Macroeconomic Weekly Report: Concerns about Economic Recession Intensify, Market Trading Logic Shifts

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

Market signals for interest rates show that the 2-year U.S. Treasury yield is rapidly declining, with the gap between it and short-term financing rates widening, while the 10-year yield has fallen below short-term interest rate levels. This reflects that the market is pricing in an economic slowdown and the Fed being forced to cut rates in advance, while the inversion of long-term rates also strengthens recession warnings.

Despite the marginal improvement in dollar liquidity driven by the depletion of the U.S. Treasury accounts, market risk aversion has led to a withdrawal of funds from high-risk assets and a surge into the Treasury market, creating a paradox of "liquidity easing but risk appetite shrinking."

! Stagflation or recession, what is the market trading? ](https://img-cdn.gateio.im/webp-social/moments-173d37edb828d8d2c374e2a034a66fe1.webp)

2. Roots of Volatility in Risk Assets: Weak Economic Data and Policy Uncertainty

The consumer confidence index has sharply declined, the job market is cooling, and factors such as tariff threats have exacerbated concerns in the market about a "hard landing" for the economy. The narrative around artificial intelligence has also come under scrutiny, raising worries about the commercial viability of AI, leading to sell-offs in technology stocks, particularly in sectors related to computing power.

In the cryptocurrency market, the futures market has shown an inverted structure, which has weakened the attractiveness of arbitrage. At the same time, ETF capital outflows have led to a simultaneous decline in Bitcoin and U.S. stocks, with market panic sentiment clearly rising.

3. Key Battlegrounds Next Week: Non-Farm Payroll Data Will Set the Tone for the Strength of "Recession Trades"

Non-farm payroll data will become the market focus. If the February employment data continues to exceed expectations, or if the manufacturing PMI continues to decline, it will strengthen recession pricing, pushing U.S. bond yields further down and putting pressure on risk assets. Conversely, better-than-expected data may briefly restore "soft landing" expectations.

In terms of policy risk, the details of tariff policies and statements from Federal Reserve officials regarding interest rate cuts may trigger significant market volatility.

Investment strategy suggestions should primarily focus on defense while looking for opportunities to counterattack. The short-term selling pressure in the crypto industry mainly comes from the withdrawal of leveraged funds, but in the long run, improvements in the regulatory environment and technological innovations still support its growth potential.

Macro Market Review and Outlook

liquidity and interest rate changes

The marginal liquidity of the US dollar has slightly improved but remains in a tightening state. The consumption of the Treasury account has accelerated, dropping from $800 billion in mid-February to currently over $530 billion.

The interest rate market has started to price in interest rate cuts, with long-term government bond yields reflecting expectations of economic slowdown. The 2-year government bond yield has rapidly decreased, widening the spread with short-term financing rates; the 10-year government bond yield is significantly lower than short-term rates. This reflects an increasing market expectation for the Federal Reserve to cut interest rates this year, while also indicating strong risk-averse sentiment.

Risk Market Performance

The US stock market is experiencing increased volatility, with the VIX index consistently remaining above 19. The consumer confidence index has significantly decreased, marking the largest drop in three years, which has heightened concerns about an economic recession. Stocks related to artificial intelligence are facing scrutiny, and technology stocks are undergoing a sell-off.

The cryptocurrency market has experienced a significant pullback, with the Greed and Fear Index briefly falling into the extreme fear zone. The price gap between the Bitcoin futures market and the spot market has narrowed, even showing an inverse structure, reducing the attractiveness of arbitrage and leading to intensified outflows from ETFs.

Key Data and Outlook for Next Week

The market is at a turning point of expected severe adjustments, and it is necessary to closely monitor the latest economic data. In particular, the upcoming non-farm payroll data will determine whether the market will further strengthen the "recession trade."

The Atlanta Federal Reserve has downgraded its GDP forecast for the first quarter of 2025 to -1.5%, reflecting an increased risk of economic slowdown. The market is at a critical juncture of "strengthened recession expectations" and "policy impact" dual expectation adjustments, and asset prices may continue to maintain high volatility.

Investment Advice

1. Maintain a cautious stance and avoid chasing highs, but watch for potential short-term corrective trends.

2. Adopt a diversified allocation strategy, increase defensive assets and quantitative arbitrage products, and balance risk and return.

3. Pay close attention to the impact of economic data, macro interest rates, liquidity, and policy changes on market expectations.

Despite the challenges faced by the short-term market, the improvement of the regulatory environment and technological innovations will continue to provide growth momentum for the crypto industry in the long run. Investors should maintain confidence while also managing risks.