Risk assets have rebounded significantly, with gains approaching levels that even the most stubborn bears must reassess. Is this another "Dead Cat Bounce" or the beginning of a new bull market? Although we believe such labels are often misleading, the current market's painful trading seems to still lean towards price increases, which remains the path of least resistance in the short term.
From a macro perspective, we are indeed gradually moving to the latter half of this tariff drama, with agreements between the United States and multiple trading partners beginning to be signed. The first agreement comes from the UK, with the most notable highlight being the US tariffs on British steel imports dropping comprehensively from 25% to 0%, including car tariffs reduced to 10% and a Boeing purchase agreement worth $10 billion. It's worth noting that the minimum 10% reciprocal tariff is still retained, but given that the UK is a net importing country, the actual impact of this clause is relatively small.
More critically, the much-anticipated US-China trade negotiations seem to be making progress. According to the weekend bilateral meeting, Vice Premier He Lifeng stated that the talks were "constructive," and US Treasury Secretary Bessent also affirmed that both sides made "substantial progress." Benefiting from the easing of trade tensions, the Asian market opened strongly (Hang Seng Index up 2%), with the market highly anticipating more negotiation details to be released during the US session.
Interestingly, since early May, China's shipping volume to the US has begun to rebound. Does this indicate that exporters are "betting in advance" on a trade agreement, or has the market found a way to pass tariff costs downstream?
Looking at the recent resilience of China's export data, it can be reasonably inferred that the US will find it difficult to truly break free from its dependence on imported goods in the short term. If US-China trade directly declines, it will likely be compensated through "detour" routes via goods flowing to Southeast Asian third-party regions.
Before the release of weekend positive news, risk assets had already shown a significant rebound. The stock volatility index (VIX) has fallen back to pre-Liberation Day levels, sending a "risk release" signal, and the SPX index has almost recovered all of April's declines.
From the situation since the beginning of the year, the partial price rebound is reasonable. While the market has largely emerged from the panic over Trump's tariff drama, concerns about the deterioration of the US economic outlook remain. Whether the market can continue to recover previous highs will depend on the actual economic trend.
Who says the market is not efficient?
Although the current market optimism about tariffs may be somewhat over-priced, facing the still resilient US corporate earnings growth and the backdrop of corporate buybacks hitting a historical high, it is not easy to go against the trend. This year's US annual stock buyback scale is expected to exceed $1 trillion for the first time.
From a capital flow perspective, foreign capital has begun to return to the US capital market, and quantitative funds have quickly reversed their sell-off positions from February to March, repurchasing long stock positions in April.
Retail investors remain extremely bullish, with the stock put-call ratio falling to a multi-year low, with only traditional macro hedge funds yet to catch up with the market, still digesting the severe loss recovery from the first quarter. We believe that before more macro shorts surrender, the "pain trade" will continue to drive prices higher.
Speaking of short squeeze, ETH experienced its largest single-week rebound since 2021 last week, with the troubled token rising about 40%, far exceeding BTC's +10%, which has quietly been gradually recovering to historical highs.
The market will naturally try to find various reasons for this rebound, whether it's the upcoming Pectra upgrade or other positive news. However, we are more inclined to believe this is a typical one-sided market short squeeze. According to Coinglass data, over $1 billion in shorts were liquidated in the second half of last week, the largest liquidation in recent times.
Meanwhile, the ETH ETF has not seen subsequent mainstream fund buying, which further supports our view that this rally still belongs to a short squeeze event in the native crypto market, rather than a significant change in long-term narrative.
In terms of volatility, ETH's implied volatility soared in sync after the spot price jump, but from the volatility smile curve, ETH still shows negative skew, while BTC maintains positive skew. In other words, despite the price increase, we have not observed the market establishing new leveraged long positions in ETH, indicating that the market currently has no clear direction and is in a "blank zone".
Overall, without a violent reversal in the stock market, we expect prices to rise gradually. BTC may encounter technical resistance around $105K in the short term, while ETH is expected to benefit from the overall cryptocurrency market rebound.
In terms of the safe-haven asset argument, we believe this round of "anti-dollar" sentiment is more structural, with investors continuing to seek emerging markets, precious metals, and cryptocurrencies as hedging choices against dollar positions. Given geopolitical uncertainties, any pullback may be viewed as an opportunity to position.
Stay patient and go with the flow. Wish everyone a successful trading week!
