Beyond Volatility: Understanding Policy Strategies and Seizing Long-Term Value Amidst Market Trends
2026-02-11 16:10:21
The United States remains the country with the most to watch. The key to the personnel changes at the Federal Reserve lies in how the Fed can become more politicized while respecting data, and how it can meet the president's pressure to cut interest rates.
Meanwhile, the US job market is experiencing a disconnect between insufficient demand and resilient wages, highlighting concerns about the labor market. At the same time, whether to divert domestic conflicts, generate revenue, or negotiate with other countries to gain benefits, the US has launched a trade war and exerted maximum pressure on Venezuela, Greenland, and Iran, gaining tariff revenue and signing a series of beneficial agreements such as the US-India tariff agreement. This maximum pressure is also forcing a restructuring of the global trade landscape and has a long-term impact on the dollar's status as a reserve currency.
The Eurozone, with its favorable combination of "inflation-suppressing policies to stabilize the economy," has become a market stabilizer. The atypical appreciation of the euro due to interest rate differentials and Draghi's call for European integration have injected long-term variables into regional asset pricing.
At the same time, the implementation of US-led trade agreements is questionable due to the lack of binding mechanisms and prominent potential conflicts, while the efficiency risks of government-led capital allocation also pose hidden concerns for the market.
Overall, policy uncertainty and global strategic rebalancing have become the core themes running through the market, making asset pricing logic more complex. Diversified allocation and accurate judgment of policy signals have become key for investors to cope with the current situation.
The most crucial variable in global capital markets at the start of the year stems from personnel changes at the Federal Reserve and the anticipated shift in policy direction.
President Trump's nomination of Kevin Warsh to succeed Jerome Powell as Federal Reserve Chairman has triggered intense analysis from traders.
As the youngest former governor in the history of the Federal Reserve, Warsh strongly opposed quantitative easing during the financial crisis. His hawkish stance stands in stark contrast to his current policy advocacy of "interest rate cuts + balance sheet reduction" in parallel, which is interpreted by the market as a return to the Greenspan-style monetary operation framework.
Warsh's policy logic directly addresses the core contradictions in the current market: on the one hand, he is concerned about the historically high level of the Federal Reserve's balance sheet as a percentage of GDP and calls for further reduction of the balance sheet through asset sales, a move that will directly push up US Treasury yields and test the resilience of the credit market; on the other hand, based on his judgment that artificial intelligence drives productivity growth, he advocates for a significant reduction in short-term interest rates, believing that output growth will offset inflationary pressures.
This seemingly contradictory policy combination, if approved by the Senate, could lead to a steeper yield curve, which could both improve banks' net interest margin profitability and exacerbate financial market volatility. Currently, the market generally expects the policy to be implemented at a gradual pace.
Prior to this, the Federal Reserve had maintained the interest rate range of 3.5%-3.75%, and Powell repeatedly emphasized the independence of monetary policy. Meanwhile, Treasury Secretary Bessant's statement on a "strong dollar policy" directly boosted the dollar's exchange rate, which contrasted sharply with the Trump administration's previous accommodative attitude towards the exchange rate, highlighting the policy sensitivity of the exchange rate market.
Several key indicators of the US job market are showing signs of weakness, becoming an important reference for capital markets to assess economic resilience.
In May, U.S. companies laid off 108,435 people, the highest number for the same period since 2009, with the transportation, technology, and healthcare industries being the hardest hit. ADP data showed that the private sector added only 22,000 jobs, far below market expectations. A JOLTS report showed that job openings fell to their lowest level since September 2020, with the vacancy rate dropping to 3.9%.
Despite slowing job growth, wages have remained resilient. This divergence stems from a contraction in the labor supply caused by restrictive immigration policies, posing a balancing challenge for the Federal Reserve in its dual mandate of full employment and price stability.
It is worth noting that an analysis by the Kansas City Federal Reserve shows that tariff policies have dampened U.S. job growth, with monthly job creation in 2025 nearly halved compared to 2024.
Major shifts in trade have reshaped the logic of global asset pricing. The US and India reached a tariff adjustment agreement, with the US reducing tariffs on Indian goods from 50% to 18%, and India pledging to gradually eliminate tariffs on US goods and purchase $500 billion worth of goods.
Despite the lack of formal legal documents and enforcement mechanisms, and the fact that the procurement targets far exceed India's current annual import volume and are more of a visionary approach, the Indian rupee and stock market both surged after the news was announced, directly benefiting labor-intensive export industries such as textiles and clothing.
From a global market perspective, India's commitment to reduce its imports of Russian oil could disrupt the oil supply and demand dynamics. Moody's warned that this would lead to tighter supply in some regions, push up oil prices, and transmit to global inflation, bringing uncertainty to the commodity market.
At the same time, a trend is emerging in many countries to accelerate their reduction of economic dependence on the United States. Leaders of traditional US allies such as the UK, Canada, and Germany have made frequent visits to China, seeking to diversify their trade strategies, reflecting a global strategic rebalancing amidst increasing market closedness and policy uncertainty in the US.
This trend will weaken the dollar's status as a reserve currency in the long run, as evidenced by the recent four-year low in the dollar, which is also driving global asset allocation toward diversification.
Falling inflation supports ECB's policy stance: Divergence among member states does not change its neutral position.
The Eurozone market is exhibiting a positive combination of "declining inflation + policy stabilization," acting as a stabilizer for global capital markets.
In January, the Eurozone CPI rose 1.7% year-on-year, and the core CPI rose 2.2% year-on-year, both hitting new lows in recent years. The easing of inflationary pressures was mainly due to the decline in import prices brought about by the appreciation of the euro and the fall in energy prices.
Despite significant divergence in inflation among member states, with a notable difference between Germany's 2.1% and France's 0.4% increase, the ECB has maintained its key interest rate at 2% for the fifth consecutive month, continuing the easing transmission effect that began in mid-2024.
It is noteworthy that the divergence between the Federal Reserve's interest rate cut in the second half of 2025 and the ECB's decision to keep interest rates unchanged did not lead to a depreciation of the euro. On the contrary, the euro appreciated against the trend to the 1.1900 level due to investors reducing their holdings of dollar assets. This unconventional transmission path broke the market's inherent trading logic.
Meanwhile, former ECB President Mario Draghi called for accelerating European economic and political integration, pointing out the shortcomings of the unanimous decision-making mechanism among member states, and advocating for strengthened federal cooperation in areas such as defense and industrial policy. Although this demand is difficult to realize in the short term, it will affect the market's risk pricing of European assets in the long term.
Currently, market attention remains focused on the geopolitical events in Iraq and the US non-farm payroll data. However, once the turmoil subsides, market focus will return to fundamental factors such as the US economy, the European economy, and interest rate differentials. Traders need to accurately grasp the certainty and long-term logic before chasing short-term fluctuations.
Meanwhile, the US job market is experiencing a disconnect between insufficient demand and resilient wages, highlighting concerns about the labor market. At the same time, whether to divert domestic conflicts, generate revenue, or negotiate with other countries to gain benefits, the US has launched a trade war and exerted maximum pressure on Venezuela, Greenland, and Iran, gaining tariff revenue and signing a series of beneficial agreements such as the US-India tariff agreement. This maximum pressure is also forcing a restructuring of the global trade landscape and has a long-term impact on the dollar's status as a reserve currency.
The Eurozone, with its favorable combination of "inflation-suppressing policies to stabilize the economy," has become a market stabilizer. The atypical appreciation of the euro due to interest rate differentials and Draghi's call for European integration have injected long-term variables into regional asset pricing.
At the same time, the implementation of US-led trade agreements is questionable due to the lack of binding mechanisms and prominent potential conflicts, while the efficiency risks of government-led capital allocation also pose hidden concerns for the market.
Overall, policy uncertainty and global strategic rebalancing have become the core themes running through the market, making asset pricing logic more complex. Diversified allocation and accurate judgment of policy signals have become key for investors to cope with the current situation.
Personnel changes trigger intensive market analysis: the policy shift behind Warsh's nomination
The most crucial variable in global capital markets at the start of the year stems from personnel changes at the Federal Reserve and the anticipated shift in policy direction.
President Trump's nomination of Kevin Warsh to succeed Jerome Powell as Federal Reserve Chairman has triggered intense analysis from traders.
As the youngest former governor in the history of the Federal Reserve, Warsh strongly opposed quantitative easing during the financial crisis. His hawkish stance stands in stark contrast to his current policy advocacy of "interest rate cuts + balance sheet reduction" in parallel, which is interpreted by the market as a return to the Greenspan-style monetary operation framework.
Warsh's policy logic directly addresses the core contradictions in the current market: on the one hand, he is concerned about the historically high level of the Federal Reserve's balance sheet as a percentage of GDP and calls for further reduction of the balance sheet through asset sales, a move that will directly push up US Treasury yields and test the resilience of the credit market; on the other hand, based on his judgment that artificial intelligence drives productivity growth, he advocates for a significant reduction in short-term interest rates, believing that output growth will offset inflationary pressures.
This seemingly contradictory policy combination, if approved by the Senate, could lead to a steeper yield curve, which could both improve banks' net interest margin profitability and exacerbate financial market volatility. Currently, the market generally expects the policy to be implemented at a gradual pace.
Prior to this, the Federal Reserve had maintained the interest rate range of 3.5%-3.75%, and Powell repeatedly emphasized the independence of monetary policy. Meanwhile, Treasury Secretary Bessant's statement on a "strong dollar policy" directly boosted the dollar's exchange rate, which contrasted sharply with the Trump administration's previous accommodative attitude towards the exchange rate, highlighting the policy sensitivity of the exchange rate market.
Diverging Economic Data: Weak US Job Market and Restructuring of Global Trade Landscape
Several key indicators of the US job market are showing signs of weakness, becoming an important reference for capital markets to assess economic resilience.
In May, U.S. companies laid off 108,435 people, the highest number for the same period since 2009, with the transportation, technology, and healthcare industries being the hardest hit. ADP data showed that the private sector added only 22,000 jobs, far below market expectations. A JOLTS report showed that job openings fell to their lowest level since September 2020, with the vacancy rate dropping to 3.9%.
Despite slowing job growth, wages have remained resilient. This divergence stems from a contraction in the labor supply caused by restrictive immigration policies, posing a balancing challenge for the Federal Reserve in its dual mandate of full employment and price stability.
It is worth noting that an analysis by the Kansas City Federal Reserve shows that tariff policies have dampened U.S. job growth, with monthly job creation in 2025 nearly halved compared to 2024.
The US-India tariff agreement is reshaping the logic of trade assets: short-term benefits and long-term uncertainties.
Major shifts in trade have reshaped the logic of global asset pricing. The US and India reached a tariff adjustment agreement, with the US reducing tariffs on Indian goods from 50% to 18%, and India pledging to gradually eliminate tariffs on US goods and purchase $500 billion worth of goods.
Despite the lack of formal legal documents and enforcement mechanisms, and the fact that the procurement targets far exceed India's current annual import volume and are more of a visionary approach, the Indian rupee and stock market both surged after the news was announced, directly benefiting labor-intensive export industries such as textiles and clothing.
From a global market perspective, India's commitment to reduce its imports of Russian oil could disrupt the oil supply and demand dynamics. Moody's warned that this would lead to tighter supply in some regions, push up oil prices, and transmit to global inflation, bringing uncertainty to the commodity market.
Many countries are accelerating trade diversification, weakening the dollar's status as a reserve currency.
At the same time, a trend is emerging in many countries to accelerate their reduction of economic dependence on the United States. Leaders of traditional US allies such as the UK, Canada, and Germany have made frequent visits to China, seeking to diversify their trade strategies, reflecting a global strategic rebalancing amidst increasing market closedness and policy uncertainty in the US.
This trend will weaken the dollar's status as a reserve currency in the long run, as evidenced by the recent four-year low in the dollar, which is also driving global asset allocation toward diversification.
Falling inflation supports ECB's policy stance: Divergence among member states does not change its neutral position.
The Eurozone market is exhibiting a positive combination of "declining inflation + policy stabilization," acting as a stabilizer for global capital markets.
In January, the Eurozone CPI rose 1.7% year-on-year, and the core CPI rose 2.2% year-on-year, both hitting new lows in recent years. The easing of inflationary pressures was mainly due to the decline in import prices brought about by the appreciation of the euro and the fall in energy prices.
Despite significant divergence in inflation among member states, with a notable difference between Germany's 2.1% and France's 0.4% increase, the ECB has maintained its key interest rate at 2% for the fifth consecutive month, continuing the easing transmission effect that began in mid-2024.
Interest rate differentials disrupt traditional exchange rate logic: an atypical driver of the euro's counter-trend appreciation.
It is noteworthy that the divergence between the Federal Reserve's interest rate cut in the second half of 2025 and the ECB's decision to keep interest rates unchanged did not lead to a depreciation of the euro. On the contrary, the euro appreciated against the trend to the 1.1900 level due to investors reducing their holdings of dollar assets. This unconventional transmission path broke the market's inherent trading logic.
Meanwhile, former ECB President Mario Draghi called for accelerating European economic and political integration, pointing out the shortcomings of the unanimous decision-making mechanism among member states, and advocating for strengthened federal cooperation in areas such as defense and industrial policy. Although this demand is difficult to realize in the short term, it will affect the market's risk pricing of European assets in the long term.
Summarize:
Currently, market attention remains focused on the geopolitical events in Iraq and the US non-farm payroll data. However, once the turmoil subsides, market focus will return to fundamental factors such as the US economy, the European economy, and interest rate differentials. Traders need to accurately grasp the certainty and long-term logic before chasing short-term fluctuations.
- Risk Warning and Disclaimer
- The market involves risk, and trading may not be suitable for all investors. This article is for reference only and does not constitute personal investment advice, nor does it take into account certain users’ specific investment objectives, financial situation, or other needs. Any investment decisions made based on this information are at your own risk.
