Market Trading Logic and Risk Asset Volatility Analysis

Current Market Trading Logic

Currently, the market trading logic is mainly dominated by recession expectations, while stagflation risks are gradually emerging. From the perspective of interest rate market signals, the 2-year U.S. Treasury yield has quickly fallen, and the spread with SOFR has widened, while the 10-year yield has dropped below the SOFR rate, reflecting that the market is pricing in an economic slowdown and the Federal Reserve being forced to cut interest rates. The inversion of long-term interest rates further strengthens the recession warning.

Although the consumption of TGA accounts has marginally improved USD liquidity, the market's risk aversion has led to funds being withdrawn from high-risk assets and flooding into the treasury bond market, creating a contradictory situation of "liquidity easing but a contraction in risk appetite."

Roots of Volatility in Risk Assets

The turmoil in risky assets mainly stems from weak economic data and policy uncertainty. This is specifically reflected in:

1. Economic rifts are emerging: the Consumer Confidence Index has plummeted, the job market is cooling down, and coupled with tariff threats, concerns about a "hard landing" in the market are intensifying.

2. AI narratives are being questioned: the market is skeptical about the commercial viability of AI, leading to a sell-off in tech stocks, especially in the computing sector.

3. Chain Reaction in the Crypto Market: The CME futures are in a Backwardation structure, which has weakened arbitrage attractiveness. Coupled with ETF capital outflows, this has led to a synchronized decline of Bitcoin and US stocks, exacerbating market panic.

Outlook on Key Game Points

The key battleground in the coming week will focus on the impact of non-farm data on the strength of the "recession trade":

• If non-farm payrolls in February continue to exceed expectations, or if the ISM Manufacturing PMI continues to decline, it will strengthen recession pricing, pushing U.S. Treasury yields further down, and risk assets may come under pressure.
• Conversely, better-than-expected economic data may briefly restore the market's expectations for a "soft landing."

At the same time, it is necessary to pay attention to policy risks, including details of tariff policies and statements from Federal Reserve officials regarding interest rate cuts, as these factors may trigger significant market fluctuations.

Investment Strategy Recommendations

Given the current market environment, it is recommended to focus on defense and wait for opportunities to counterattack. Although the cryptocurrency industry is facing selling pressure due to the withdrawal of leveraged funds in the short term, the improvement in the regulatory environment and technological innovation still support its long-term growth potential. Investors should closely monitor economic data, macro interest rates, liquidity, and adjustments in market expectations brought about by policy changes, and adjust their investment strategies accordingly.