The easing of US-China relations drives market Rebound, and interest rate cut expectations rise.

Recently, the first contact between the United States and China in Switzerland achieved significant results, marking a new phase in the trade relationship between the two sides. This development exceeded market expectations, and the US stock market and cryptocurrency market quickly digested the previous negative factors, showing a strong Rebound.

Traders are starting to focus on a new concern - whether the U.S. economy will fall into recession and when the Federal Reserve will restart its rate-cutting cycle. This week's inflation and employment data show that inflation continues to decline, employment remains temporarily stable, and the impact of trade frictions seems to be less than expected. These better-than-expected data have driven U.S. stock indices to rise sharply this week, while gold prices have experienced a noticeable decline.

It is worth noting that Federal Reserve Chairman Powell mentioned in a recent important speech that he would revisit the "monetary policy framework," which may pave the way for a rapid restart of the rate-cutting cycle. However, Moody's downgraded the U.S. government bond rating from Aaa to Aa1, further highlighting the severity of the long-term debt issues in the United States.

Policy and Economic Data Analysis

On May 12, the United States and China announced a temporary tariff reduction agreement lasting 90 days. The United States will reduce the highest tariffs on Chinese goods from 145% to 30%, while China will cut the highest tariffs on American goods from 125% to 10%. This marks a new phase in the trade relationship between both sides, and the global economy may not be affected in the short term beyond expectations.

Driven by this positive news, the three major U.S. stock indexes all achieved gains this week. The Nasdaq, S&P 500, and Dow Jones Industrial Average rose by 7.15%, 5.27%, and 3.41% respectively, maintaining an upward trend for four consecutive weeks.

In April, the US CPI data showed a seasonally adjusted monthly rate of 2.3%, which is lower than expected and has declined for three consecutive months. In terms of employment data, the number of first-time unemployment claims was 229,000, in line with expectations. The Producer Price Index ( PPI ) was 2.4%, slightly lower than expected. These data indicate that trade frictions have not yet had a substantial impact on consumption, while inflation continues to decline, creating favorable conditions for a restart of interest rate cuts.

Powell stated in his speech that the monetary policy framework introduced in 2020 may need adjustments in the current economic environment. He mentioned that frequent supply shocks make it difficult for the average inflation target to respond, requiring more flexible policies to balance inflation and employment goals. This statement may imply that the Federal Reserve will make decisions based on shorter-term CPI data, increasing policy flexibility to respond to economic fluctuations.

However, the U.S. debt issue remains a significant hidden risk. It is estimated that the U.S. will add $1.9 trillion in debt this year, with maturing debt potentially reaching as high as $9.2 trillion. If interest rates are not lowered soon, the U.S. government will not only continue to bear high interest costs but may also face the risk of difficulties in primary market auctions.

Moody's has downgraded the long-term credit rating of the U.S. government from Aaa to Aa1, marking the first downgrade since 1917. Previously, Standard & Poor's and Fitch had downgraded the U.S. rating in 2011 and 2023, respectively. This series of actions highlights the severity of the U.S. long-term debt issue, which could become a key factor affecting medium- to long-term interest rates and the stability of financial markets.

Cryptocurrency Market Performance

Bitcoin has maintained a high-level consolidation for most of this week, until it suddenly surged to $106,692.97 on Sunday, ultimately rising 2.24% for the week. From a technical perspective, Bitcoin has been trading above the "first upward trend line" for the entire week, approaching historical highs. The overbought indicator has been somewhat corrected, and trading volume is comparable to last week.

This week, the cryptocurrency market overall maintained a strong inflow of funds, with a total of 2.527 billion USD flowing in through stablecoins and ETFs. Among them, stablecoins accounted for 1.880 billion USD, while Bitcoin ETFs and Ethereum ETFs combined saw an inflow of 647 million USD. It is worth noting that the inflow of ETF funds has shown a downward trend over the past four weeks, which requires close attention.

The on-chain lending funds and the contract market are both in an expansion phase, indicating a relatively optimistic market sentiment. After Bitcoin returned to $100,000, some bottom-fishing funds chose to take profits, while some long-term holders also made slight sell-offs. However, overall, experienced long-term investors seem to be waiting for higher prices.

Data shows that the number of bitcoins flowing into exchanges this week is 127,226, a decline for four consecutive weeks. Meanwhile, the outflow of bitcoins from exchanges has reached 27,965, the highest this year. This trend indicates that selling pressure is easing and buying demand is increasing, which may signal a rapid price increase when external conditions are favorable.

According to eMerge Engine data, the EMC BTC Cycle Metrics indicator is 0.875, in an upward phase. This further confirms the positive market sentiment.