Market turmoil intensifies, dollar credit faces challenges

Market Overview

This week, the financial markets experienced significant volatility. The S&P 500 index rose by 5% during the week, but the fluctuations were quite extreme. The yield on the 10-year U.S. Treasury surged to 4.47%, while the U.S. dollar index rarely fell below the 100 mark, creating a triple whammy for stocks, bonds, and currencies. Meanwhile, spot gold broke through $3200/ounce, with a weekly increase of over 5%. In the commodity sector, Brent crude oil fell by 5.5% to $62/barrel, and copper prices plummeted by 13%, hitting a recent low. In the cryptocurrency market, Bitcoin's price remained suppressed below $85,000.

Economic Data Analysis

This week's CPI data unexpectedly declined, but core inflation remains relatively stubborn. Housing and food prices increased by 0.3% and 0.4%, respectively. PPI data shows a month-on-month decrease of 0.4% in March, the lowest since the pandemic. The drop in commodity prices is the main reason, but core goods excluding energy still rose, indicating that cost pressures still exist. In the service industry, demand-sensitive sectors have clearly contracted, while rigid services remain relatively stable. These data preliminarily show early signs of stagflation.

Liquidity and Interest Rates

The Federal Reserve's balance sheet shows that broad liquidity has marginally rebounded to 6.2 trillion. However, the dollar index and the U.S. Treasury market have sent unusual signals. The 10-year Treasury yield soared to around 4.45%, while the dollar index fell below the 100 mark, hitting a new low for July 2023. This abnormal situation reflects market concerns about the creditworthiness of the dollar. The rapid rise in long-term Treasury yields triggered a decline in the value of Treasury collateral, creating a "decline → sell-off → further decline" spiral.

Outlook for Next Week

The market is shifting from "inflation concerns" to a dual impact of "dollar credit crisis + stagflation." Key risks include:

1. The risk of stagflation has begun to emerge, compressing corporate profit margins.

2. Pressure in the bond market and tight U.S. dollar liquidity may trigger a chain reaction.

3. The refinancing pressure of U.S. Treasury bonds is enormous, with about 9 trillion in bonds maturing before 2025.

Investors are advised to adopt a defensive strategy, paying attention to the evolution of stagflation patterns, the liquidity crisis in U.S. Treasuries, and the trends of safe-haven currencies. Cryptocurrencies may lack upward momentum in the short term. Close attention should be paid to changes in tariff policies and whether U.S. Treasury yields will break 5%, as this could trigger a deeper credit crisis.