Trump-Induced Market Turbulence Subsides, Calm Returns to the Market

The recent turmoil sparked by former President Donald Trump has had its most profound impact on the U.S. Treasury market. As Treasurys serve as a benchmark for U.S. creditworthiness and represent the backbone of dollar hegemony, their stability is critical. U.S. Treasury Secretary Bessent has clarified that the recent developments were part of a deleveraging process, not a sign of structural risk. Consequently, the 10-year Treasury yield has retreated to 4.356%, with the 4.5% level now widely referred to as the "Bessent Line"—a psychological floor for yield watchers.

(Chart 1: 10-Year Treasury Yield; Source: CNBC)

While bond markets are showing signs of stabilization, what about equities？

April 8 has been dubbed the “Trump Capitulation Line” for risk assets. On that day, Trump posted on social media that it was an excellent time to buy. Shortly thereafter, news broke that tariffs would be temporarily waived for 90 days, sending risk assets soaring. (The last time a political figure openly encouraged stock buying was during the Obama era.)

(Chart 2: Trump’s “Buy Stocks” Post; Source: Truth Social)

Last weeks volatility rattled investors. However, upon reflection, one could argue that the bottoming of risk assets and the normalization of the bond market should inspire cautious optimism. Despite the prevailing atmosphere of extreme fear, short-term traders are likely to re-leverage amid any signs of stabilization.

Market sentiment and technical indicators clearly suggest that this rebound may not end until the Fear & Greed Index rises from extreme fear into neutral or even optimistic territory. As of now, the index remains below 20, indicating that the "relief rally" still has room to run.

(Chart 3: CNN Fear & Greed Index)

That said, lingering investor skepticism largely stems from fears that new tariffs could lead to stagflation. However, we remain doubtful of this narrative. Major commodity indexes have retreated in tandem with capital markets, while the Producer Price Index remains subdued—offering a strong disinflationary force. Claims of an impending inflation shock may be overstated.

Heres the logic: while tariffs may cause short-term price increases, forward-looking consumer behavior, front-loading by manufacturers, and softening demand are likely to offset inflationary pressures. As inventories are drawn down, companies may resort to discounts or price competition, creating deflationary effects.

(Chart 4: Blue – Inventory Levels; Red – Price Index; Source: JF)

The blue line (inventory levels) has been declining from its peak, suggesting aggressive inventory liquidation by businesses. The red line (price index) shows that prices have stagnated or declined in tandem with falling inventories. In periods of excess inventory, companies prioritize “converting inventory into cash,” making price rebounds unlikely even if demand picks up.

The market has entered a “supply glut → price compression” phase. Inventory liquidation serves as a delayed pressure release—only after sufficient drawdowns can prices begin to stabilize. However, if end-user demand remains weak, even a cleaned-out inventory won't result in significant price recoveries.

Golds Performance During Inventory Liquidation Phases

As a traditional safe haven, gold's behavior during periods of inventory reduction is driven by multiple factors:

• Slowing Growth: De-stocking often coincides with economic slowdown, prompting investors to increase allocations to gold amid uncertainty.

• Inflation Expectations: Inventory reduction may ease inflation pressures, pushing real yields higher and suppressing gold prices.

• Monetary Policy Response: In reaction to decelerating growth, central banks may loosen policy via rate cuts or quantitative easing, thereby lowering real interest rates and boosting gold's appeal.

Between late February and May 2024, gold surged from around $2,000/oz to over $2,400/oz. This rally was driven by a “reflation trade” fueled by expectations of economic recovery and a resurgence in inflation.

In summary, for gold prices to see sustained upside volatility, a combination of economic recovery and resurgent inflation expectations is necessary. This is a long-term view. For now, we continue to expect short-term turning points in gold pricing.

Gold Technical Analysis

Gold's rally stalled after hitting resistance at $3,245, suggesting limited short-term momentum for another breakout. The outlook leans toward a sideways to downward bias. Daily candlestick patterns—particularly the appearance of three strong consecutive bullish candles—signal technical overheating, warranting caution. A pullback appears likely.

• Stop-loss guidance: $25 per ounce

• Support level: $3,140

• Resistance level: $3,245