++4 Alpha Core Views:++

1. Macroeconomic Review of the Week

1. Market Overview

• Market sentiment is at a cyclical low, with the S&P 500 (SPX) breaking below the 200-day moving average, triggering sell-offs from CTA strategies, but the selling is nearing its end.
• The VIX index remains above 20, and the Put/Call ratio is rising, indicating heightened market panic.
• The cryptocurrency market is only slightly stimulated by news of Trump's national strategy reserve for crypto assets, as the policy details fall short of expectations, and overall risk appetite is contracting.

2. Economic Data Analysis

• Manufacturing PMI: The new orders index has fallen below the expansion line, and the employment index is below expectations, indicating caution in manufacturing due to tariffs.
• Non-Manufacturing PMI: Exceeded expectations, indicating that the U.S. economy still shows resilience, with the service sector remaining stable, although expansion is slowing.
• GDP Forecast: The Atlanta Fed has revised the first-quarter GDP down to -2.4%, but the decline is mainly due to net exports, while consumer spending remains robust.
• Non-Farm Employment Data: Employment data is mixed, with a slight increase in the unemployment rate, a slowdown in job growth, and limited wage growth, showing that companies prefer to extend hours rather than create new positions.

3. Federal Reserve Policy and Liquidity

1）Powell's Remarks:

• The Fed tends to be cautious and wait-and-see until tariff policies become clearer.
• The 2% inflation target remains core; short-term inflation increases will not prompt rate hikes.
• The economic fundamentals remain stable, but if employment continues to slow, the likelihood of rate cuts may increase.

2）Liquidity: The Fed's broad liquidity has marginally improved, but market sentiment remains weak.

3）Interest Rate Market: Short-term financing rates have decreased, with the market betting on rate cuts in the next six months; the 10-year Treasury yield has turned upward, indicating a slight easing of recession expectations.

2. Macroeconomic Outlook for Next Week

• The market is still in a phase of expectation games, with unclear trends; institutional funds are more inclined to wait and see, making it difficult for the market to form a clear direction in the short term.
• Pay attention to micro changes in economic data from March to April; the impacts of tariffs, government layoffs, and interest rates are lagging, and market trend confirmation requires more data support.
• The market should not be overly pessimistic; the economy has not significantly deteriorated. Investors should manage their positions well, maintain a balance between offense and defense, and wait for clearer trend signals.

Key Data Next Week: Focus on key data such as CPI, PPI, and Consumer Confidence Index to assess changes in inflation and consumption trends.

Trends Uncertain, Non-Farm Divergence, Rebound or Further Bottoming?

1. Macroeconomic Review of the Week

1. Market Overview This Week

From the perspective of major asset volatility, market sentiment remains at a cyclical low this week. Although Friday's non-farm data and Powell's remarks eased the market's pricing of "recession trades," the uncertainty surrounding tariffs offset the positive impact of the data.

In the U.S. stock market, the SPX has broken below the 200-day moving average for the first time in 16 months, triggering sell-offs from U.S. stock CTA strategies. According to Goldman Sachs' trading department, a total of $47 billion was sold off in the past week, but fortunately, the selling is nearing its end. From a volatility perspective, the VIX index continues to remain above 20, significantly higher than the approximately 15 level at the beginning of the year, while the Put/Call Ratio has again risen above 0.9. These data points corroborate each other, reflecting that market panic and bearish sentiment remain high.

Chart 1: This Week's VIX Index Remains Above 20 Source: Barchart

From the cryptocurrency market perspective, despite the positive stimulus from Trump's signing of the national strategy reserve for crypto assets this week, the improvement in the market is not significant. One reason is that the main form of the strategic reserve is based on U.S. seized assets, which did not provide indications of new purchases, falling short of market expectations; another reason is the significant contraction in risk appetite due to the pullback in major risk assets like U.S. stocks, leading to overall poor liquidity and a weak BTC rebound.

As we indicated last week, the market has not formed stable trading expectations, and concerns over macro policy uncertainty are suppressing improvements in market sentiment.

2. Economic Data Analysis

This week's data analysis focuses on the U.S. economy. Several data points released this week further confirm that the U.S. economy is indeed slowing down, but we believe that the market's recession concerns are somewhat exaggerated based on the microstructure of the data.

The ISM manufacturing index for February released on Monday continued the expansion trend from January, but at a slower pace, with a composite index of 50.3, which is below market expectations. Notably, the new orders index fell below the expansion line for the first time since October last year, and the employment index was significantly below expectations, while the price index was above expectations. The structural data divergence indicates that manufacturers are becoming cautious in production and hiring due to the impact of Trump's tariffs, while demand may further slow down; however, the non-manufacturing PMI released on Wednesday provided contrary data, exceeding market expectations. These two data points point to two facts about the current U.S. economy:

• Trump's tariff policy has indeed caused significant disruptions to U.S. importers/manufacturers and continues to exert negative pressure.
• The momentum of the U.S. economy has indeed slowed, but it is important to note that U.S. GDP primarily relies on the service sector, which remains relatively stable overall, albeit slowing from aggressive expansion to a gradual growth trend. This indicates that there are no clear signs of deterioration in the U.S. economic fundamentals.

On Thursday, the Atlanta Fed updated its latest GDP forecast, showing that the latest forecast for first-quarter GDP is -2.4%, slightly better than the -2.8% forecast on March 3.

Chart 2: As of March 6, GDP Forecast Continues to Decline Source: Atlanta Fed

The market has expressed concerns over the continued negative GDP forecast, but structurally, U.S. personal consumption expenditures and private investment in the first quarter have not declined. However, due to the surge in imports caused by tariffs, the contribution of net exports to GDP has significantly decreased, which is the core reason for the decline in the GDP forecast. This also indicates that as a consumption-driven economy, as long as consumer spending maintains stable growth, concerns over the fundamentals may be overly pessimistic.

This Friday's non-farm data slightly reversed the market's pessimistic sentiment and partially weakened recession expectations. The unemployment rate for February was slightly higher than market expectations at 4.1%; the seasonally adjusted non-farm payrolls increased by 151,000, below the market expectation of 160,000; in terms of wages, the annual growth rate was below expectations, while the monthly rate was in line with expectations but lower than the previous value. Further analysis of the detailed data leads to several key conclusions:

• Although net job positions have increased, the number of underemployed and newly unemployed individuals has risen rapidly, reflecting a clear overall weakness in the employment situation, but not to the point of indicating deterioration.
• Limited wage growth and longer working hours indicate that companies are currently more willing to increase existing employees' working hours rather than hire new ones; limited wage growth reflects a slowdown in demand and an increased desire for companies to control costs.

Chart 3: Changes in U.S. Non-Farm Employment from 2019 to 2025 Source: Mish Talk

This Friday, Federal Reserve Chairman Powell's speech at the 18th Monetary Policy Forum attracted significant market attention, and the market remained generally stable after his remarks. Powell's speech essentially provided several key guiding messages:

• Indicated that the Fed tends to be cautious and wait-and-see until Trump's tariff policy becomes clearer, stating that: the cost of being cautious is very low.
• Reiterated the 2% inflation target; specifically indicated that the Fed is more concerned about long-term inflation expectations, and that a rise in short-term inflation expectations will not lead the Fed to restart rate hikes.
• In terms of the current economic situation, the Fed is relatively optimistic, believing that although consumer spending has slowed, economic growth remains relatively stable, and the labor market is generally robust.
• If more data points to a slowdown in the labor market, the Fed may consider restarting rate cuts.

Taken together, these four points convey a relatively accommodative monetary policy expectation to the market. In other words, Powell's remarks indicate that the current decision-making path of the Fed is: First, with long-term inflation expectations stable, the Fed does not face pressure to raise rates; against the backdrop of a continuous slowdown in employment data, the Fed may tolerate short-term inflation above the target while maintaining an accommodative stance.

3. Liquidity and Interest Rates

From the perspective of the Fed's balance sheet, this week, the Fed's broad liquidity has continued to improve marginally, standing back above $6 trillion as of March 6, but the scale of improvement is insufficient to offset the decline in market sentiment.

From the perspective of the interest rate market, measuring with short-term financing rates, the interest rate derivatives market is clearly betting on rate cuts in the next six months, with a significant downward slope in the 6-month SOFR rate. From the perspective of Treasury yields, the market is pricing in three rate cuts of 25 basis points each, but at the same time, the 10-year Treasury yield has turned upward, indicating that concerns over recession have somewhat dissipated following Powell's remarks.

Chart 4: Changes in U.S. Overnight Financing Rates and Treasury Yields Source: Wind

2. Macroeconomic Outlook for Next Week

Based on the conclusions drawn from the interest rate market, risk market, and economic data, we believe that the market is still in a critical period of digesting risk expectations. The re-inflation and recession risks brought about by tariffs cannot be falsified by existing data, which means that trend confirmation for the market still requires more real data for calibration. In other words, for mainstream institutional funds, based on risk-averse considerations, they are unlikely to build large positions and are more likely to adopt a cautious wait-and-see attitude.

Based on the aforementioned analysis, our overall view is:

• The current market's main theme remains "expectation games" rather than trend confirmation; therefore, from a risk logic perspective, the market cannot provide a clear direction in the short term. For investors, it is advisable to either wait or make decisions when the market pulls back to reasonable levels for a better risk-reward ratio.
• Due to the lagging effects of tariffs, U.S. government layoffs, interest rates, and other factors on the market, investors should focus on micro changes in economic data from March to April. Macroeconomic variables will gradually become clearer in the next two months. Once interest rates confirm a market turning point, the rebound potential in the crypto market will be greater.
• Micro data does not point to significant economic deterioration, and excessive pessimism is unwarranted. The market accumulates risks during upward trends and alleviates risks during downward trends. We still recommend that investors manage their portfolio position risks well, increase defensive allocations, and maintain a balanced offense and defense amid significant market volatility.

Key Macroeconomic Data Next Week:

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