stocks in the market still have “room to catch up.”Historical experience shows that extremely narrow market breadth often signals a temporary reversal in momentum stocks.
Historically, the largest momentum rotations usually occur during periods of improving macro conditions, and regardless of the direction of the leading stocks at the time, those lagging stocks that originally had low momentum almost always post positive absolute returns during such phases.
Note: The rotation between RTY and the Dow mentioned earlier in Notes is still in progress, and the excess returns have been quite good during this period.
Chart: Market breadth, momentum reversal, and internal rotation
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The weekend is over. Wishing everyone who made it this far a happy life and a smooth week ahead!
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Note: Everything in this article is for reference only and does not constitute investment advice or serve as a basis for any laws, regulations, or regulatory policies. Investors should not use or rely on this information as a basis for their decisions.