4 Alpha Core Insights
I. Macroeconomic Review of the Week
1. Market Overview
U.S. Stocks: Slightly up, but overall still in a downward trend, with low trading activity. The Put/Call Ratio has decreased, indicating that some funds are starting to buy the dip.
Commodity Market: Gold continues to rise after breaking $3000/ounce, copper prices increased by 0.8%, with a cumulative rise of over 11% in the past three months; crude oil prices stabilized at $68/barrel, while natural gas prices fell.
Cryptocurrency Market: Overall trading remains sluggish, with BTC fluctuating around $84,000, lacking upward momentum, and altcoins following BTC's movements.
2. FOMC Meeting Analysis
Strategic Level: The Federal Reserve adheres to a "data-dependent" principle, avoiding commitments to specific rate cut timelines, maintaining policy flexibility to respond to uncertainties.
Tactical Adjustments (Three Key Measures):
(1) Adjusting Inflation Expectation Management: Emphasizing the New York Fed's 5-year inflation expectation data, downplaying the University of Michigan Consumer Confidence Index to reduce market noise.
(2) Re-emphasizing "Transitory Inflation": Downplaying the long-term impact of tariffs on inflation to provide policy space for rate cuts and prevent the market from falling into stagflation panic.
(3) Adjusting the pace of Quantitative Tightening (QT): Although liquidity is sufficient, the Fed is slowing QT to hedge against liquidity shocks that may arise from the debt ceiling issue.
3. Changes in Liquidity and Interest Rate Markets
Liquidity Recovery: Broad liquidity reached $6.1 trillion this week, with outflows from the TGA account driving liquidity improvement. The usage of the Fed's discount window has decreased, indicating alleviated market funding pressure.
Interest Rate Market: Rate cut expectations remain stable, with a 67% probability of a rate cut in June and an expected three cuts throughout the year.
Bond Market: Short-term rates are declining faster than long-term rates, steepening the yield curve, reflecting increased market certainty about rate cuts, but lingering concerns about inflation rebound.
Credit Market: Investment-grade credit spreads have widened, with a slight increase in credit risk, and market risk appetite has decreased, but no systemic risk signals have emerged yet.
II. Macroeconomic Outlook for Next Week
1. Reciprocal Tariffs (Effective April 2) are the Market Focus
Tariff Intensity: The level and scope of tariffs will affect commodity prices, thereby impacting inflation and corporate profits. If it exceeds expectations, it may raise import costs, pressuring corporate profits and putting pressure on the stock and bond markets.
Global Trade Friction: If it provokes retaliation from other countries, it will exacerbate supply chain tensions, raise inflation, threaten global economic growth, and potentially trigger panic selling in the market, reinforcing the "stagflation trade" logic.
2. The Market Remains Cautious, with Strong Hedging Demand for Tail Risks
VIX has retreated, but credit market risk signals have strengthened. The market has not yet escaped panic mode, with investors tending to reduce risk exposure and increase holdings in safe-haven assets (gold, government bonds, etc.).
Federal Reserve Policy Direction: If tariffs raise inflation, the Fed may tighten policy earlier, leading to tighter market liquidity and increased volatility; if inflation is controllable, the Fed may maintain a dovish stance to provide market cushioning.
3. Strategic Recommendations
The market is still in an uncertain phase of policy and risk pricing. Short-term strategies should focus on "defensive + flexible offense," capturing phase-specific opportunities while avoiding tail risks.
4 Alpha Macro Weekly Report: After the FOMC Meeting, Before the Implementation of Reciprocal Tariffs
I. Macroeconomic Review of the Week
1. Market Overview
As we pointed out in last week's report, market sentiment remains cautious, but there are phase-specific opportunities for a rebound from oversold conditions. Following the brief boost from the dovish signals of last week's FOMC meeting, various risk assets performed slightly differently this week.
U.S. Stocks: Slight Increase This Week, with the Dow Jones Index Performing Better
Dow Jones Industrial Average (+1.2%)
Nasdaq Index (+0.2%)
S&P 500 Index (+0.6%)
Russell 2000 (+0.7%)
Despite a slight increase in U.S. stocks this week, the overall trend is still downward, with low trading activity. From the options perspective, the Put/Call ratio is at 0.86, down from last week's high, reflecting that some funds have begun to buy the dip.
Commodity Market: Gold and Copper Prices Continue to Rise
This week, gold continued to rise above $3000/ounce, with some pullback after the Fed's meeting. Copper spot prices increased by 0.8%, having risen over 11% in the past three months. The energy market showed mixed performance: crude oil prices stabilized around $68/barrel, while natural gas prices continued to decline.
Cryptocurrency Market: Overall Trading Still Sluggish
The market lacks new catalysts, with Bitcoin continuing to fluctuate around $84,000, showing no significant upward momentum. Altcoins are also following BTC's movements closely.
2. FOMC Meeting Analysis
Last week's major macro event focused on the Fed's meeting and Powell's statements. The specific analysis is as follows:
In the current complex macro environment, the Fed faces multiple dilemmas. Risks of stagflation, political uncertainties, and liquidity tightening in financial institutions have created hidden crises, making policy decisions more delicate. Additionally, due to data lags, the impacts of tariff shocks and supply chain changes will not be immediately apparent, and internal policy disagreements within the FOMC are also intensifying. Therefore, Powell has made a series of adjustments in recent statements regarding both strategic and tactical aspects of policy to balance market expectations and economic fundamentals.
Chart 1: Changes in the FOMC Dot Plot Source: Federal Reserve
The Fed's adjustments can be analyzed from both strategic and tactical levels:
1) Strategy: Maintain a Wait-and-See Approach, Avoiding Clear Rate Cut Commitments
The Fed continues to adhere to the "data-dependent" principle, avoiding commitments to specific rate cut timelines or rhythms. The core idea is to seek a balance between slowing economic growth and inflation risks while ensuring policy flexibility to respond to future uncertainties.
2) Tactical Adjustments: Three Key Measures
At the tactical level, the Fed has made three key adjustments to optimize market expectation management and hedge against uncertainties from external shocks.
(1) Emphasizing the New York Fed's 5-Year Inflation Expectations, Downplaying the Michigan Index
The Fed selectively uses data that stabilizes expectations, emphasizing the stability of the New York Fed's 5-year inflation expectations while no longer overly relying on the volatile University of Michigan Consumer Expectations Index. The core purpose of this adjustment is to prevent the market from losing its anchor on inflation, thereby reducing excessive volatility caused by data noise. As we analyzed last week, the Michigan Consumer Index shows significant partisan divergence, with severe data distortion, losing its guiding role.
(2) Reintroducing the "Transitory Inflation" Concept to Prepare for Rate Cuts
In response to the inflation shocks brought by Trump's tariff policies, the Fed has re-emphasized the narrative of "transitory inflation" to downplay market concerns about stagflation. Its main purposes are:
l To provide the FOMC with maneuvering space, alleviating internal disagreements in the dot plot and making policy more flexible.
l To hedge against stagflation signals by weakening the long-term impact of the "GDP downgrade + CPI upgrade" combination, signaling to the market that the Fed will still cut rates when inflation declines, rather than passively responding to stagflation.
l To stabilize inflation expectations by emphasizing that slowing economic growth may offset some inflationary pressures from tariffs, clearly stating that even if tariffs rise, the Fed will not change its rate cut plans.
(3) Adjusting the Pace of Quantitative Tightening (QT) to Hedge Against Liquidity Risks
Powell specifically mentioned that although market liquidity remains sufficient, signs of tightening have emerged. Therefore, the Fed has tactically adjusted the pace of QT to alleviate liquidity shocks caused by issues such as the debt ceiling. This move indicates the Fed's willingness to maintain monetary tightening policies while taking flexible adjustments to prevent unnecessary turmoil in financial markets.
In fact, from the perspective of U.S. bank reserves, reserve levels are already above the levels when the Fed began its quantitative tightening policy in June 2022, and recently, as the U.S. surpassed the debt ceiling, the Treasury has utilized its account funds at the Fed, further rebounding reserve levels; from the short-term financing market, recent SOFR rates have remained stable, showing no significant pressure. Considering the Fed's actions and the actual situation, it is likely to respond to the liquidity impact of the Treasury's rebuilding of its balance sheet after the debt ceiling negotiations conclude.
Overall, the Fed's core goal is to respond to the shocks from Trump's policies, ensure financial stability, and hedge against stagflation risks. This strategy continues the Greenspan-style moderate tightening approach while allowing for tactical concessions to gain greater strategic adjustment space.
3. Changes in Liquidity and Interest Rate Markets
The Fed's balance sheet currently stands at $6.7 trillion, with the tightening trend further slowing; from a broad liquidity perspective, liquidity continues to recover, reaching $6.1 trillion this week, still due to outflows from the U.S. Treasury's TGA account; the usage of the Fed's discount window has continued to decline this week, indicating an overall improvement in current macro liquidity.
Chart 2: Changes in U.S. Dollar Base Liquidity Source: Gurufocus
From the interest rate market perspective, after the Fed's meeting, the pricing for rate cut expectations indicates the first rate cut starting in June, with a probability of about 67%, and an expected three cuts throughout the year.
Chart 3: Interest Rate Market Pricing for Rate Cuts in 2025 Source: CME
From the bond market perspective, short-term interest rates are declining at a noticeably faster rate than long-term yields, with the U.S. Treasury yield curve overall steepening, reflecting that while market certainty about the rate cut path has increased, there are still significant doubts about inflation rebound and even stagflation narratives.
Chart 4: U.S. Treasuries Yield Curve Source: U.S. Treasury
This week, we continue to monitor the forward signals in the credit market. From the perspective of the credit default swap index, the U.S. investment-grade credit default swap index (CDX IG) continues to rise, and credit spreads are widening, indicating a slight increase in the pricing of credit risk for investment-grade corporate debt. Market risk appetite has decreased, but combined with liquidity indicators, although risks are beginning to accumulate, there have not yet been any signs of severe warnings.
II. Macroeconomic Outlook for Next Week
Under the influence of last week's dovish signals from the Federal Reserve, the narrative of "transitory inflation" is being used to hedge against the expected risks brought by tariffs. However, market concerns have not dissipated, and as we approached the end of last week, the market began to pull back.
The current focus is on the "reciprocal tariffs" that will take effect on April 2, with two main areas of concern:
Tariff Intensity: The level and scope of tariffs will directly affect the prices of imported and exported goods, which in turn will impact inflation and corporate profits. If the tariffs are stronger than expected, import prices may rise significantly, increasing corporate costs and pressuring profit margins, negatively affecting the stock and bond markets.
Retaliatory Measures from Other Countries: If tariffs provoke retaliation from other countries, it will exacerbate global trade tensions, leading to further disruptions in supply chains, rising inflationary pressures, and threatening global economic growth. If retaliatory measures escalate, it may trigger panic selling in the market, putting significant downward pressure on risk assets and reinforcing the "stagflation trade" logic.
Looking back at the past week, although the VIX has retreated, risk signals in the credit market have strengthened, indicating that the market has not fully escaped panic mode, and the demand for hedging against tail risks remains strong.
Before the tariff policies are clarified, the market may continue to adopt a wait-and-see attitude. Investors may adopt defensive strategies: reducing risk exposure and lowering allocations to high-risk assets such as stocks; increasing demand for safe-haven assets, such as gold and government bonds, to hedge against uncertainty.
Additionally, the impact of reciprocal tariffs on the Federal Reserve's stance is also very important. If tariffs lead to sustained inflationary pressures, the Fed may be forced to tighten monetary policy earlier, which would tighten market liquidity and increase volatility. Conversely, if inflationary pressures are controllable, the Fed may maintain a dovish stance to provide market cushioning.
In summary, the market remains in an uncertain phase of policy and risk pricing. Short-term strategies should focus on "defensive + flexible offense," capturing phase-specific opportunities while avoiding tail risks.
Key Macroeconomic Data for Next Week:
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