From June second, two thousand twenty-five to June third, two thousand twenty-five
I. Foundation
resistance to change and hence greater dependability for the results shown in the past.
Revisiting dollar weakness and NFP as a volatility-trading proxy
Based on recent price action and options-market data, The Swiss franc (CHF), Canadian dollar (CAD), and euro (EUR) are the best-performing counterparts for short-dollar trades.In other words, these three currencies are most likely to rise more when the dollar weakens—in other words, they have higher betas to the dollar.
These three currency pairs can be prioritized for weak-dollar trades.
In addition, during the past 12 nonfarm payroll releases, the gamma (that is, sensitivity to volatility) of the Mexican peso (MXN) and Brazilian real (BRL) was the most pronounced among emerging markets, and their price reactions after the payroll data were strong... Correspondingly, Among G10 currencies, the Swedish krona (SEK) and euro (EUR) showed the clearest reactions..
(The corresponding attachments have also been posted in the community.)
2025.06.02
II. Insights
Our Viewpoints and ideas on market...
Income-driven asset prices & when the focus shifts away from tariffs
Current market expectations put the eventual landing point for the effective tariff rate in the 10-13% range, while Expectations at this level are unlikely to trigger a recession in the short term... which means The pain trade may continue for some time....Because Nominal data are likely to remain strong. As we said earlier, 6-7 will be a key period for data releases, and we will keep watching through the end of July (two months from today).
1) credit spreads, 2) initial jobless claims, 3) earnings call commentary, 4) survey data, 5) AI capital expenditures, 6) pessimistic expectations about tariffs, 7) liquidity conditions;
There are still no clear signs of an actual slowdown... Last month, U.S. personal income grew month over month by 0.8%,
The income-driven asset-price cycle is not over yet.
The risk for the market is not earnings themselves, but that all participants need to adapt to a “new normal,” namely:1) Higher discount rates, 2) the end of structural deflation, 3) the end of the Federal Reserve’s forward guidance, 4) a fiscal-dominance model
Chart: The Federal Reserve has lost its ability to act preemptively
The market will indeed eventually force fiscal policy to return to responsibility and establish a new equilibrium at a new level; that much is certain, but the uncertain part is where the 30-year Treasury yield will ultimately settle. No one can answer that.
GDP is a function of labor * productivity * leverage,
As I said yesterday, this is a key week for labor-market data, and the supposedly safe data are no longer safe,
Capital is moving back into AI, because productivity is now the only driver left... The tariff narrative has peaked, and the market's appetite for incremental information is bafflingly persistent.
Chart: The tariff narrative has peaked; in the second half of the year, everyone will turn their focus back to what lies ahead
Returning to the start, the income-driven asset-price cycle is not completely over. As the final step after data and fiscal policy, Federal Reserve action will remain constrained, and it would not be surprising if there were no action at all throughout 25.
U.S. high-yield credit spreads are currently pricing in a “0% recession probability,” while the median forecast from sell-side analysts is a recession probability of 40% (some buy-side investors even put the probability at 45%)... The “dual backstop” (put) from monetary and fiscal policy is still in place—credit spreads are being artificially suppressed, and at higher nominal interest rates, banks are raising their risk appetite without taking on greater credit risk.
The day before yesterday, Waller said in his remarks:
“...the divergence indicates that ordinary households are more pessimistic or more sensitive about future prices, while markets and professionals believe inflation will be stable over the long term...Personally, I prefer to look at market-based measures of inflation compensation and the expectations of professional forecasters, because they are putting real money on the line. If people who buy inflation-protected securities are wrong, they lose money; clients and companies make financial decisions based on professional forecasters’ predictions, and if those predictions are wrong, the forecasters lose clients...As I used to tell my students, under capitalism, competition weeds out companies that make poor decisions.For consumers, however, although bad forecasts also have a cost, they do not compete with one another, and making a bad decision does not make them “go bankrupt.”。”
The problem here is that market yields have not been repriced to reflect higher inflation expectations. At this point, there are really two possibilities:
1) Rate cuts will not materialize; 2) as Waller says, inflation expectations are overstated...
Let’s see together who is right and who is wrong.
2025.06.03
III. Market Pulse
Our latest Comments on the economic and market environment
Note: Everything in this article is for reference only, does not constitute investment advice, and is not a basis for any laws, regulations, or regulatory policies. Investors should not use or rely on this information as a basis for making decisions.