Market Trend Analysis: Economic Recession Expectations and Risk Asset Fluctuation

1. Current Market Trading Logic: Recession Expectations Dominate, Stagflation Risks Emerge

The interest rate market is sending clear signals. The yield on 2-year U.S. Treasuries is rapidly falling, widening the gap with short-term financing rates. The 10-year yield has dropped below short-term rates, reflecting that the market is preparing in advance for an economic slowdown and a potential interest rate cut by the Federal Reserve. The inversion of long-term rates further strengthens the recession warning.

An interesting contradiction has emerged in terms of liquidity. While government account spending has driven a marginal improvement in dollar liquidity, market risk aversion has led to funds being withdrawn from high-risk assets and flowing into the treasury market. This has created a paradox of "liquidity easing but risk appetite contracting."

2. The Roots of Risk Asset Fluctuation: Economic Weakness and Policy Uncertainty

Economic data shows weakness, the consumer confidence index has dropped significantly, and the job market is cooling down. Coupled with potential tariff threats, concerns about a "hard landing" for the economy have noticeably intensified.

The narrative in the field of artificial intelligence is also shaken. The market questions the commercial viability of AI, leading to a sell-off in tech stocks, especially in the computing power sector.

The cryptocurrency market has also experienced a chain reaction. Changes in the structure of the futures market have weakened the attractiveness of arbitrage, combined with ETF fund outflows, leading to a simultaneous decline of Bitcoin and the stock market. Market sentiment indicators show that it has entered a state of extreme panic.

III. Future Key Battlegrounds: Employment Data Will Set the Tone for the Strength of the "Recession Trade"

Next week's non-farm payroll data will be the market focus. If February's employment continues to exceed expectations, or if the manufacturing PMI continues to decline, it will strengthen recession expectations and push bond yields further down, putting pressure on risk assets. Conversely, better-than-expected data may temporarily restore "soft landing" expectations.

Policy risks also require close attention. Potential details of tariff policies and statements from Federal Reserve officials regarding the interest rate cut path could trigger significant market fluctuations.

In the current environment, it is recommended to focus on defensive strategies while closely monitoring counterattack opportunities. The short-term selling pressure in the cryptocurrency industry comes from the withdrawal of leveraged funds, but improvements in the regulatory environment and technological innovation still support its long-term growth potential.

Stagflation or Recession? The Focus of Market Speculation

1. Macroeconomic Review of This Week

1. Liquidity and Interest Rate Fluctuation

The marginal liquidity has slightly improved, mainly attributed to the consumption of government accounts. This week, the dollar-based liquidity increased by $39 billion compared to last week, but still remains below the level of the same period last year. The balance of government accounts has decreased from $800 billion in mid-February to currently over $530 billion.

The interest rate market is beginning to reflect expectations for interest rate cuts and concerns about economic slowdown. The yield on 2-year government bonds has quickly fallen, widening the gap with short-term financing rates. The yield on 10-year government bonds has fallen below short-term rates. This reflects several key pieces of information:

• Against the backdrop of deteriorating economic data, market expectations for a rate cut by the Federal Reserve this year have rapidly risen.
• Short-term financing rates have not yet reflected the expectation of interest rate cuts, indicating that the Federal Reserve is still maintaining a certain level of tightening through open market operations.
• The decline in long-term government bond yields is accelerating, reflecting strong risk aversion.

Overall, although short-term interest rates remain tight, the results of the treasury market transactions indicate that investors are preparing for the scenario of "economic slowdown forcing the Federal Reserve to cut interest rates."

2. Risk Market Review

The stock market experienced increased fluctuation this week. Continued selling pressure has been influenced by previously weak data. The market volatility index remains high, reflecting heightened pessimism. Investors' focus has shifted from inflation to economic data, particularly as the significant decline in the consumer confidence index has intensified recession fears. It wasn't until Friday's inflation data was released that market tensions were slightly eased.

Apart from economic data, the challenge to artificial intelligence narratives is also an important factor. Despite the impressive earnings report of a certain tech giant, market skepticism regarding the development path of AI technology has intensified, leading to a sell-off in tech stocks, especially in the computing power sector.

The cryptocurrency market is also shrouded in gloom. Against the backdrop of decreased risk appetite in the stock market, crypto assets have experienced a significant pullback, and market sentiment indicators have fallen into the extreme fear zone. Changes in the futures market structure have weakened arbitrage attractiveness, coupled with ETF fund outflows, exacerbating market sell-offs. The overall transmission logic is: economic recession worries → decreased risk appetite → funds withdrawing from high-risk markets → decreased arbitrage attractiveness → ETF fund outflows → increased concerns in the crypto market → accelerated sell-off.

2. Future Outlook

The market is at a turning point of expected intense adjustment, with complex gaming factors that increase trading difficulty. Investors need to closely monitor the latest data and adjust their strategies in a timely manner.

Key macroeconomic data next week includes the non-farm payroll report and manufacturing PMI, among others. Notably, a certain economic research institution has rarely downgraded its GDP forecast for the first quarter of 2025 to -1.5%. Although some of this is influenced by seasonal factors, it also reflects an increased risk of economic slowdown under the potential threat of tariff policies.

Based on the current situation, we suggest:

1. Maintain a cautious stance and avoid blindly chasing highs, but also pay attention to potential short-term corrective trends.
2. Adopt a diversified allocation strategy, increase the proportion of defensive assets and quantitative arbitrage products, and balance risk and return.
3. Closely monitor the impact of economic data, interest rate trends, liquidity changes, and policy directions on market expectations.

Despite short-term market sentiment being affected, the improvement in the regulatory environment and technological innovation continue to provide growth momentum for the cryptocurrency industry in the long run. The short-term market fluctuations are primarily driven by risk aversion demand for capital, especially the risk management behaviors of leveraged funds, and do not represent a fundamental change in the outlook for the industry. We remain confident in the long-term development of Bitcoin and the cryptocurrency industry.