BlockBeats News, May 25th. While the global market's attention is still focused on the US-Iran negotiations and the reopening of the Strait of Hormuz, what funds are truly beginning to pay attention to is another, deeper issue – when high inflation, high interest rates, and sovereign debt risks coexist, whether global central banks still have the ability to sustain market stability as they have for over a decade.

Currently, although the US-Iran agreement is gradually emerging, including the limited reopening of the Strait of Hormuz, a 60-day framework agreement, and the resumption of nuclear negotiations, significant gaps still exist between the two sides on core issues such as highly enriched uranium, sanctions relief, asset unfreezing, and the Lebanon front. This indicates that while the market is beginning to trade the "de-escalation of war," funds have not fully returned to a full risk-on mode.

More importantly, another phenomenon that has rarely occurred in the past two years is now emerging in the market – "rate hike expectations are back." The US interest rate futures market has begun pricing in a Fed rate hike as early as October, fully pricing in a 25 basis point rate hike by the end of the year. Fed Governor Waller has clearly stated that if inflation expectations become unanchored, the Fed will still need to raise rates; internally, the ECB has directly started discussing the possibility of a rate hike in June. This means that the narrative the market was hoping for, a "rate cut to rescue the market," is being replaced by "prolonged high rates."

Behind this is the real core issue – the global bond market is beginning to push back against the logic of "central banks will always have your back" that has prevailed for over a decade. El-Erian actually pointed out the biggest risk right now: whether it was the financial crisis, the pandemic, or war, the market has always believed that central banks would eventually rescue risk assets through rate cuts, QE, and fiscal stimulus, making "buying the dip" the most successful trading strategy globally. However, now, high inflation, high debt, and sovereign credit pressures are beginning to limit central bank intervention capabilities, and the market is facing a situation for the first time where "policies may want to rescue, but may not be able to do so effectively."

This is also the reason for the recent significant divergence in global assets. On one hand, US stocks and tech stocks are still at high levels due to liquidity inertia and growth expectations; on the other hand, US bond yields, Japanese long bonds, and the European bond market have simultaneously begun to experience severe volatility. This indicates that funds are reassessing: if central banks cannot provide unlimited liquidity in the future, then all currently overvalued assets will once again face pressure from "real interest rates" and "cash flow discounting."

As for the crypto market, BTC will continue to be supported in the short term by the risk appetite recovery brought about by the easing of the situation in the Middle East. However, if the global interest rate market continues to reflect rate hike expectations, high-leverage and overvalued assets will still face liquidity tightening pressure. The biggest variable in the market right now is no longer just war, but rather the influence of global policy tools on the market and whether that influence is beginning to diminish.