April twenty-eighth, two thousand twenty-five to April twenty-ninth, two thousand twenty-five

I. Foundation

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

Thoroughly answer the question, “What exactly is a safe-haven asset?”

Many trades are marketed as safe-haven assets, as if you could call just about anything a hedge, but in fact they are not really hedges—What most people consider safe-haven assets are essentially still risk assets, or merely low-beta risk assets. Why did Notes create a foundation section? To form good market forecasts, you first need an accurate understanding of the market and causal reasoning, not “guesswork”!

If we extract the 10% worst days for U.S. stocks over the past 15 years (roughly, days with a daily decline exceeding 1.1%; this figure can also serve as a shorthand), and then add up the performance of the instruments that were called “safe-haven assets” in global markets at the time—the result is very interesting (unfamiliar to most people) result:

Chart: “Which asset is truly a safe haven?”

1) The Australian dollar is a typical high-beta risk currency, while the euro is relatively stable. So when markets seek safety, AUD are sold and EUR are bought relatively, causing EURAUD to rise;this currency pair is the most conventional proxy and measure for safe-haven trading。

Chart: The most conventional proxy pair—EURAUD

2) Then, we have to talk about gold—Gold really is not a stable safe-haven asset, although... many people who buy gold need to find a reason for their actions, so they say they are buying it as a hedge. In essence, they are putting the cart before the horse and have not distinguished the asset’s true characteristics at all. If they get it right, they call it their “judgment”; if they lose money, they cry about it..

Gold has a very diverse range of characteristics, At times it behaves like a risk asset, at times it serves as a measure of fiat liquidity at global central banks, and at times it resembles a safe-haven asset. From a portfolio-allocation perspective, it can be said to offer some safe-haven value (such as low correlation), but if we look only at its trading performance during sharp stock-market declines, it really does not meet the standard of a short-term “safe harbor.”

Chart: To survive in the market, don’t make excuses or find justifications for your positions—you’ll get badly hurt!

You need to have a reason before you act

rather than act first and then rationalize your behavior

Chart: In fact, this round of gold trading has little to do with seeking safety

After reading this Notes, everyone can easily judge the true level of those who talk at length about narratives

3) One interesting key change: go back to the first chart and you can see EURUSD another extremely sharp upward inflection during this round of U.S. stock declines—actually reflecting a clear shift in trading behavior in today’s market.Previously, The euro has risen against the U.S. dollar during stock market declines only twice, once in the early days of the pandemic, and again amid unusual trading activity in 2015/2016, when German bond yields turned negative.

Chart: EURUSD showed very strange behavior

Those who have read the Notes closely, say that line with us:

...If everything is normal, an anomaly simply will not occur; and if an anomaly does occur, then things are already not normal...

Works every time..

At present, the shift in the global safe-haven currency from the U.S. dollar to the euro is a real phenomenon. As confidence in the sustainability of the U.S. fiscal deficit and the credibility of its economic policies collapses, on days when U.S. stocks plunge, capital naturally moves out of U.S. assets and the dollar and into other large, stable capital markets—such as Europe.

Looking ahead, as European debt issuance increases(given Germany’s relatively low starting debt level, this could actually be positive for the euro),along with the possibility of Joint EU Defense Bonds, this will very likely further cement the euro’s position as a destination for sovereign wealth management funds.

There is something quite interesting about this: Germany and the United States are both issuing debt, but the interpretations and outcomes are different. It is a relative beauty contest; even if neither looks good, being the better-looking one is enough.

Note: Notes 250428 briefly discusses Wednesday’s Bank of Japan meeting (with observation ranges for the yen and euro) and gives an observation range for the euro; if a breakout is confirmed, we will enter.

4) Then, there are U.S. Treasuries: after the pandemic, high inflation and debt problems caused bonds to lose their strong safe-haven characteristics.

5) Silver, Bitco—don’t overthink it; they are typical high-risk assets

A simple sum will naturally be affected by other factors, but it still says a lot. Keep this Notes for your own reference.

2025.04.29

II. Insights

Our Viewpoints and ideas on market.

Another macro-level path combination that is counterintuitive but more likely

The U.S. session is stuck in the awkward position of 5500; in fact, bears are clearly more active than bulls, but also more cautious, That is the paradox of an efficient market: when everyone is waiting for a signal to short, the signal may instead be a long time coming.Everyone understands that the expected decline is likely to happen, but no one is willing to move first, because shorting requires much smoother price action than going long, and a decline that does not unfold smoothly is very, very bad.

Chart: The market is right at this major technical resistance level, 5500

We are medium-term bearish on the U.S. session, but in the short term a macro path that is highly counterintuitive yet has a meaningful chance of occurring is taking shape—This path is actually more likely and more realistic than a recession scenario namely, a combination of slower growth and rising inflation emerging over the next 1-2 months.

The logic is quite straightforward: when faced with rising costs, companies always prioritize price pass-through (the path of least resistance is naturally to pass the costs directly on to consumers),Clearly, this worked very well in 2022, so it is worth trying again this year..

Corporate earnings are nominal, which means that as long as inflation is high enough, reported earnings can still rise even if real demand weakens. If this path materializes, it will very likely be the core reason U.S. stocks can maintain their performance in the short term—earnings and share prices supported by inflation itself.

Of course, this is not good news in itself, we have already seen how a similar situation ends in 2021-2022: amid high inflation, even with good-looking earnings data, overall market sentiment only gets worse so even if earnings data temporarily support share prices, that may only delay the eruption of the real problem.

Chart: Looking back at 21-22—if it happens again, it will head toward 4500

If this path plays out, a more natural result would be that the probability of no rate cut in June is far greater than the probability of a cut.

Another structural issue is that the U.S. economy is primarily service-based. In fact, manufacturing now contributes very little to employment, so even if manufacturing is hurt (for example, by tariffs), the short-term impact on overall employment data will not be especially severe.

In other words, if headline growth does not collapse immediately, inflation may rise first, forcing the Federal Reserve to stand pat. The greater risk to watch is bond vigilantes risk: if long-term U.S. Treasury rates surge again and the Fed cuts rates rashly at that point, this could trigger even more severe turmoil at the long end.The bond market’s basic mechanism is to enforce policy discipline through selling; once the market sees discipline as having been abandoned, selling pressure on long-term yields will intensify further.

So even from a financial-stability perspective, especially from the bond vigilantes perspective, the Fed is more likely at this stage to wait and see rather than ease.In short, unless growth suddenly falls off a cliff (unlikely, because the data lag), or the market experiences systemic panic, the bar for a Fed rate cut in June is very high.

More likely, inflation will rebound, forcing the Fed to keep waiting.

Bears wait, market sentiment builds... downside breakout.

2025.04.28

III. Market Pulse

Our latest Comments on the economic and market environment

A brief discussion of Wednesday’s Bank of Japan meeting (with observation ranges for the yen)

Over the weekend, we mentioned that we had gradually closed several trend positions in the currency market last week, especially in the yen; we are flat and waiting.

Chart: Key observation range is 140-144

This meeting is quite important, although so far the market has barely priced in any clear outcome, but given that the Nikkei is currently in the middle of its range, inflation remains above target, USDJPY is stable, and there is substantial gamma buffering between 140 and 135，It is also possible that the Bank of Japan will choose to raise rates slightly during this window to align with U.S. policy.

Chart: The Nikkei 225 is also in the middle of its range

In addition, even if the meeting ultimately makes no changes, shorting USDJPY near the 144 level is still a reasonable setup.

However, we will not specifically trade ranges that are too small; this is just a brief note on our basic view.

A weakening pattern does not necessarily mean the trend is over, but consolidation may dominate until new information with a substantial impact emerges.

Chart: Finally, the euro trading range as a bonus