June sixteenth, two thousand twenty-five to June nineteenth, two thousand twenty-five

I. Foundation 

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

Let me add to the discussion of the housing lag in CPI

Half a year ago, we discussed the issue of data lags in fairly broad terms; see Notes 241230 Inflation Catch-Up in Macroeconomic Data: Consumer Prices and Input Costs Today, let me add to the discussion of the housing component, which is a particularly important part of the topic.

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 carries a large weight in core CPI and has a major impact

The housing lag works in both directions. In the middle of 21, when the U.S. housing market was extremely hot, Shelter CPI also failed to reflect this in time because of the lag, leading the Federal Reserve to “misread the situation” and delay its rate-hiking cycle. Today, the “lagged decline in housing inflation” is continuing—which means the Fed’s actions are likewise lagging and delaying the pace of 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 Federal Reserve’s room to cut rates.

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

2025.06.17

Who is doing EUR/USD

The dollar has depreciated 7% cumulatively so far this year and has fallen against almost all major currencies. At the start of the year, international investors’ dollar hedge ratios were low because, for quite some time, they had earned additional returns from holding U.S. assets through both the underlying assets and the exchange rate.

Take Sweden as an example: U.S. assets held by retail investors there have fallen 24% year to date, and half of that decline comes from valuation changes (that is, exchange-rate factors)... It is clear that the rise in currency risk is materially affecting allocation decisions. Even if global investors continue to hold U.S. assets themselves, the dollar could still fall further as long as they reduce their dollar exposure further.

Setting aside the geopolitical shock issue involving EUR discussed yesterday, One key point that draws our attention to the euro trade is the presence in the market of buyers who are clearly insensitive to price...

At the beginning of the year, these buyers were global HF; from the second quarter onward, Real Money accounts took over:

Chart: Who is buying

The distribution of price-insensitive buyers in the market can help, to some extent, assess how far the so-called “major shift in the foreign-exchange market” has progressed—or, in other words, how this new exchange-rate mechanism for hedging the dollar is advancing.

Chart: Changes over time

By region, demand for euro/dollar from European Real Money has been especially pronounced recently, while participation by accounts in the Americas remains limited. The behavior of these American funds merits continued attention.

If we extend the data through the end of last week, excluding the Iran war, Although the dollar received some support among hedge funds last week, particularly against the euro, Real Money still viewed the euro/dollar pullback as a buying opportunity:

Chart: Real Money still views pullbacks as buying opportunities

What matters more in this chart is the official accounts, Official funds are exhibiting typical contrarian behavior: buying dollars when the dollar pulls back and selling euros when the euro strengthens.

This is consistent with the logic of “portfolio rebalancing” (if central banks want to keep the proportions of their dollar and euro reserves unchanged after the sharp currency-market swings this year, they have to buy dollars when the dollar weakens and sell euros when the euro strengthens).However, this also indicates that the official sector has not yet made a clear decision to “reduce its dollar holdings,” even through passive reductions resulting from valuation changes. Otherwise, the euro/dollar appreciation could have been greater.

2025.06.19

II. Insights 

Our Viewpoints and ideas on market...

A rare macro trading opportunity: starting with soybeans

Before Trump took office last year, we ran a soybean trade on our Planet community. The main domestic proxy was Soybean No. Two (which is very strongly correlated with U.S. soybeans),We opened the position in 11 7; afterward, prices fell steadily as expected...

Chart: The day after publication, a new round of price declines began

Longtime Planet readers should remember this trade well; it was one that gained wide attention...

It also directly helped our performance deliver a fairly satisfying result in 24...

Chart: Notes 241107 Experts look at soybeans

This is a very typical macro trading path: cross-market asset logic can produce a high-confidence, large move within a single market, the day after publication, Soybean No. Two fell steadily from its peak, reaching its lowest trading price in more than two years.

Using this trade as an introduction, today we’ll discuss a few other things, We’ll first provide some background on soybeans, then discuss why another trading opportunity closely tied to soybeans is emerging at this point in time...

This trade combines Long soybeans, long commodities, short dollars, and a uniquely asymmetric structure with a safety cushion..

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

1. In agriculture, two commodities have appeared frequently in USDA reports so far this year: corn and soybeans. And Compared with corn, China has a much greater influence in 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% for a long time and imports relatively concentrated by source.Feed grains as a source of protein, especially soybean meal, are regarded as one of the main risk points in China’s food security system.Demand for soybean meal in animal feed is one of the key drivers of soybean imports.

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

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

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

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

Chart: Heavy reliance on overseas supplies

This makes it easy to see why soybeans are considered one of the main risk points in China’s food security system.

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

Figure: Why soybeans are the biggest and most direct risk among U.S.–China agricultural products

3. In fact, on this front, we have also been looking for alternatives to curb the excessive growth in soybean imports and dependence on overseas supply. Where we can take action, we have indeed quietly done a great deal...

As of this year, China has established a strategic reserve system for soybeans, which can slow the pace of imports amid a potential escalation of the trade war. In 2024, China imported about 1.12 hundred million tonnes of soybeans; imports are expected to fall to 1.04 hundred million tonnes this year.This is markedly 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..

That said, Any structural change inevitably has to be viewed on a decade-long horizon. This naturally means that this pattern of dependence will be difficult to change in either the short or medium term.

4. Beyond strategic reserves, China is also accelerating the shift in its soybean procurement focus from the United States to Brazil. This trend is continuing to drive an expansion of planted area in relevant regions of Brazil, further weighing on 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) briefly fell by nearly 100 dollars per tonne, while Brazilian soybean prices remained largely stable..

This round of retaliatory tariffs on U.S. soybeans of 135% will, by the looks of it, very likely lead to the same outcome: 

Figure: Spread structure from a tariff perspective

5. With the background covered, Why are we bringing up soybeans again today..?

Figure: CBOT soybeans

Taking a broader view, compared with the volatility trades we saw earlier, 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 U.S. Department of Agriculture’s survey report, and the shift to Brazil, soybean futures’Volatility has continued to contract and prices have moved sideways. This is quite unusual: as of now, the percentile for this narrow trading range is near its lowest level in the past 20 years..

Figure: Weekly chart

Compared with the decline in the previous round of trading, this time prices are instead beginning to test the top of the trading range...

This kind of unusually subdued volatility often precedes most breakouts in macro prices..

As we’ve said before, a delicate balance often signals dangerous volatility..

The U.S. government’s proposed 26 and 27 biofuel requirements are giving soybeans a new narrative, under this new narrative, Soybean oil produced domestically in the United States will have to make up a larger share of the feedstock for renewable diesel production, while at the same time, the period when tariff issues had their strongest and most damaging 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 on a longer time horizon is gradually taking shape, with strong capital support on the downside, an upside breakout seems the more likely direction; our view is awaiting confirmation from capital flows...

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

Even so, we will not trade soybeans directly, because there are better choices in the market that can help us express this trading view, and these choices offer a more suitable risk-reward profile.Within the same narrative, assets following the same trading path can still have different risk-reward profiles. Choosing which horse to back is sometimes more important than correctly judging the direction...

In a market few people are watching, a An asymmetric trade structure that expresses long soybeans, long commodities, and short the dollar at the same time, with a distinctive downside cushion is taking shape..

Figure: Brazilian stock index

Some sharp readers have already guessed it... After all, only three places appear throughout this article:

China, the United States, and Brazil.

Brazil is a major global soybean exporter, the most important third party in U.S.–China soybean trade, and currently China’s only alternative outside the United States. In fact, China is indeed placing its orders heavily with Brazil...

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

Using the Brazilian stock index as a proxy for a soybean trade can smooth out the uncertain swings in soybean trading driven by news and narratives, allowing us to capture the upside in soybeans. At the same time, Brazil’s own fundamental economic conditions provide this “asymmetric” risk-reward opportunity with an even more “asymmetric” downside cushion...

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

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

Figure: Notes250613 Three triggers for a weaker dollar

Besides that, The Brazilian central bank had previously raised interest rates to 14.75%. While supporting the strong performance of BRL, this also means inflation may gradually come under control, opening up 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 leads in the polls and may ultimately take office. Incumbent President Lula will also very likely push for economic stimulus before the election...

If our observation level breaks out, we will take part in a bet on a move to new historical highs.

2025.06.16

Why might FOMC instead surprise on the dovish side

Ahead of the upcoming FOMC meeting, market views are sharply divided. Many expect the Dot Plot to be revised from the original expectation of two rate cuts to one... But at present, the Fed may instead make a rather unexpectedly dovish stance。

In fact, the Fed has long had a strong inclination to cut rates (this has been part of its nature since its creation); it is just that conditions did not previously allow 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 to use 5’s CPI and core PCE expectations as cover; naturally, it will be more inclined to use the opportunity to move its stance closer to rate cuts rather than further away.

Going back to the beginning of 2019, Powell clearly turned dovish at the time, saying in a speech that the rate-hiking cycle had ended and that the Fed’s focus would shift to maintaining an accommodative financial environment:That summer, the average month-over-month core inflation rate was 0.2%, higher than now; unemployment 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, unemployment has steadily climbed to 4.24%, and interest rates are still 200 basis points higher than in the summer of 19...

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

The market is currently pricing 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.” An “unexpectedly dovish” outcome would directly bring a rate cut in 7 into the range of expectations.making At this point, going long the probability of a rate cut in 7 ahead of the meeting offers very attractive value (the odds are very good)—because even the worst case would only mean a decline from 18% to 10%, while in a favorable case it could jump from 18% to 60%-70%..

An asymmetric trade structure still underlies 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 would be 12. This time, the change in pricing is most likely to come from statements shifting expectations.

2025.06.17

Let’s discuss the currency positions we’re holding and the two stages of geopolitical trading

The ongoing situation in the Middle East is forcing us to reassess our current currency positions, in the euro-dollar options market, the call premium on the 1-month risk reversal suddenly disappeared, and this happened after premiums had previously been high...Such a sudden, sharp decline is rare historically and often does not bode well.

1) Several historical episodes that can serve as reference occurred in 04, 07, 08, 09, 13, 18, and 20

2) Only three instances supported continuing to hold euro positions

3) Of the three, one One rally continued for a month, and another lasted for three months

4) Only in 07 did a significant rally occur after a pause..

At this point, the key issue in the debate over whether to keep holding the position is judging whether this pricing shift signals the end of the bullish euro-dollar narrative or was merely triggered by rapid deleveraging amid fear over the Middle East situation，At present, the latter seems more likely; in other words, this is not a genuine bearish signal.

However, this also reminds us of the risks in the trade we are holding.

In the first stage of geopolitical trading, the dollar’s reaction often suppresses gold’s price reaction. That is exactly what we have seen from the launch of the missiles through today. In the second stage, if the situation continues or worsens, trading in gold and the dollar shifts from one suppressing the other to both rising together.

The U.S. Dollar Index is now very close to the downward trendline in place since the beginning of the year. Today’s dovish bet on FOMC could be the key trigger for a breakout,

Everyone can wait and see.

Figure: The two stages of the dollar, gold, and geopolitical trading

We will closely monitor the co-movement of the U.S. Dollar Index, the dollar, and gold to decide whether to keep or exit our euro position.

2025.06.18

III. Market Pulse 

Our latest Comments on the economic and market environment

Note: All content in this article is for reference only, does not constitute investment advice, and is not a basis for any law, regulation, or regulatory policy. Investors should not use or rely on this information as a basis for making decisions.