Original title: "SignalPlus Macro Research Special Edition: Crossing the Rubicon"

Source: SignalPlus

The assassination attempt on former President Trump while he was giving a speech in Pennsylvania undoubtedly dominated the news over the weekend, and after the failed assassination attempt, the former president's chances of winning the election further jumped to around 70%.

While the United States may be a divided country with increasingly polarized views, the country is united on issues involving homeland security and attacks on politicians. The failed assassination attempt on former President Reagan in 1981 likely contributed to his subsequent landslide victory, and with just a few months left before the November vote, there is a greater chance of a repeat. Now that the election outcome seems to depend almost entirely on whether Trump can maintain his current advantage, the liberal media and opposition will have to tone down their harsh criticism in the rest of the campaign.

Macro markets are likely to trade on a Trump win as a pre-condition, which would have significant implications for all asset classes. While we are not political experts, we believe a second Trump administration would likely adopt a more hawkish approach.

Currently, Republicans and Trump supporters believe that:

Opposition attempts political witch hunt, sentences former president to 700 years in prison

The recent push for noncitizen voting rights could give Trump's opponents a large share of the immigrant vote

· An assassination attempt occurred in broad daylight, and it is clear that there were serious security gaps

If Trump is re-elected, the market may expect:

Aggressive fiscal spending and profligate tax policies

· US-China tensions further escalate

Put more pressure on Europe to pay more than $200 billion in NATO protection costs, especially in light of the ongoing Russia-Ukraine conflict

Block illegal immigration

A conservative Supreme Court turn similar to the first term, with an aggressive “purge” of key civil servants, government employees, and others in the Washington ecosystem

The aggressive spending plans will further exacerbate the already severe bond supply and budget deficit situation, and bond yields are likely to experience a bearish steepness. During Trump's first term, the 10-year yield rose by about 200 basis points in 18 months.

As Trump may win a second term, both economic growth and inflation in the United States have slowed. Last week's CPI data fell to the lowest level since 2021 as housing costs finally slowed. The core CPI rose 0.1% from May, the slowest growth in three years, and the overall indicator fell for the first time since the epidemic.

The market absolutely sees last Thursday’s CPI as a watershed moment for the current cycle, with the market pricing in a 95% chance of a rate cut in September, and we can imagine that the Trump administration will certainly put pressure on the Fed to conduct more aggressive rate easing in 2025 as a means of the next wave of economic stimulus.

Speaking of the economic slowdown, earnings reports from large U.S. banks confirmed a general deterioration in consumer conditions, with most banks setting aside more cash to deal with customer defaults on loans. Citi/Wells Fargo/ JPMorgan's loan charge-offs all rose. Credit card delinquency rates at smaller banks have risen to their highest levels in 30 years and across the banking industry to their highest levels in 10 years.

Last Friday, the University of Michigan's consumer confidence index also fell short of expectations for the fourth consecutive month, with respondents saying that a weak job market and high prices have dampened overall confidence. The official survey report stated: "Nearly half of consumers spontaneously complained that high prices are eroding their living standards, approaching the historical high set two years ago."

Outside the US, economic data last week also confirmed the weak recovery of the Chinese economy, with CPI up 0.2% year-on-year, lower than the expected 0.4%, and both loan and credit growth in June hitting record lows, weak end-user demand, coupled with the equally sluggish new RMB loans, social financing scale and import data (-2.3% year-on-year, lower than the expected +2.5%). As we head into the Third Plenary Session of the 18th CPC Central Committee in July, the Chinese government is undoubtedly disappointed with the pace of recovery.

Back to the US stock market, the SPX continues to hover near all-time highs, and shorts are capitulating. JPMorgan estimates that long equity futures positions are back to their highest level in the past 10 years (as a percentage of open interest), while cash allocations have broken through the lowest level since 2000. However, despite the higher stock prices, global new stock supply remained negative for the third consecutive year, and the IPO market remained closed to most issuers.

Interestingly, macro bears may be surprised to learn that bond-equity correlations (yields don’t always move in one direction with stock prices) show that the U.S. economy has never been at risk of a recession over the past two years. This correlation Sex has oscillated between soft landings, no landings and occasional expansion expectations during strong data bursts. This reminds us that while macro assets are extremely forward-looking and self-correcting, it is often the interaction between assets that tells the full story, rather than the absolute level of a single variable (such as a yield curve inversion). Keep an eye out for when yields fall along with stock prices, that's the first real sign that the market finally believes we're heading toward a slowdown.

In cryptocurrencies, prices have clearly benefited from the increased probability of Trump's victory, with BTC rebounding to around $62,500, rebounding more than 10% after the previous sell-off. The Bitcoin Conference confirmed that Trump will still attend the conference in Nashville at the end of July, and will continue to support cryptocurrencies as stated in his campaign statement.

In terms of capital flows, BTC spot ETFs saw significant inflows last Friday, totaling $310 million, the largest inflow since June 5. According to Arkham data, investors believe that the German government has sold all BTC and returned to the buy-on-dip mode. Despite this, the market still needs to deal with the repayment issue of Mt. Gox, and it is expected that about 140,000 BTC (worth $8.5 billion) will hit the market. However, there is always light at the end of the tunnel. The upcoming September rate cut and Trump's possible victory are expected to provide further support for cryptocurrencies.

In terms of price action, it is reassuring that BTC has managed to hold the $50,000 region during the recent sell-off, which was the breakout area after BTC was approved in January, and market sentiment may shift to selling puts/buying on dips.

I wish you all a smooth transaction!

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