June sixteenth, twenty twenty-five to June seventeenth, twenty twenty-five

I. Foundation 

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

A further note on the housing lag effect in CPI

Six months ago, we discussed the issue of data lags in general terms; see Notes241230 The Inflation Catch-Up in Macroeconomic Data: Consumer Prices and Input Costs Today, we’ll add some detail on the important housing component.

Chart: The lag in housing data

Core goods account for only about 20% of the core CPI basket; services and housing are what truly drive the inflation trend.

Chart: Shelter has a high weight in core CPI, with a major impact

The housing lag works in both directions. For example, in the middle of 21, the U.S. housing market was extremely hot, but Shelter CPI likewise failed to reflect this in time because of the lag, causing the Fed to “misjudge the situation” and delay its rate-hiking cycle. Today, this “lagged decline in housing inflation” is still underway—which means the Fed’s actions are likewise delayed, postponing rate cuts.

Chart: Core CPI calculated using real-time Shelter data had returned to 2% as early as 18 months ago, while lagging official housing inflation continues to push up official core CPI, limiting the Fed’s room to cut rates

Driven by declines in the Shelter component, official core CPI will continue to fall for the foreseeable future.

2025.06.17

II. Insights 

Our Viewpoints and ideas on market...

A rare macro trading opportunity: starting with soybeans

Last year, before Trump took office, we did a round of soybean trading on the Planet. The main domestic proxy instrument was Soybean No. Two (which is very strongly correlated with U.S. soybeans),We opened the position in 11, 7, and prices then fell steadily as expected...

Chart: The day after the post, a price decline officially began

Old friends on the platform should remember this trade quite well; it was a trade that broke out beyond our circle...

It also directly gave us a fairly satisfying performance result in 24...

Chart: Notes241107 — An expert’s view on soybeans

This is a very typical macro trade: cross-market asset logic can produce a clear outcome with large price swings within a single market, The day after the post, No. Two soybeans fell all the way from their high, setting a trading price low not seen in more than two years.

Using this trade as a starting point, today we’ll discuss a few other things, We’ll first provide some background on soybeans as a category, then discuss why, at this point in time, another trading opportunity with strong links to soybeans is emerging...

This trade combines Long soybeans, long commodities, short the dollar, and a uniquely asymmetric trade structure with a built-in safety cushion..

We’ll reveal it at the end of the article.

1. In agricultural commodities, two products have appeared frequently in USDA reports so far this year: corn and soybeans. And Compared with corn, China has a much greater influence on the global soybean market (accounting for 60% of global consumption) and is more vulnerable to tariff uncertainty.

2. China is, in fact, the world’s largest soybean importer, with its dependence on foreign supplies remaining above 80% over the long term, and its import sources are relatively concentrated.Feed grains used as a protein source, especially soybean meal, are considered one of the major risk points in China’s food-security system.Demand for soybean meal in animal feed is one of the key factors driving soybean imports.

According to data from the U.S. Department of Agriculture (USDA), China imported a total of 247 hundred million dollars’ worth of agricultural products from the United States in 2024, accounting for 14% of U.S. agricultural and food exports that year.

The main import categories include soybeans, beef, cotton, coarse grains (excluding corn), nuts, dairy products, poultry meat, and related products.Among these, China imported 2210 ten thousand tons of soybeans from the United States, accounting for 21% of China’s total soybean imports of 1.05 hundred million tons for the full year 2024, equivalent to 19% of China’s annual soybean demand.

Chart: Soybeans stand out in China’s import dependence among major agricultural products

Another chart is actually clearer; this shows China’s soybean consumption and import dependence since 1995:

Chart: High dependence on overseas supply

This makes it very clear why soybeans are considered one of the major risk points in China’s food-security system.

For the full year 2024, China’s total imports of agricultural products from the United States amounted to 247 hundred million dollars, with soybeans accounting for 52%:

Chart: Why soybeans pose the largest and most direct risk in U.S.-China agricultural trade

3. In this area, we have also been looking for alternatives to curb excessive growth in soybean imports and overseas dependence. Where we can take action, we have indeed quietly done a lot...

As of this year, China has established a strategic reserve system for soybeans, which can slow the pace of imports if the trade war potentially escalates. In 2024, China imported about 1.12 hundred million tons of soybeans; imports are expected to fall to 1.04 hundred million tons this year.This is significantly different from the market environment during the previous U.S.-China trade war, because China had not yet established a strategic soybean reserve system at that time..

However, Any structural change has to be assessed over a ten-year horizon. This naturally means that this pattern of dependence is difficult to change in either the short or medium term.

4. Beyond strategic reserves, China is also accelerating the shift in its soybean purchasing focus from the United States to Brazil. This trend is continuing to drive the expansion of planted areas in relevant parts of Brazil, further pressuring U.S. soybean prices.

In 2018, when China imposed retaliatory tariffs of 25% on U.S.-grown soybeans, the landed price of U.S. soybeans (CNF China) once fell by nearly 100 dollars per ton, while Brazilian soybean prices remained broadly stable..

At this point, the tariff retaliation against U.S. soybeans of 135% will most likely produce the same outcome:

Chart: Spread structure from a tariff perspective

5. With that background in place, Why are we bringing up soybeans again today..?

Chart: CBOT soybeans

Taking a step back for a broader perspective, compared with the earlier volatility trades, Soybean futures have in fact been stuck in an extremely compressed range since the second half of 24...Between the tariff narrative, the planting debate in the USDA survey report, and the shift toward Brazil, soybean futures’has continued to contract, and prices have moved sideways; this is actually quite unusual. So far, the percentile for its narrow trading range is almost at a low for the past 20 years..

Chart: Weekly chart

Compared with the decline in the previous trading cycle, this time prices are instead beginning to test the upper end of the trading range...

Such unusual, subdued volatility often precedes most macro price breakouts..

As I keep saying, a delicate balance often signals dangerous volatility..

The U.S. government’s biofuel requirements for 26 and 27 are giving soybeans a new narrative, under this new narrative, a larger share of U.S.-produced soybean oil will have to be used as feedstock for renewable diesel production, while at the same time, the worst and most intense period of the tariff issue’s impact on the market has already passed.

This means that if trade tensions ease, positive factors will follow, while the downside is limited. An asymmetric risk-reward opportunity over a longer time horizon is gradually taking shape, with strong capital support beneath the market, an upside breakout seems the more likely direction; our view is waiting for confirmation from the flows...

6. We won’t trade soybeans because there are better choices..

Even so, we won’t trade soybeans directly, because there are better choices in the market to express this trading view, with more suitable risk-reward ratios.Within the same narrative, assets with the same trading path can have different risk-reward profiles. Choosing which horse to back can sometimes matter more than correctly judging the direction...

In a market few people are watching, a an asymmetric trade structure is taking shape that simultaneously expresses long soybeans, long commodities, and short the U.S. dollar, with a unique margin of safety is taking shape..

Chart: Brazilian stock index

Some of our clever readers have already guessed... After all, only three places have appeared throughout this piece:

China, the United States, and Brazil.

Brazil is a major global soybean exporter, the most important third party in the U.S.-China soybean trade, and currently China’s only alternative outside the United States. In fact, China really is placing an overwhelming share of its orders with Brazil...

If soybeans themselves are poised for a price breakout, whatever the reason, Brazil will be a direct beneficiary...

Using the Brazilian stock index as a proxy for a soybean trade can, on one hand, smooth out the uncertain fluctuations driven by news and narratives around soybeans while capturing the upside of the soybean trade; on the other, Brazil’s own fundamental economy provides an even more asymmetric margin of safety for this “asymmetric” risk-reward opportunity...

Over the past two years, the Bovespa index has stayed within a relatively narrow trading range and is now approaching its all-time high (our observation level is at 140500; the core position was established long ago. This trade was actually mentioned earlier in the public account’s selection of macro reading materials. Latin American assets are among the most undervalued in the world today, and the market’s 12-month forward P/E is only 8.5. If it breaks out, we’ll increase our position), while domestic fundamentals and macro conditions will also support an upside breakout to a significant extent.

One other point to mention is Most Brazilian companies are primarily in the business of exporting large volumes of commodities, which gives them a real advantage in the current macro environment, Going long Brazil is essentially also taking on a layer of commodity exposure and a layer of short-dollar exposure; it is a consistent expression of our multiple macro views:

Chart: Notes250613 Three triggers for a decline in the dollar

In addition, The Brazilian central bank had previously raised interest rates to 14.75%. While supporting the strength of BRL, this also means inflation may gradually come under control, opening room for future rate cuts and a rise in the stock index;

From a fiscal perspective, Brazil will hold a general election in 26, 10. The right-wing party favored by the market currently has the advantage in the polls and may ultimately take office; incumbent President Lula is also likely to push for economic stimulus before the election...

If our observation level breaks out, we’ll take part in a bet on a move through the all-time high.

2025.06.16

Why might FOMC turn unexpectedly dovish instead

Ahead of the upcoming FOMC meeting, market views are sharply divided. Many expect the Dots to be revised down from the previous expectation of two rate cuts to one... But the Fed may instead make a rather unexpectedly dovish statement。

In fact, the Fed has long had a strong inclination to cut rates (this has been part of its nature since its creation), but conditions had not previously allowed it.As noted in Notes250528, the Fed has long been pushed to the very end of the decision-making chain. Now it has its first opportunity, with 5-month CPI and core PCE expectations as cover, so it will naturally be more inclined to use the opportunity to move its stance closer to rate cuts rather than further away.

Back at the start of 2019, Powell had clearly turned dovish, saying in a speech that the rate-hiking cycle was over and that the Fed’s focus would shift to maintaining accommodative financial conditions:That summer, the average month-over-month core inflation rate was 0.2%, higher than now; the unemployment rate was 3.7%, lower than now and stable. The Fed then cut rates from 2.25% to 1.50% in the third quarter.

Today, the average month-over-month core inflation rate over the past three months is 0.14%, services inflation is weaker, the unemployment rate has steadily climbed to 4.24%, and rates are still 200 basis points higher than in the summer of 19...

At present, the only possible hawkish argument is that the statistical period in the latest CPI covers only half of the effective tariff adjustments, but core goods inflation remains negative month over month, indicating that U.S. companies are very cautious about passing on costs..This means we may not see such pronounced data changes in cost pass-through.

The market currently prices in 18% for a July rate cut and 75% for September.

This means that, for an expectations trade, if FOMC surprises, the surprise is more likely to be “unexpectedly dovish,” and an “unexpectedly dovish” outcome would bring a rate cut in 7 directly into the expected range.which means At this point, going long on the probability of a rate cut in 7 before the meeting offers very attractive value (the odds are good)——because the worst case would only be a drop from 18% to 10%, while the favorable case could see it jump from 18% to 60%-70%..

There is still an asymmetric trade structure behind it.

However, summer tariffs will still have a fairly noticeable impact on monthly inflation, so in terms of actual action, FOMC is unlikely to act before 12; the earliest it might act is 12. This time, it is most likely a change in expectations-driven pricing brought about by its statement.

2025.06.17

III. Market Pulse 

Our latest Comments on the economic and market environment

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 making decisions.