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2025-04-24 11:17:38 Guotai Junan International’s macro research report noted that U.S. President Donald Trump’s softened tone not only signaled a potential U.S.-China trade deal but also dismissed any intent to fire Federal Reserve Chairman Jerome Powell. This boosted market risk appetite, driving a sharp decline in gold prices and a rebound in previously battered USD assets. USD assets may be just entering a phase of divergence, said the broker. U.S. Treasuries, the cornerstone of USD assets, remained broadly stable despite rumors of foreign investors selling off holdings. While 30-year Treasury yields held firm, 2-year and 10-year yields trended lower in 2025, indicating that, even without Fed’s rate cuts, an implicit “put option” from the U.S. Treasury and Fed persisted, reassuring markets of their ability to stabilize yields. However, the outlook for the USD is more complex. The Trump administration seeks to pressure trading partners’ currencies to appreciate during trade talks while maintaining USD strength to preserve its role in the global financial system. Meanwhile, countries hit by tariffs face both subjective and objective pressures to depreciate their currencies. This raises questions about the representativeness of the USD Index, which is primarily tied to the euro, yen, and pound. For U.S. equities, divergence is even more pronounced, the broker wrote. Fundamentally, U.S. stocks reflect the performance of the American economy, but recent analyst downgrades to economic outlooks, unmaterialized tariff impacts, and rising recession risks have led to sell-offs, particularly in high-valuation tech stocks. Elevated Treasury yields continue to pressure high-valuation sectors, and uncertainty surrounds whether foreign capital will reduce U.S. equity holdings. Ultimately, U.S. stock performance hinges on the economy and corporate earnings, which will only become clear after tariffs are implemented. The trade negotiation process is unlikely to conclude within the current 90-day timeline. ~ AAStocks Financial News Web Site: www.aastocks.com | |