Since last Tuesday, global capital markets have experienced significant pullbacks, starting with the U.S. stock market. The Nasdaq nearly erased all gains made since Trump took office. Influenced by the downturn in the U.S. stock market, Asia-Pacific, European markets, and digital currencies also saw substantial declines, with Bitcoin dropping to a low of $80,000. We believe this round of adjustments is primarily driven by uncertainties surrounding tariffs. Trump announced that tariffs on Canada and Mexico would be imposed on March 4, with reciprocal tariffs to follow in April. Canada, Mexico, and Europe have adopted a tough stance on tariff disputes, fueling significant market panic over these uncertainties. In our previous reports, we argued that the U.S. market is unlikely to experience a major bull run amid rising inflationary risks. After a period of stagnation, U.S. stocks have now seen a sharp pullback due to tariff uncertainties, aligning with our expectations. Of course, the sudden price declines caused by tariff threats have also increased trading complexity. In the near future, a strategy combining long positions with effective short hedging tools may prove advantageous.
In this market cycle, we began advocating for long positions on U.S. Treasuries in December. As Treasury yields declined, we reduced some of our positions. Currently, U.S. Treasury yields appear highly congested, with the spread between 5-year and 10-year yields narrowing to within 15 basis points. We believe the release of U.S. CPI data in the coming weeks will be a critical juncture for re-entering Treasury positions. We also took long positions in NVIDIA, as we continue to view computing power as crucial to the development of artificial intelligence. We maintain that significant macro-driven declines present buying opportunities.
This Friday, both Chinese A-shares and Hong Kong stocks experienced substantial pullbacks, likely due to the impact of the newly announced 10% tariffs. However, the news broke before the market opened, and while Hong Kong stocks gapped down, mainland markets did not, indicating resilience in Chinese asset prices. The bullish sentiment remains firm, and we continue to believe that China’s tech sector, led by Alibaba, will sustain its momentum.
Overall, this round of pullbacks is largely a panic-driven reaction to tariff uncertainties and concerns about future expectations. However, the actual macroeconomic landscape has not undergone such drastic changes. The U.S. dollar index remains stable around 108, showing no significant volatility. Gold experienced a slight retreat after touching 2,900 points, while Brent crude oil prices remain steady at around $75 per barrel. These indicators suggest that the global economy continues to move toward a high-inflation, high-interest-rate environment. Economies that can withstand high interest rates are likely to emerge victorious. Although European stock markets have also been impacted by tariffs, they have shown resilience, partly due to easing inflation data, which has mitigated the effects of the tariff crisis. We believe the bull market in gold will persist, especially following the dramatic breakdown in talks between Zelensky and Trump this week, which has further clouded the outlook for the Russia-Ukraine conflict. The slight pullback in gold this week is seen more as profit-taking rather than a bearish signal.