June second, two thousand twenty-five to June fifth, two thousand twenty-five

I. Foundation 

resistance to change and hence greater dependability for the results shown in the past.

Revisiting the dollar’s weakness and NFP volatility trading proxies

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, in a weaker-dollar scenario, these three currencies are the most likely to rise further—or, put differently, they have a higher beta to the dollar.

For trades expressing a weaker-dollar view, these three currency pairs can be prioritized.

In addition, at the past 12 nonfarm payroll releases, the Mexican peso (MXN) and Brazilian real (BRL) had the most pronounced gamma (that is, sensitivity to volatility) among emerging markets, with strong price reactions after the payroll releases... Correspondingly, Among G10 currencies, the Swedish krona (SEK) and the euro (EUR) show the clearest reactions..

(The corresponding attachment has also been posted on Planet)

2025.06.02

II. Insights 

Our Viewpoints and ideas on market...

Income-driven asset prices & when attention shifts away from tariffs

The market’s expected final effective tariff rate currently falls within the range of 10-13%, and Expectations at this level are unlikely to trigger a recession in the short term... which means The pain trade may continue....because nominal data are likely to remain strong. As we said before, 6-7 will be a key period for data releases; we will keep watching through the end of July (two months from today).

1) credit spreads, 2) initial jobless claims, 3) earnings-call content, 4) survey data, 5) AI capital expenditures, 6) pessimistic tariff expectations, 7) liquidity conditions;

No significant signs of actual weakening have emerged yet... U.S. personal income rose 0.8% month over month last month,

The income-driven asset-price cycle is not completely over yet.

The market’s risk lies not in earnings themselves, but in the fact that all participants must adapt to a “new normal,” namely:1) higher discount rates, 2) the end of structural deflation, 3) the end of forward-looking Fed policy, 4) a fiscally dominant regime

Chart: The Fed 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. What is not certain is what level the yield on 30-year Treasuries will ultimately settle at. No one can answer that.

GDP is a function of labor * productivity * leverage,

As I said yesterday, this is a crucial week for labor data; safe data are no longer safe,

Funds are turning long AI again because productivity is now the only remaining driver... The tariff narrative has peaked, and the market’s thirst for incremental information is bafflingly persistent.

Chart: The tariff narrative has peaked; in the second half of the year, everyone will turn their attention back to what lies ahead

Returning to the opening point: the income-driven asset-price cycle is not completely over. As the last step after data and fiscal policy, Fed action will continue to be constrained; it would not be surprising if there were no action for the entire 25 year.

The U.S. high-yield credit spread is currently pricing in a “0% recession probability,” while the median sell-side forecast is a recession probability of 40% (some buy-side firms even put it at 45%)... The “dual backstop” (Put) from monetary and fiscal policy is still in effect—the credit spread is being artificially depressed, while under higher nominal interest rates, banks are raising their risk appetite without taking on greater credit risk.

The day before yesterday, Waller said in a speech:

“...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 tend to look at market-based measures of inflation compensation and the expectations of professional forecasters, because they have real money at stake. If people who buy inflation-protected securities are wrong, they lose money; professional forecasters’ clients and companies make financial decisions based on their forecasts, and if those forecasts are wrong, they lose clients...As I used to tell my students, Under capitalism, competition drives out companies that make bad decisions.Consumers, by contrast, may pay a price for getting a forecast wrong, but they do not compete with one another, and a bad decision will not make them “go bankrupt.”。”

The problem here is that market yields have not been repriced to reflect higher inflation expectations. There are really two possibilities at this point:

1) rate cuts will not materialize; 2) as Waller says, inflation expectations have been overstated...

Let’s see together who is right and who is wrong.

2025.06.03

From goods tariffs to capital tariffs: the hidden Section 899

When discussion of the Big Beautiful Bill had just started gaining momentum, we had already posted an update on Planet. For details, see Notes250516 The Big Beautiful Bill, fiscal policy beyond expectations, and the bond market Today, we’re mainly adding to what we discussed before and looking at the hidden Section 899.

The reason Section 899 is important is that it is the first substantive provision to formally extend the scope of tariffs from goods tariffs to capital tariffs...

The fundamental difference between capital tariffs and traditional goods tariffs lies in—in today’s dollar-based global trade settlement system (which means that, no matter how loudly the narrative is promoted, there is relatively limited room for de-dollarization),regardless of how goods tariffs evolve, the United States can still collect tens of billions of dollars in revenue from capital tariffs of this monetary kind—and all this can be achieved without relying heavily on traditional tariffs, which often carry clear stagflation risks.

Under current goods tariffs, the U.S. government could bring in roughly 200–250 hundred million dollars in revenue per year, while if the “currency tariff” is implemented, even its mild version could have fiscal revenue potential of 100–150 hundred million dollars a year.

A closer look at Section 899 reveals that

the underlying text leaves considerable room for further expansion of capital/monetary tariffs...

(This is relevant, so just a brief mention: there will be one more Note this week on tariffs, mainly to make a final distinction between the two objectives behind them... The two objectives do not conflict, but which one is prioritized will lead the market to different outcomes... Whether the focus is leverage or revenue makes a great deal of difference, and Section 899 clearly supports the latter..)

1) Section 899, also known as the “revenge bill,”The main provision is to tax passive income (such as dividends) generated by foreign investment in U.S. assets, applying to countries that impose “unfair foreign taxes” on the United States(for example, digital services taxes or minimum corporate taxes; Canada, Europe, and other countries and regions are the main targets);

2) Which countries will be taxed?As long as U.S. Treasury designates a country on the “Discriminatory Foreign Countries” list (DFC, Discriminatory Foreign Countries)is enough to trigger taxation, with no additional procedures;

3) Who is covered? Foreign governments, individuals, and companies—including virtually all investors, including sovereign wealth funds and central banks worldwide;

4) What is the tax rate? Section 899 provides that, starting in the first year after the bill takes effect, the current tax rate for covered entities will be increased by 5%, followed by an additional 5% increase each year, capped at 20% above the statutory rate. The key point is that Section 899 imposes a surcharge on top of the applicable rate already in place (whether before or after a tax treaty);

5) When does it take effect? If the Big Beautiful Bill passes before 2025 10, Section 899 will take effect on 2026 1 1;

As noted earlier, If “monetary tariffs” are implemented, even the moderate version could generate fiscal revenue of 100–150 hundred million dollars per year..

However, there is another consideration here—

For monetary tariffs to truly take effect(and work) (if it could not work, there would be no reason for this provision to exist at all...and things that serve no purpose are not written into the bill... )another provision would also need to be repealed...

This is also why Section 899 is most likely just a precursor...

The United States needs to (and most likely will),

repeal the “Portfolio Interest Exemption” (Portfolio Interest Exemption, PIE)...

At present, PIE effectively exempted foreign investors from withholding tax when purchasing U.S. Treasuries, making their Treasury income completely tax-free. Section 899 merely imposes a surtax on the existing tax rate for foreign investment—but under PIE, the tax rate on foreign holdings of U.S. Treasuries is zero.Therefore, If PIE is not repealed, Section 899 can apply only to dividends from U.S. stocks held by foreign institutions, bringing the Trump administration only several billion dollars in annual revenue.

This is also why the Big Beautiful Bill explicitly states(the people who drafted the bill have plainly told you they thought of this and even spelled it out here):

“...Because this provision merely adds a surtax to the otherwise applicable rate, it does not apply to income that is already expressly excluded from the scope of that tax.

For example, this provision does not apply to portfolio interest, because portfolio interest is expressly excluded from taxation on FDAP (fixed or determinable annual or periodic) income (see Section 871(h)).

This differs from certain types of income that, although subject to a reduced rate or even a zero rate, still receive relief from the statutory rate—for example, income exempted or taxed at a preferential rate under a tax treaty.”

If it is not repealed, under the current version, foreign investors currently hold approximately 18 trillion dollars’ worth of U.S. equities; if PIE is not repealed, that is, Section 899 would impose only a limited surtax on dividends，Its impact is actually relatively limited... After all, most investors’ holdings and allocations in U.S. stocks are more focused on capital appreciation than on collecting dividends.

But if PIE is repealed, meaning that Treasury coupons would fall under the 30% withholding-tax framework, then even with a tax treaty in place, after the surcharge under Section 899 is added, it would have a major impact。

Foreign investors currently hold nearly 9 trillion dollars in U.S. Treasuries; only if an effective tax rate of more than 20% is imposed on their coupon payments would it truly deliver a significant shock... In a word:If capital tariffs are truly to become an important tool for the Trump administration to raise fiscal revenue，with revenue rather than leverage as the core objective, then PIE must—and absolutely needs to—be repealed; otherwise, this provision has little value or purpose.

(For more details on holdings of dollar assets, see Notes250515 Further discussion of those unhedged dollar exposures, which discusses in detail the asset holders and the structure of their holdings)

Finally, if Section 899 and the repeal of PIE are both implemented, then the result is self-evident:

Another item will be added to the weak-dollar checklist, and pressure on U.S. Treasuries will also increase.

2025.06.04

III. Market Pulse 

Our latest Comments on the economic and market environment

On platinum’s breakout and the trade-screening process

Three weeks ago, Notes published a bullish article on platinum, see Notes250521 Potential Platinum Catch-Up Trades (on the catch-up logic in precious metals)The key points behind platinum’s catch-up move are discussed here:

1) The longer gold stays above 3000 dollars, the higher platinum’s floor moves

2) The less attention the tariff narrative receives, the less resistance platinum faces in breaking out

3) The top of the range is 1100; a breakout is a viable entry point

As of publication, Platinum has now officially broken above the observation point,

The market also saw significant abnormal trading after entering 1100:

Chart: Our observation point is a key structural inflection point

There was a chart in yesterday’s Notes that attentive readers may already have noticed, It’s the chart below about the tariff narrative...

Chart: The tariff narrative peaked

The platinum chart has always been on our dashboard(along with several hundred other charts) (only those worth examining more closely are posted to the community; we review the others for everyone each day until they show potential to make the cut...)，

We hadn’t discussed it earlier because the tariff narrative had been in an uptrend since last year. That rise only began to ease materially in the middle of April... the decline after peaking only formally began in May...

Chart: Gold overlaid with platinum

In fact, If we put the gold and platinum charts together, we can clearly see a complete trading cycle in which platinum (and a range of other precious metals) gradually diverged in value from gold and then returned to value...

And The period when the divergence widened was precisely when the tariff narrative’s suppressive force was increasing...

The period when the price spread returned was precisely when tariff pressure eased...

As gold spends more and more time above 3000 points,

The lows in platinum (and a range of other precious metals) are also gradually moving higher...

Chart: Notes250521 Potential Platinum Catch-Up Trades (on the catch-up logic in precious metals)

Rereading this passage now should deepen your understanding of our entry logic.

Some other related trading proxies:

Chart: PLG, up 20% since 0522

Chart: PLTM, up 7% since 0522

Chart: PPLT, up 7% since 0522

Let’s use this article to explain our process for screening a trade:

There are many instruments traded in the market, and most of their price movements, on most days, follow random fluctuations—which means traders cannot gain an edge in them through experience, knowledge, and training...;

An instrument is often affected by multiple factors during the same period, which ultimately combine to determine its price,

Among those factors, the main ones determine the overall direction of the trend(for example, precious metals as the floor for platinum and tariffs as the ceiling),The process of factors gaining and losing ground against one another is the process of random fluctuation.

When the forces of the main factors become unbalanced—which may result from one factor standing out, one factor fading, or both acting together (as with stronger precious-metal support for platinum and weaker tariff pressure)—Once certain conditions are met, it can be moved out of the hundreds of charts across the market and into the pool for close monitoring and potential action, where it waits for market prices to provide final confirmation.

Frequent trading is not our approach to selection, because the market does not offer a worthwhile trade every day,

As far as we can, we seek the main price swings that follow key levels.

Beyond the worthwhile updates(the decision to update or not is not in our hands; it is in the market’s hands), more of our everyday Notes add to our perspective on the market: fragmented pieces that, in substance, come together to form our overall view of the world... This is also where the “arsenal” metaphor comes from..

Finally, our own target price levels, For reference only, not a recommendation：

Chart: The preliminary level will be placed at 1250

2025.06.05

Note: All content 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.