Crypto Market Weekly: US-China Tariff Easing Exceeds Expectations, US Stocks Rise, Interest Rate Cut Expectations Heat Up

The first contact between the United States and China in Switzerland has achieved significant results, marking a new phase in the tariff dispute between the two sides. This progress exceeded market expectations, and U.S. stocks and the crypto market quickly digested the negative impact of the tariff war.

Traders are starting to focus on a new point: whether the U.S. economy will fall into recession and when the Federal Reserve will restart interest rate cuts. This week's inflation and employment data show that inflation continues to decline, employment remains temporarily stable, and the impact of tariffs is lower than expected.

These better-than-expected data drove U.S. stocks to rise significantly this week, while gold saw a big drop. Federal Reserve Chairman Powell mentioned in an important speech the need to re-examine the "monetary policy framework," which may accelerate the restart of the rate-cutting cycle. However, a certain rating agency downgraded the U.S. Treasury's rating from Aaa to Aa1, highlighting concerns about the long-term debt crisis in the United States.

Policies, Macroeconomic Finance and Economic Data

On May 12, the U.S. and China reached a 90-day temporary tariff reduction agreement in Switzerland, marking a significant advancement in the tariff dispute. The U.S. will lower the highest tariff on Chinese goods from 145% to 30%, while China will reduce the highest tariff on U.S. goods from 125% to 10%. This development indicates that the impact of the tariff war is gradually weakening, and it may not cause an unexpectedly severe shock to the global economy in the short term.

Driven by this positive news, US stocks surged significantly throughout the week. The NASDAQ, S&P 500, and Dow Jones indexes rose by 7.15%, 5.27%, and 3.41% respectively, achieving a four-week consecutive rise. If the expectations for interest rate cuts increase further, the stock indices are likely to break historical highs.

The U.S. April CPI data shows that the seasonally adjusted CPI monthly rate is 2.3%, lower than expected and has declined for three consecutive months. In terms of employment data, the number of first-time unemployment claims is 229,000, in line with expectations. The PPI is at 2.4%, slightly below expectations. These data indicate that the trade war has not yet caused substantial harm to consumption, while inflation continues to decline, creating conditions for a restart of interest rate cuts.

Powell stated in his speech that the monetary policy framework introduced in 2020 may need adjustments in the current economic environment. He pointed out that frequent supply shocks have made it difficult to meet the average inflation target, necessitating a rebalancing of inflation and employment goals. This statement may indicate that the Federal Reserve will base its policies on shorter-term CPI data, increasing policy flexibility to respond to economic fluctuations.

The issue of US debt remains a potential risk factor. This week, the yields on 2-year and 10-year US Treasuries rose to 4.0140% and 4.4840%, respectively. According to analysis, the US will add an additional $1.9 trillion in debt this year, while the scale of debt that needs to be refinanced may reach $9.2 trillion. If interest rates are not lowered soon, the US government will not only continue to bear high interest costs but may also face difficulties in auctions in the primary market.

On May 16, a ratings agency downgraded the long-term issuer and senior unsecured debt rating of the U.S. government from Aaa to Aa1. This is the first downgrade of U.S. Treasury ratings by the agency since 1917, marking the loss of the highest credit rating from the three major rating agencies. The debt issue may become a key factor affecting U.S. interest rates and the stability of the financial market.

crypto market

Bitcoin has maintained a high level of consolidation for most of this week, suddenly surging to $106,692.97 on Sunday, with a weekly increase of 2.24%. From a technical perspective, Bitcoin has been running above the "first rising trend line" throughout the week, approaching an important resistance level. The overbought indicator has seen some correction, and trading volume has remained basically flat compared to last week.

Capital Flow

This week, the funds flowing into the crypto market remain active, with a total inflow of 2.527 billion USD across two major channels, including 1.880 billion USD in stablecoins and a combined 647 million USD in Bitcoin and Ethereum ETFs. It is worth noting that the inflow of funds through the ETF channel has declined for four consecutive weeks. The on-site lending funds are in an expansion phase, and the contract market has entered the second expansion phase of this round of market trend.

Selling Pressure and Sell-off

After Bitcoin returned to $100,000, some bottom-fishing funds took profit. As liquidity recovers, some long-term holders also made slight sell-offs. Overall, the trend of "long hands reducing positions and short hands increasing positions" has not yet fully formed, and experienced long-term investors seem to be waiting for higher prices.

This week, the inflow of Bitcoin into exchanges was 127,226 coins, marking a decline for four consecutive weeks. The outflow of Bitcoin from exchanges reached 27,965 coins, the highest since the beginning of this year. The reduction in selling pressure and increase in buying activity, under favorable external conditions, may indicate a rapid rise in prices in the future.

Cycle Indicators

According to a certain data platform, the BTC cycle indicator is 0.875, in the rise period.