I. Performance and Valuation of Global Equity Indices
Source: Bloomberg, Tiger Asset Management
II. Key Market Themes
i. Tariff Relief and Treasury Turmoil: Turning Point or Trap?
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Last week saw dramatic swings in global financial assets. As anticipated, U.S. stocks briefly bottomed out, then staged a strong rebound after Trump announced a 90-day pause on retaliatory tariffs. The Nasdaq surged over 12% last Wednesday, marking its third-largest single-day gain in nearly 40 years. However, this might not be a positive sign—historically, such massive one-day rallies in U.S. equities have often coincided with market crises, such as the 2000 dot-com bubble, the 2008 subprime mortgage crisis, or the 1987 Black Monday crash.
Source: Bloomberg, Tiger Asset Management
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Meanwhile, last week's U.S. inflation data brought some positive surprises, with CPI and PPI registering month-over-month declines of -0.1% and -0.4%, respectively, significantly beating market expectations. However, the market reaction remained muted. We believe there are two reasons: First, the March inflation data did not yet reflect the impact of reciprocal tariffs; second, in the face of Trump's erratic policy flip-flops, this data appears almost trivial. The current situation is that good data is insufficient to support market gains, but bad data can immediately trigger sell-offs, reflecting an overall pessimistic market sentiment.
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However, there are still some silver linings. Last week, Federal Reserve officials delivered a flurry of speeches, with Williams and Collins both stating that 'the Fed is fully prepared and will absolutely step in to stabilize markets if necessary.'
Moreover, Christopher Waller—seen as a potential successor to Fed Chair Powell—declared unequivocally: 'The inflationary impact of tariffs is temporary. Rate cuts will happen regardless. If tariffs cause severe economic slowdown, the Fed will have to cut rates more aggressively.'
To some extent, uncertainty around rate cuts is diminishing.
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However, the biggest focus of last week’s capital markets was not the stock market, but the bond market. Starting on April 8, long-term U.S. Treasury yields surged nearly 70 basis points, corresponding to consecutive sharp declines in bond prices. Particularly during the Asian trading session on April 9, in the two hours surrounding the implementation of tariffs, the 30-year Treasury yield spiked vertically. As a result, the safe-haven function of U.S. bonds has weakened, and the U.S. witnessed a rare scenario of simultaneous sell-offs in stocks, bonds, and the dollar—a 'triple kill'.
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The market initially panicked, suspecting that Asian countries were retaliating against tariffs through coordinated selling. However, subsequent denials from various parties largely dispelled this narrative. Regarding the sharp decline in U.S. Treasuries, we attribute it primarily to two factors:
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Weak 3-Year Treasury Auction: The lackluster demand for the 3-year Treasury auction raised concerns about subsequent long-term bond sales. Fortunately, the 10-year and 30-year auctions ultimately performed adequately, mitigating fears.
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Hedge Fund Basis Trade Unwinding: A concentrated group of fewer than 10 institutions held $1.1 trillion in leveraged basis trades. The forced liquidation of these positions—where funds buy Treasuries and short interest rate swaps (IRS) to exploit small price gaps—triggered a cascade of selling. This strategy relies on extreme leverage (50-100x), making it highly vulnerable to volatility.
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While the 30-year dollar swap spread experienced significant turbulence last week, recent data shows signs of stabilization. Additionally, credit spreads have narrowed modestly, and their peak during the sell-off was not historically extreme. For now, systemic liquidity risks appear contained.
Source: Bloomberg, Tiger Asset Management
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More importantly, this bond market turmoil has exposed Trump's 'Achilles' heel': He may tolerate short-term stock market volatility, but he cannot bear the surge in bond yields. Once U.S. Treasury yields spike, it directly raises future debt issuance costs, derailing his 'fiscal austerity and debt management plan'. This became the critical turning point for Wednesday’s tariff suspension and weekend rumors of sector-specific tariff exemptions
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Thus, we maintain that while specific tariff policies remain under negotiation and pressure, the worst and most uncertain phase may have passed.
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Overall, Trump's tariff measures are unlikely to halt, and China and the U.S. will likely eventually return to the negotiating table. However, this requires time. The current tariffs—10% on most countries and 145% specifically targeting China—are already in full effect. While markets have only experienced an emotional bottoming-out, a genuine rebound hinges on earnings expectations. The upcoming weeks of earnings season, particularly corporate guidance on future outlooks and capital expenditure plans, will be critical for market direction
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Disclaimer
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