4 Alpha Macro Weekly Report: Soft and hard tearing, repeated tariffs: On the eve of recession? What is the market dilemm

4 Alpha Core Views

1. Core judgment: The market has entered the stage of disordered expectations

1. Nonlinear policy path: The Trump administration’s tariff policy shows “internal differences + short-term swings”, which makes it difficult to form long-term consistency. The repeated policy disruptions have disrupted market confidence and strengthened the “noise-driven” characteristics of asset prices.

2. Soft and hard data tear: Although hard data such as retail sales are strong in the short term, soft data such as consumer confidence have weakened across the board. This lag resonates with policy disturbances, making it difficult for the market to accurately grasp the direction of macro fundamentals.

3. The Feds expectation management pressure intensifies: Powells speech remains neutral and hawkish in order to prevent the market from pricing in easing too early. The Fed is currently in a situation where inflation is not stable but it is forced to cut interest rates by fiscal policy, and the core contradiction is becoming increasingly acute.

II. Outlook on major risks

1. Confusion in policy expectations: The most important risk is not “how much tariffs will be added” but the loss of policy credibility due to “no one knows what to do next”.

2. Рынок expectations are unanchored: If the market believes that the Fed will be forced to ease under high inflation/economic recession, a mismatched market of widening credit spreads and rising long-term interest rates may occur.

3. The economy is on the eve of stagflation: hard data is masked by the panic buying effect in the short term, and the risk of a real consumption slowdown is accumulating at an accelerated pace.

3. Strategic recommendations: Mainly defensive, waiting for the market to “misprice”

1. Maintain a defensive structure: There is currently a lack of systematic reasons to go long, so it is recommended to avoid chasing highs and over-investing in offensive assets.

2. Pay close attention to the structure of the interest rate curve: once there is a mismatch with the short end going down and the long end going up, it will have a double-killing effect on overvalued and credit assets.

3. Maintain bottom-line thinking and make moderate reverse allocations: Volatility repricing will bring structural opportunities, but the premise is to control positions and rhythm.

1. Macroeconomic Review of This Week

1. Market Overview

There are only 4 trading days this week, and the US stock market is closed due to Good Friday. As we analyzed last week, the overall market is still in a volatile and fragile structure this week.

U.S. stocks: The three major indexes continued to fluctuate downward this week. The conflict of the trade war and the Federal Reserves reaffirmation of the wait-and-see stance led to a weak overall market performance. The Dow Jones Industrial Average fell 1.3% on Thursday, the first time on record that it fell more than 1%; the SP 500 fell about 2.24% during the week, and the Nasdaq fell more than 3%, with technology stocks and semiconductor sectors leading the decline.

Safe-haven assets: Gold continued to rise above $3,300 an ounce, hitting an all-time high of $3,345.35 an ounce on Friday, up about 2.47% from last week.

Commodities: Brent crude oil continued to weaken, but it rebounded this week to around $66 as hopes for a easing of the trade war remained. Copper prices rebounded slightly this week and are currently above $9,200 per ton.

Cryptocurrency: Bitcoin continued to fluctuate in a narrow range between $83,000 and $85,000 this week. Other altcoins were generally weak.

2. Economic data analysis

• Focus on US retail data and tariff progress this week

2.1 Tariff Progress and Analysis

This week, Trump once again loudly declared that a trade agreement with the European Union will 100% be reached, reinforcing the markets optimistic expectations that tariff negotiations will turn to a easing path.

But from the inside view of policy, this optimism may not be solid. According to news from Wall Street, the suspension of this round of tariffs was actually proposed by Treasury Secretary Bessant and Commerce Secretary Lutnick to Trump jointly when trade advisor Navarro was not present. This detail reveals that the differences in the Trump cabinet on the issue of tariffs are becoming increasingly significant: the finance and business departments tend to ease, while the core trade hawks in the White House still insist on a tough stance.

This means that the Trump administration’s tariff policy itself lacks consistency, and its implementation path will show obvious nonlinearity and short-cycle swings, becoming a continuous cause of market fluctuations.

Judging from Trump’s own strategic intentions, he hopes to achieve four goals through tariffs:

1) Increase fiscal revenue and alleviate the deficit;

2) Promote the reshoring of manufacturing;

3) Lower inflation;

4) Alleviate the trade deficit.

The problem is that these four goals are inherently in conflict with each other:

• Tariffs increase import costs, which will push up prices, which runs counter to the goal of “lowering inflation”;

• Raising the prices of overseas goods does not mean that manufacturing will automatically repatriate, especially in the context of the deep inter-embeddedness of global supply chains;

• In theory, improving the trade deficit requires export expansion, but tariffs often trigger retaliatory countermeasures, which in turn suppress exports;

• Not to mention, fiscal revenue growth itself depends on imports remaining high, which is inconsistent with trade barriers.

It can be said that Trump’s tariff logic is more like a political narrative tool to stimulate voter emotions and create a tough impression, rather than a verifiable and sustainable macro-control measure.

Take the Smoot-Hawley Tariff Act of 1930 as an example: the import tax rate on more than 2,000 commodities was raised to 53% that year, which quickly triggered global trade retaliation, causing US exports to be halved within two years and the stock market to collapse simultaneously, triggering the Great Depression that lasted nearly a decade.

Although Trump is unlikely to replicate such extreme tax rates, logically the two are very similar: both use protectionist measures to stimulate domestic manufacturing in the short term under the background of economic pressure; both overestimate the spillover capacity of their own policies while ignoring the risk of global retaliation; and both may eventually evolve into self-harming trade conflicts.

Therefore, even if Trump’s tariff plan eventually fails—that is, the tariff rates are no longer increased or even partially reduced—it does not mean that its impact on the economy and the market will subside.

What we should be most vigilant about is not “how much tariffs to add”, but the inability of policies to be stable and sustainable and the loss of market trust.

This will lead to two far-reaching consequences:

• Enterprises are unable to formulate medium- and long-term investment plans, and supply chain decisions are shifting to short-term ones;

• Market pricing models rely more on emotions and on-the-spot comments rather than policy paths and fundamental forecasts.

In other words, the market will enter a stage of expectation disorder: expectations themselves become a source of risk, pricing cycles shorten, and asset volatility intensifies.

In general, Trump’s tariff policy may not necessarily “break through the market”, but it will almost certainly “disrupt the market”; the risk does not lie in how much the tariffs can be increased, but in the fact that no one believes where it will go next.

This is the variable that has the most profound impact on the market structure, and will also be the uncertainty that is most difficult for investors and companies to hedge against in the future.

2.2 Inflation expectations and retail data

Two important data points to watch this week are the New York Feds inflation expectations and US retail sales data.

After Powell criticized the University of Michigans consumer survey (which was deeply divided along party lines), the New York Feds inflation expectations survey became an important forward-looking indicator for the market to observe inflation. The basic data on inflation expectations released by the New York Fed this time are as follows:

1) 5-year inflation expectations fell from 3.0% to 2.9%, the lowest level since January

2) 3-year inflation expectations remain largely unchanged

3) 1-year inflation expectations rose rapidly

Chart: New York Fed Consumer Inflation Expectations Survey

Источник: Блумберг

These survey data show that despite the signs of stagflation, the current risk exposure is not large. However, under the threat of tariffs, consumers have increased their pricing of the threat of economic slowdown and full-scale recession. Specifically, consumers expectations of unemployment and income growth have deteriorated, and expectations of household income growth have declined. Households are also more pessimistic about their financial situation and credit access in the coming year. Compared with the last time, a larger proportion of households said that their financial situation is worse than the same period last year. Recession expectations have begun to penetrate consumer psychology and liquidity perceptions, even if macro data has not yet deteriorated. More importantly, the changes in these trends are highly synchronized with Trumps tariff policy, and the short-term buying spree may mask the actual weakening of consumption.

Although the risk of economic recession continues to increase based on the soft data of consumer surveys, the lag of hard economic data tears the difference between the two.

The retail consumption data released this week are very impressive. Seasonally adjusted data show that the estimated sales of US retail and food services in March was 734.9 billion US dollars, an increase of 1.4% from the previous month and 4.6% from March 2024. From a segmented perspective, due to the tariff effect, motor vehicles and daily necessities increased significantly month-on-month.

Chart: U.S. retail sales in March

Source: MishTalk

The structural divergence between the soft and hard economic data usually occurs during periods of intense policy competition and rising market sensitivity cycles. Although the retail data in March is impressive on the surface, the short-term overdraft, tariff-grabbing effects and deteriorating consumer confidence behind it are in sharp contrast. This round of strong hard and weak soft economic phenomena is likely to be a transition zone before stagflation/recession.

In the next two months, the market will enter a stage of high sensitivity to the three variables of policy path, inflation fluctuations and consumption sustainability. The real risk lies not in poor data but in false data, which conceals the true rhythm of the downward trend of fundamentals.

3. Liquidity and interest rates

In terms of the Feds balance sheet, the Feds broad liquidity continued to remain at around 6.2 trillion this week. From the perspective of the U.S. Treasury yield curve, the bond market has the following views on the current market.

Chart: U.S. Treasury yield curve

Source: Wind

1) The expectation of interest rate cuts has strengthened (mid-term yields have further dropped), indicating that the market is more cautious about the outlook for the US economy;

2) Repricing of inflation risk (higher long-term interest rates), related to the recent rebound in commodity prices, tariff threats, and debt ceiling negotiations;

3) The market has switched from interest rate cuts throughout the year + soft landing to a new pricing path of slower pace of interest rate cuts + rebound in long-term inflation risks; the Federal Reserve may face the realistic pressure of inability to cut interest rates continuously, while fiscal and global supply shocks have pushed up long-term funding costs.

To put it more simply, the market is heating up for a scenario in which the Fed will be forced to cut interest rates without suppressing inflation.

Another event worth paying attention to this week is Powells speech and Trumps public accusations against Powell. Market analysis shows that Powells speech is hawkish, but in fact this may be a misunderstanding. From the perspective of the Federal Reserve, Powells speech is basically in line with the current market situation.

1) As analyzed in the previous article, this weeks data vividly demonstrated the disconnect between the soft and hard data of the US economy. When inflation has not yet reached the target of 2%, expectation management is particularly important. Powell must use more cautious remarks to maintain expectations and stability to ensure that the last mile of inflation is successfully reached. In other words, before the hard economic data actually weakens, the Fed can only maintain a neutral and hawkish stance to avoid the market over-pricing interest rate cuts and destroy the fight against inflation.

2) Powell mentioned in his statement that the stock market will not be rescued. From the Feds standpoint, this basically meets the requirement of independence. The Fed has never intervened in market corrections, but this does not mean that if the correction spreads to the entire systemic risk, such as a bond liquidity crisis or a financial system stability crisis, the Fed will definitely intervene and provide assistance.

3) From Trumps perspective, his repeated criticism of Powell for cutting interest rates too slowly also has very realistic considerations. On the one hand, the U.S. Treasury bonds this year face a maturity repayment pressure of up to about 7 trillion, which means that Trump must lower the refinancing cost before the debt ceiling is resolved, otherwise this will further expand the fiscal deficit and increase fiscal pressure; on the other hand, the corporate side also faces the same refinancing cost pressure. If the 10-year U.S. Treasury yield is not further reduced, the increase in corporate financing costs will directly erode profits and further affect the entire U.S. economy.

2. Macroeconomic Outlook for Next Week

The Trump administration’s differences on tariffs have been publicly revealed. The Treasury and Commerce Departments tend to ease the situation, while the White House hawks still insist on a tough stance, which indicates that the “high-profile toughness-temporary easing” fluctuation cycle may be frequently staged in the future. Such a nonlinear policy path will continue to interfere with market expectations, especially putting temporary pressure on commodities and manufacturing export chain assets.

On the other hand, although the decline of the U.S. Treasury yield curve at the medium and short end reflects certain expectations of interest rate cuts, the continued resilience of hard data such as retail and PPI has led to a marginal correction in the markets pricing of a mid-year interest rate cut. If there are no major data or policy shocks next week, Fed officials are likely to continue their neutral to hawkish tone to maintain the anchoring of inflation expectations and prevent financial conditions from loosening too quickly.

The deeper problem is that the gap between the deterioration of soft data and the lag of hard data is widening, and the policy outlook is increasingly subject to political cycles and fiscal constraints. In this context, volatility may become the first asset price variable to react. Based on this consideration, we recommend:

1) Maintain a defensive structure: The current overall trading environment is still not suitable for excessive offense. There is a lack of systemic risk exposure and no macro turning point signals. It is recommended to maintain a neutral and defensive position and avoid chasing highs.

2) Focus on monitoring the signal of disordered expectations: If short-term interest rates weaken further while long-term yields remain high, it means that the market has begun to price in the scenario of rate cuts but unable to suppress inflation. This will lead to a widening of credit spreads and a deterioration of liquidity conditions, and we need to be more vigilant about risky assets.

3) Bottom-line thinking vs. trend speculation: At the current stage, uncertainty itself is the main risk. We recommend that investors establish a bottom-line thinking framework, attach importance to position control and fund diversification, do not easily engage in directional heavy position speculation, and retain moderate reverse positions to deal with the opportunity of market expectation mispricing.

The market has entered a multivariate transition period dominated by policy noise, lagging economic signals, and declining expected stability. The resonance of false data, policy nonlinearity and fiscal pressure means that risky assets will face more frequent sudden disturbances. In this stage dominated by structural uncertainty, controlling risks and delaying bets may be more important than any aggressive strategy.

The key macro data for next week are as follows:

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