From June second, two thousand twenty-five, to June sixth, two thousand twenty-five

I. Foundation 

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

Revisiting a weaker U.S. dollar 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 positions against the U.S. dollar.In other words, these three currencies are the most likely to rise further when the U.S. dollar weakens, or, put differently, they have higher betas to the dollar.

These three currency pairs can be prioritized for trades on a weaker U.S. dollar.

Moreover, across 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 payrolls... Correspondingly, Among G10 currencies, the Swedish krona (SEK) and the euro (EUR) showed the most pronounced reactions..

(The corresponding attachments have also been posted on the Planet.)

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 place the effective tariff rate’s eventual landing point in the range of 10-13%, while Expectations at this level are unlikely to trigger a recession in the short term... which means The painful trade may continue for some time....Because Nominal data are likely to remain strong. As we said before, 6-7 will be a key period for data releases, and we will keep watching through the end of July (the next two months from today).

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

There are still no clear signs of real weakening... U.S. personal income rose 0.8% month over month last month,

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

The risk to 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 forward-looking Federal Reserve policy; 4) fiscal dominance

Chart: A Federal Reserve that has lost its capacity to act prospectively

The market will indeed eventually force fiscal policy back toward responsibility and establish a new equilibrium at a new level; that much is certain. What is not What is uncertain is the level at which the 30-year U.S. Treasury yield will ultimately settle. No one can answer that question.

GDP is a function of labor * productivity * leverage,

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

Capital is going long on AI again because productivity is currently the only remaining driver.. The tariff narrative has peaked, and the market has an incomprehensible obsession with seeking incremental information.

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. Federal Reserve action, coming after the data and fiscal policy, will remain constrained, and no action for the entirety of 25 would not be surprising.

U.S. high-yield credit spreads currently price 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 remains in place—credit spreads are being artificially compressed, while banks are increasing their risk appetite amid higher nominal rates 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 the market and professionals believe inflation will remain stable over the long term...Personally, I tend to look at market-based inflation compensation measures and the expectations of professional forecasters because they have real money at stake. If buyers of inflation-protected securities are wrong, they lose money; clients and companies of professional forecasters 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 weeds out companies that make the wrong decisions.Consumers, however, although they pay a price for getting forecasts wrong, do not compete with one another and do not “go bankrupt” for making a bad decision.。”

The issue 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 are overstated...

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

2025.06.03

From tariffs on goods to tariffs on capital: the hidden Section 899

When discussion of the Big Beautiful Bill was just gaining traction, we had already posted an update on the Planet. For more on this, see Notes 250516 The Big Beautiful Bill, fiscal surprise, and the bond market Today, we are mainly adding to what we covered before and discussing the hidden Section 899 beneath the surface.

The reason Section 899 matters is because it is the first substantive provision to formally expand the scope of tariffs from goods to capital...

The fundamental difference between tariffs on capital and traditional tariffs on goods is that—in today’s dollar-based global trade settlement system (which means that, no matter how prominent the narrative becomes, there is relatively little room for de-dollarization),regardless of how tariffs on goods evolve, the U.S. can still generate tens of billions of dollars in revenue from tariffs on capital, a form of monetary tariff—and all this can be achieved without relying heavily on traditional tariffs, which often carry a clear risk of stagflation.

At current levels, tariffs on goods could bring the U.S. government approximately 200–250 hundred million dollars in annual revenue. If “monetary tariffs” are implemented, even a moderate version could generate 100–150 hundred million dollars in fiscal revenue per year.

A closer look at Section 899 reveals that

the provisions behind it leave considerable room for further expansion of tariffs on capital/monetary tariffs...

(This is quite relevant, so just a brief mention: there will be another Notes article this week, the last one on tariffs, mainly to make a final distinction between the two objectives behind tariffs... The two objectives are not in conflict, but the emphasis on one direction or the other will lead the market to different outcomes... Whether the focus is leverage or revenue makes a very big difference, and Section 899 clearly supports the latter..)

1) Section 899, also known as the “revenge bill,”Its 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 primary targets);

2) Which countries will be taxed?As long as the U.S. Treasury will List a country on the “Discriminatory Foreign Countries” list (DFC, Discriminatory Foreign Countries)is enough to trigger the tax, without additional procedures;

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

4) What is the tax rate? Section 899 provides that, beginning in the first year after the bill takes effect, The current tax rate on covered entities is increased by 5%, then increased by an additional 5% each year thereafter, up to a maximum of 20% above the statutory rate. The key point is that Section 899 imposes a surtax on top of the applicable tax rate already in place (whether under a pre-tax or post-tax treaty);

5) When does it take effect? If the Big Beautiful Bill is passed before 2025 year 10 month, Section 899 takes effect on 1 1 2026;

As noted earlier, If the “currency tariff” is implemented, even its milder version could generate 100–150 hundred million dollars in annual fiscal revenue..

However, there is another wrinkle here—

For the currency tariff to truly take effect(and work) (If it cannot work, there is simply no reason for this provision to exist...and things with no purpose are not written into the bill...A provision still needs to be repealed...

This is also why Section 899 is probably just a vanguard...

The United States needs to (and probably will),

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

Currently, PIE effectively exempts foreign investors from withholding tax when they buy U.S. Treasury securities, making their Treasury returns completely tax-free. Section 899 merely adds a surtax to the existing tax rate on foreign investment—but under PIE, the rate on foreign holdings of U.S. Treasuries is zero.Therefore, If PIE is not repealed, Section 899 can apply only to dividends generated by U.S. stocks held by foreign institutions, bringing the Trump administration only tens of billions of dollars in annual revenue.

This is also why the Big Beautiful Bill explicitly states(the people who drafted the bill have already made it clear that they thought of this, and even spelled it out here):

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

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

This contrasts with certain types of income whose applicable tax rates are reduced or even zero, but which still receive relief from the statutory rate, such as income exempt under tax treaties or subject to preferential rates.”

If it is not repealed, under the current version, foreign investors hold approximately 18 trillion dollars in U.S. stock assets; if PIE is not repealed, that is, Section 899 imposes only a limited surtax on dividends，its impact is actually relatively limited... after all, most investors hold and allocate U.S. stocks focus more on capital appreciation than on collecting dividends.

But If PIE is repealed, meaning Treasury coupon payments would fall under the 30% withholding-tax framework, and even with a tax treaty in place, after adding the surtax under Section 899, it would still would have a significant impact。

Foreign investors currently hold nearly 9 trillion dollars in U.S. Treasuries; taxing their coupon payments at an effective rate above 20% would be enough to cause a truly significant shock.. In a nutshell: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 absolutely be repealed; otherwise, this provision has little value or reason to exist.

(For more details on holdings of dollar assets, see Notes250515 Continue discussing those unhedged dollar exposures, which discusses in detail the asset holders and holding structures)

Finally, If Section 899 and the repeal of PIE are both actually implemented, then the outcome is self-evident:

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

2025.06.04

On the two purposes of tariffs: Leverage & Revenue

In Notes250604 the other day, “From Goods Tariffs to Capital Tariffs,” we left a lead-in discussing the purpose of Trump’s tariff policy, which ultimately boils down to two things...

And these two objectives lead to two different market outcomes:

1/ As Leverage, applying pressure to force the other side to make concessions, That is the approach of using them as a bargaining chip...

2/ As Revenue, That is, as a genuine revenue-raising measure...

In fact, If it is the former, the market actually won’t mind too much; but if it is the latter (Trump once said tariffs are an “external revenue service”), then the issue becomes much more complicated.

Trump has publicly said, “...we can eliminate the income tax, because we’ll bring in so much money from tariffs.”

Tariffs are essentially a form of taxation, If the aim really is revenue, the market will naturally see this as a tax increase worth hundreds of billions of dollars; if tariffs are merely a means of leverage, the direct economic shock will at least be much smaller.So the real question for the market is whether, in Trump’s hands, tariffs serve as leverage or as revenue, and the two often appear together in the very same sentence—that is precisely what confuses the market.

At this point, since Liberation Day, At least in terms of its substantive orientation, tariffs are closer to a tool for applying pressure than a tax instrument. This is the basis of the so-called TACO trade. Behind “Chickens Out” is a natural pullback, and that is why the market has gradually calmed down (believing the outcome is still acceptable).

If tariffs are used only as leverage to put pressure on China and Europe, there is nothing wrong with that; the market fully accepts it. In that case, the narrative will gradually fade, and the impact of related statements and events on the market will keep shrinking(Reflected in smaller price swings, with fewer arbitrage opportunities from TACO shocks; yesterday’s U.S.-China call is a case in point);

One thing is certain: Trump, at least, will never completely abandon “tariffs,” because they have become his most distinctive core narrative and the foundation that supported his two election victories.From this perspective, tariffs are not only the central narrative of the Trump administration, but also a core emotional bridge connecting it to voters, an indispensable element that nothing can be allowed to threaten in his “bringing jobs back” narrative.

This means 1) tariffs cannot be abandoned 2) goods tariffs hurt voters 3) currency tariffs shift the conflict toward the “rich”

As I said, Section 899 is important because because it is the first substantive provision to formally expand the scope of tariffs from goods to capital...

This is clearly shifting toward the latter (with revenue as the objective), because goods tariffs genuinely hurt consumers and the general public, whereas the impact of capital tariffs (currency tariffs) on capital flows shifts the target from the general public to the rich. This is clearly a narrative that can be sold more easily to voters in the midterm elections, and it has more political upside than goods tariffs.

The midterm elections will take place in 26 year, 11 month, If the Big Beautiful Bill passes before 25 year 10 month, then Section 899 will take effect on 1 1 2026, leaving in fact less than a year until the midterm elections...

Shifts in behavioral logic are often closely tied to purpose; things without a purpose do not happen(and are plainly laid out right in front of you)。

2025.06.06

III. Market Pulse 

Our latest Comments on the economic and market environment

On the platinum breakout and the trade-screening process

Three weeks ago, Notes published a bullish article on platinum for details, see Notes250521 Potential Catch-Up Trades in Platinum (on the catch-up logic among precious metals), which discussed several key points behind platinum’s catch-up:

1) The longer gold holds above 3000 dollars, the higher platinum’s floor rises

2) The weaker the focus on the tariff narrative, 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 through the observation point,

The market also saw significant anomalous trading after entering 1100:

Chart: Our observation point marks a key structural shift

There was a chart in yesterday’s Notes, which some attentive readers have already noticed, it is the tariff-narrative chart below...

Chart: The tariff narrative has peaked

The platinum chart has been on our dashboard(along with several hundred other charts) (only those worth examining more closely are placed in the community; we monitor the others every day for everyone until they show potential to “make the table”...)，

We hadn’t discussed it before because the tariff narrative had been in an upswing since last year. That rise only began to ease materially in the second half of April... and the downtrend after the peak did not officially appear until May...

Chart: Gold overlaid with platinum

In fact, In fact, putting the gold and platinum charts together makes it easy to see a complete trading cycle in which platinum (along with a range of precious metals) gradually diverged in value from gold, then reverted...

And The period when the divergence widened was precisely when the suppressive force of the tariff narrative was rising...

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

As gold spends more and more time above 3000 points,

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

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

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

Some other related trading proxies:

Chart: PLG, rising from 0522 by 20%

Chart: PLTM, rising from 0522 by 7%

Chart: PPLT, rising from 0522 by 7%

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 through experience, knowledge, or training...;

At a given time, an instrument is often affected by multiple factors that ultimately combine to produce a consensus price,

among those factors, the primary ones determine the overall direction of the trend(for example, precious metals as the floor and tariffs as the ceiling for platinum),the process by which factors wax and wane against one another is the process of random fluctuations.

When the forces of the primary factors are no longer balanced—which may be due to one factor becoming more prominent, one factor fading, or both happening together (such as precious metals strengthening as the floor for platinum while tariffs weaken as its ceiling),once certain conditions are met, it can be moved out of the hundreds of charts across the market and into a pool for close observation and potential action, where it awaits final confirmation from market prices.

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

To the extent possible, we seek the main price move that follows a key level.

For the instruments we trade, worthwhile updates beyond(the decision to update or not is not in our hands, but in the market’s), what our more frequent Notes add is our perspective on the markets: individual, fragmented pieces that in effect come together to form our overall view of the world... This is also where the “arsenal” analogy comes from..

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

Chart: The initial position will be placed at 1250

2025.06.05

Note: All content 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 this information as a basis for decisions or rely on it.