SignalPlus Macro Analysis Special Edition: Too Much of a Good Thing

For markets, the good news is once again bad news.

The market got off to a bad start in the new year due to strong non-farm payroll data. The employment population increased by 256,000 in December (market expectations were +165,000), the unemployment rate dropped to 4.1% (expected to be 4.2%), and U.S. bond yields once Up about 10 basis points, long-term yields hit levels around 5%, while U.S. stocks fell 1.5%, the dollar strengthened, oil prices rose 3%, and cryptocurrencies corrected 5% in previous sessions. Left and right are flat.

The December employment report exceeded all investment bank expectations. The report showed that household survey employment increased by 478,000, the number of young people working part-time surged, and average hourly wages increased by 3.9% year-on-year, well above the low of 3.6% in July. %, suggesting that price pressures may return, which is a major problem that has plagued the Fed recently.

Bond yields showed a steep bearish trend, with the 10-year yield hitting 4.74% and the 30-year yield approaching 5%, reaching a nearly 12-month high. In addition, the economy remains strong and traders' expectations for interest rate cuts in 2025 have quickly dropped from nearly three to just one, making the Fed's dovish turn last September look like a policy mistake.

This weighed on stock markets, with the U.S., U.K., Japan and China all suffering losses, albeit for different reasons. U.S. and U.K. markets have been hurt by rapidly rising bond yields and funding costs, Japan has been punished for its central bank being too slow to raise interest rates and rein in inflation, and China faces the opposite problem as a deflationary economy slows and lacks concrete stimulus. Measures disappointed the market.

In China, the CSI 300 index fell more than 5% in the first week of trading, marking its worst start to the year since 2016. Chinese stocks have fallen 20% from their October highs on growing concerns about tariffs and sanctions risks, with Tencent becoming the latest target, as well as disillusionment with policy. In addition, domestic yields have fallen to historical lows, and the RMB exchange rate has weakened, further dampening risk sentiment, and there is currently no clear sign of an end in sight.

This week's focus will be on CPI and financial reports. Currently, market expectations for both aspects are relatively good. Overall CPI is expected to remain below 3%, with breakeven inflation remaining stable. However, an initial rise in UM's inflation expectations, coupled with strong wage growth, could tip the balance of risks upward, which is extremely negative for current market sentiment.

Earnings season will officially begin after the CPI is released, and financial and large-cap tech stocks are likely to come under additional pressure. In terms of policy, there will be press conferences from the People's Bank of China and the State Administration of Foreign Exchange, speeches from Federal Reserve officials, and a speech from Bank of Japan Governor Himino, based on which the market will determine the future path of monetary and fiscal policy.

In the field of cryptocurrencies, the weekly price decline is about 5-10%, with BTC performing more prominently. News last week that the U.S. Department of Justice was allowed to liquidate BTC seized in the Silk Road case (total value of $6.5 billion) gave the market reason to sell off, and also raised the question: If the government is serious about cryptocurrencies, why not Directly include this BTC into the "BTC reserve"?

The ETF started with net inflows last Monday, but sold off sharply in the second half of the week, with outflows of more than $700 million since Wednesday. Long futures liquidations totaled about $1 billion, close to the level seen in the November-December period.

A recent Citigroup survey (for its TradFi clients) showed that respondents generally expected BTC prices to go higher in 2025, with most expecting prices to be in the $100,000 to $200,000 range by the end of the year. Do prices follow emotions, or do emotions follow prices? We'll find out soon!