The market kicked off 2025 with a series of unfavorable starts and uncertain price trends, as risk assets struggle to find direction amid the shocking DeepSeek narrative and occasional tariff threats from President Trump.
Economic data is currently secondary, with January non-farm payroll data slightly below expectations, but the unemployment rate also falling to 4%, resulting in a muted market reaction. Federal funds futures currently only price in a 9% chance of a rate cut at the March FOMC meeting, with a full rate cut not priced in until September (after five meetings), diminishing the Fed's influence in the current narrative.
On the other hand, the erratic nature of tariff policy continues, with Trump stating that he will announce a 25% tariff on all steel and aluminum imports today (Monday) and immediately implement reciprocal tariffs. With the market preparing for a challenging open for US stocks, US stocks encountered selling pressure on Friday evening.
Against the backdrop of tariff risks and continued buying by global central banks, gold prices are expected to rise to new highs this week. Since Trump took office, the People's Bank of China has increased its gold reserves for the third consecutive month. Notably, even as terminal rates rise and the crypto momentum weakens, the uptrend in gold continues, indicating a structural change in demand that is no longer just a pure effect of central bank liquidity.
Despite the volatile start to the year, US retail and day traders remain actively engaged in the stock market, with daily expiring options trading volume rebounding to record highs, and stock implied volatility remaining low apart from events like CPI/Powell and Nvidia earnings.
The extremely optimistic market sentiment seems to be approaching the "sell" signals of various bearish trading models, as the earnings outlook for the SPX index actually shows a downward trend in Q4 2024 and 2025 forecasts, and we maintain a cautious view on the near-term stock market outlook.
In the crypto space, the price performance has been disappointing. Although the market remains excited about the prospect of BTC being included in reserve assets and mainstream institutional participation, major Altcoins have fallen 15-20% since the start of the year. We had previously expressed concerns about the issuance of the $TRUMP Memecoin and its potential negative impact on the crypto industry, and so far, this concern has been validated, as crypto trading volume has plummeted since the new year, and the recent large-scale liquidations have severely impacted trading account profits and losses.
BTC's outperformance relative to other assets is most evident compared to ETH, which is currently facing record short pressure and strong FUD sentiment, with the second-largest token down 23% since the start of the year, far underperforming BTC's +2.5%. The lack of L1 catalysts and narrative dominance may continue to put pressure on Ethereum.
Worse still, analysis suggests that over $30 billion in Altcoin supply will be unlocked in the next 12 months, and these unlocked tokens will flow into markets with limited demand and severely impaired wallets, while the TradFi capital entering the market may only focus on BTC or the top three tokens, unlikely to spill over into the Altcoin market. This weak market condition is also reflected in the performance of new token listings, even on Binance. For the current cycle that is moving towards maturity, this time really seems different.
Finally, on a lighter note, will more countries issue their own memecoins to raise budget funds after the $TRUMP issuance? I sincerely hope this is just a joke and not a phenomenon that will be normalized in the coming year!
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