April twenty-eighth, twenty twenty-five

I. Foundation

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

A definitive answer to the question, “What actually is a safe-haven asset?”

Many trades are wrapped in the banner of safe-haven assets, as if any trade could be described as a safe-haven trade, but in fact they are not truly safe havens—Most assets that people consider safe havens are fundamentally still risk assets, or merely low-beta risk assets. Why did Notes create the foundation section? To make good market forecasts, you first need an accurate understanding of the market and causal reasoning, not “guesswork”!

If we take the 15 worst days for U.S. equities over the past 10% years (roughly, days with a daily decline greater than 1.1%; this figure can also be remembered as) extract them, then add up the corresponding performance of assets described as “safe havens” in global markets at the time, we get a very interesting (unfamiliar to most people) result:

Figure: “What is the true safe-haven asset?”

1) The Australian dollar is a typical high-beta risk currency, while the euro is relatively stable. So when markets seek safety, AUD is sold and EUR is bought relatively, causing EURAUD to rise, This currency pair is the most orthodox safe-haven trade proxy and observation。

Figure: The most orthodox proxy pair — EURAUD

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

Gold has a very diverse set of characteristics, At times it behaves like a risk asset, at times like a measure of global central-bank fiat liquidity, and at times like a safe-haven asset. From a portfolio-allocation perspective, one could say it has some safe-haven value (such as low correlation), but if we look only at its trading performance during stock-market crashes, it really does not meet the short-term “safe harbor” standard.

Figure: To survive in the market, don’t make excuses or find justifications for your positions, or you’ll be crushed!

You need to have a reason before you act

instead of acting first and then rationalizing your behavior

Figure: In fact, this round of gold trading has little to do with safe-haven demand

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

3) One particularly interesting and important change: go back to the first chart and you can see EURUSD saw another extremely sharp turn higher during this round of declines in U.S. equities—a move that actually reflects a clear change in trading behavior in today’s market.Previously, EUR/USD has risen during stock-market declines on only two occasions, once at the start of the pandemic, and the other time during some unusual trading in 2015/2016, when German bond yields turned negative.

Figure: EURUSD showed very strange behavior

Those of you who know Notes well, say this line with us:

...if everything is normal, then an anomaly will never occur; and if an anomaly does occur, then things must already be abnormal...

Works every time...

Based on the current situation, the shift in global safe-haven currency flows 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 policy collapses, on days when U.S. stocks plunge, capital naturally exits U.S. assets and the dollar and moves into other large, stable capital markets—Europe, for example.

Going forward, as the volume of European debt issuance increases(given Germany’s relatively low starting debt level, this could actually be positive for the euro),the possibility of Joint EU Defense Bonds would most likely further strengthen the euro’s role as a parking place for sovereign wealth-management funds.

There’s something fascinating about this: Germany and the United States are both issuing debt, yet the interpretations and outcomes are different. This is a relative beauty contest; even if neither looks good, it’s enough for one to look a little better.

Note: Notes250428, “A brief discussion of Wednesday’s Bank of Japan meeting (with yen and euro observation ranges),” gave an observation range for the euro. If a breakout is confirmed, we will enter.

4) Next, U.S. Treasuries: since the pandemic, high inflation and debt problems have stripped bonds of their good safe-haven qualities.

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

A simple sum, with other sources of disturbance naturally present, can still tell us a lot. Keep this Notes article 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 in the market are clearly more active than bulls, but they are also more cautious, That is the paradox of an efficient market: when everyone is waiting for a signal to sell short, the signal ends up taking a long time to arrive.Everyone understands that the expected decline is likely to happen, but no one is willing to act first, because short selling requires much smoother price action than going long; a decline that is not smooth is a very, very bad outcome.

Figure: The market is right at 5500, a major technical resistance level

We are medium-term bearish on the U.S. session, but a short-term macro path is taking shape that is highly counterintuitive yet not unlikely in reality—This path is actually more likely and more realistic than a recession scenario namely, a combination of slowing growth and rising inflation emerging over the next 1-2 months.

The logic is actually quite straightforward: when faced with rising costs, companies will always consider price pass-through first (the path of least resistance is naturally to pass costs directly on to consumers),Clearly, this worked extremely 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 most likely be the key reason U.S. equities 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 already saw the endgame of a similar situation in 2021-2022: amid high inflation, overall market sentiment worsened even as earnings data looked good, so even if earnings data temporarily support share prices, this may only delay the eruption of the real problem.

Figure: Looking back at 21-22, if it happens again, it would head toward 4500

If this path plays out, a more natural outcome would be a much higher probability of no rate cut in June than of a cut.

Another structural issue is that The U.S. economy is service-oriented. 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 instead, forcing the Fed to stay on hold. The greater risk to watch is bond vigilantes risk: if long-term U.S. Treasury yields surge again and the Fed cuts rates recklessly at that point, it 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 policymakers as having abandoned that discipline, selling pressure on long-term yields intensifies further.

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

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

The bears are waiting; market sentiment is building... a downside breakout.

2025.04.28

A shift: calendar effects are fading while time-zone effects are strengthening

In general, month-end corporate demand for foreign currency is seen as supportive of the dollar (see the Wrap from the day before yesterday). But in yesterday’s trading, the dollar began to weaken noticeably around the London afternoon 4 o’clock Fixing, and stop-losses from some short-term dollar buyers further intensified the trend...

One fairly clear point is this: calendar effects are weakening, while time-zone effects are strengthening..

III. Market Pulse

Our latest Comments on the economic and market environment

A brief look at Wednesday’s Bank of Japan meeting (with the yen monitoring range)

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

Chart: The key monitoring range is 140-144

This meeting is quite important, although so far the market has made almost no clear pricing for it, 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 cushioning in the 140 to 135 range，It is also possible that the Bank of Japan will choose to raise rates modestly during this window to align with U.S. policy.

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

Also, Even if the meeting ultimately makes no changes, shorting USDJPY near the 144 level is still a reasonable setup.

However, we would not specifically trade such a narrow range; this is just a brief note on the basic assessment.

A weakening pattern does not mean the trend has ended, but consolidation may become the dominant rhythm until new information with a material impact emerges.

Chart: Finally, the euro trading range as a bonus