Analysis of Market Trends After the FOMC Meeting and the Impact of Equivalent Tariffs

1. Macroeconomic Review of This Week

1. Market Overview

This week, various asset classes performed slightly differently:

• U.S. stocks rose slightly, with the Dow Jones Industrial Average performing the best, up by 1.2%. Overall, it is still in a downward trend, and trading activity is not high. The options market's Put/Call ratio has decreased, indicating that some funds are beginning to bottom-fish.

• In the commodity market, gold continues to rise after breaking through $3000/oz. Copper prices increased by 0.8%, with a cumulative increase of over 11% in the past three months. Crude oil prices remain stable around $68/barrel, while natural gas prices have fallen.

• The overall trading in the cryptocurrency market is sluggish. Bitcoin oscillates around $84,000, lacking upward momentum, while altcoins follow the fluctuations.

2. FOMC Meeting Analysis

The Federal Reserve faces multiple challenges, including the risk of stagflation, political uncertainty, and tightening liquidity in financial institutions. To balance market expectations and economic fundamentals, the Federal Reserve is making adjustments at both strategic and tactical levels:

Strategic level: Adhere to the principle of "data dependence", do not make explicit commitments to interest rate cuts, and maintain policy flexibility.

Tactical level:

1. Adjusting Inflation Expectations Management: Emphasizing the New York Fed's 5-Year Inflation Expectation Data, Downplaying the University of Michigan Consumer Confidence Index, Reducing Market Noise.

2. Reiterate "temporary inflation": downplay the impact of tariffs on long-term inflation, provide space for interest rate cuts, and prevent the market from falling into stagflation panic.

3. Adjusting the tapering ( QT) rhythm: Although liquidity is ample, slowing down QT to respond to the liquidity shock that may arise from the debt ceiling.

3. Changes in Liquidity and Interest Rate Markets

• Liquidity has rebounded, with the broad liquidity reaching 6.1 trillion this week. Outflows from TGA accounts have driven liquidity improvement, and the usage of the Federal Reserve's discount window has decreased, indicating alleviation of market funding pressure.

• The interest rate market remains stable regarding the expectation of interest rate cuts, with the probability of the first rate cut in June estimated at 67%, and around three rate cuts expected throughout the year.

• Short-term interest rates in the bond market are declining faster than long-term rates, leading to a steepening yield curve, which reflects the market's increased certainty regarding interest rate cuts, but concerns about a rebound in inflation still exist.

• In the credit market, the investment-grade credit spread has widened, indicating a slight increase in credit risk and a decline in market risk appetite, but no systemic risk signals have yet emerged.

2. Macroeconomic Outlook for Next Week

1. The equivalent tariff is the focus of market attention.

The reciprocal tariff policy effective April 2 will affect market trends:

• Tariff intensity: The level of tax rates and coverage will affect the prices of goods, thereby impacting inflation and corporate profits. If it exceeds expectations, it may increase import costs, pressuring corporate profits and putting pressure on the stock and bond markets.

• Global trade frictions: If it triggers retaliation from other countries, it will intensify supply chain tensions, drive up inflation, threaten global economic growth, and may lead to panic selling in the market, reinforcing the "stagflation trade" logic.

2. Market Risk Attitude

Although the VIX has declined, signals of risk in the credit market have intensified, indicating that the market has not yet escaped panic mode. Investors tend to reduce risk exposure and increase holdings of safe-haven assets such as gold and government bonds.

Federal Reserve policy direction:

• If tariffs push up inflation, the Federal Reserve may tighten policies earlier, leading to a contraction in market liquidity and increased volatility.
• If inflation is controllable, the Federal Reserve may maintain a dovish stance to provide a buffer for the market.

3. Strategy Suggestions

The market is currently in a phase of uncertainty regarding policy and risk pricing. It is recommended that short-term strategies focus on a "defensive + flexible offensive" approach, avoiding tail risks while seizing phase opportunities in the market.