.png)
.png)
April 11, 2025
The Lithography Inflection Point - How Two Different Approaches to EUV Could Reshape the Semiconductor Industry
By
Kristal Investment Desk
(7th -11th April 2025)
Market Discipline Meets Economic Nationalism
The Bond Market Is Sending a Warning Signal That Goes Beyond Tariffs
Last week's bond market meltdown revealed something far more concerning than just reaction to tariff announcements. While the administration's 90-day pause on tariffs (except for China) triggered a relief rally, the underlying dynamics in Treasury markets suggest we're facing a structural problem that could persist long after the tariff headlines fade.
Treasury yields surged to 4.45% despite mounting recession fears – a complete contradiction to typical market behavior. The 10-year yield behaved more like a growth stock, rising sharply even as equities plummeted. This unusual correlation breakdown should have all investors paying attention.
When the most liquid, deepest market in the world – US Treasuries – behaves like an emerging market during a crisis, something fundamental has changed. We're seeing what I call the "EM crisis trifecta":
· Stocks falling
· Sovereign bonds selling off (yields rising)
· Currency weakening
This pattern almost never happens in developed markets, especially the United States. Even during March 2020, as equities crashed and Treasury yields rose briefly (before the Fed stepped in), the dollar was appreciating. That's not the case now, with the dollar index down 5.5% year to date and nearly 2% since April 1st.
The real culprit behind this bond market dysfunction isn't tariffs – it's the unwinding of something called the "basis trade." Here's what's happening:
Hedge funds have been using enormous leverage (about 20x+) to exploit tiny differences in prices between Treasury securities and associated futures. These strategies were built on the assumption that Treasury Secretary Bessent would cut banking regulation this year, specifically the "standard leverage ratio" that makes it more expensive for banks to hold Treasury debt.
But rising inflation expectations from tariffs caused yields to surge, making banks sell Treasuries rather than buy them. This forced hedge funds to rapidly unwind their positions, creating a cascade of selling pressure far beyond what economic fundamentals would justify.
The Federal Reserve now faces what I can only describe as a no-win situation.
Growth expectations are falling (just look at oil prices plunging 20% over the last week to $56/barrel), which would typically lead to rate cuts. Markets currently expect five cuts in 2025.
But here's the problem: 1-year inflation expectations have surged to 3.6% – the highest since mid-2022. This makes it extremely difficult for the Fed to cut rates, even if they believe inflation is "transitory." Chicago Fed President Austan Goolsbee, normally the most dovish FOMC member, just expressed concerns about persistently high inflation – a significant shift in tone.
The market coming to terms with fewer Fed cuts than expected could be the next shoe to drop. Of course, if Treasury market dysfunction continues, the Fed might step in with emergency liquidity measures – but that's different from actually cutting rates to support the broader economy.
The administration's rapid exemption of smartphones, computers, and semiconductors from tariffs represents a pragmatic response to market realities. This carve-out for technology manufacturers like Apple and Nvidia acknowledges the impracticality of reshoring certain production in the short term.
Treasury Secretary Bessent can deny all he wants that "the bond market meltdown did not impact this decision," but the timing speaks volumes. When markets deliver a 7-9% relief rally on policy adjustment, it's clear what was driving the decision.
· Traditional diversification may not work as expected. When bonds and stocks fall together, the 60/40 portfolio offers less protection than history would suggest.
· Liquidity risk deserves greater attention. Market depth has deteriorated to alarming levels – when the top of book for E-mini S&P 500 futures is just $1 million, price discovery becomes highly vulnerable.
· Volatility is likely to persist. These structural issues won't be resolved quickly, even if tariff headlines fade.
· Emergency Fed intervention is increasingly possible. Whether through verbal reassurance or actual liquidity measures, the Fed may be forced to act if market functioning deteriorates further.
Both the "Fed put" and "administration put" are still in place, even if officials won't admit it. The quick policy adjustment after market turbulence confirms this. However, their effectiveness in addressing underlying issues remains questionable.
What we're witnessing isn't just a policy dispute but the exposure of fragilities in the financial system's plumbing. When leverage reaches 20 times capital (as reported by the Treasury Borrowing Advisory Committee), even minor market moves can trigger cascading liquidations.
For now, markets remain caught between excessive leverage and financial reality – a contest that typically ends with only one winner. Smart investors will prepare their portfolios accordingly.
.png)
.png)
.png)
· March inflation data showed unexpected cooling across all metrics, with headline CPI and PPI turning negative month-over-month and all readings coming in below consensus expectations.
· This data represents pre-trade-war inflation trends, as it doesn't yet incorporate the full impact of recent tariff actions.
· The cooling inflation gives the Federal Reserve increased flexibility to address growth and liquidity concerns without simultaneously fighting inflation.
· Bond markets reacted dramatically to these crosscurrents, with the 10-year Treasury yield experiencing volatility as Japanese investors reportedly sold holdings amid heightened geopolitical tensions.
· With inflation approaching the Fed's 2% target, several rate cuts appear increasingly likely, potentially accompanied by quantitative easing if market conditions deteriorate further.
Banking Sector: Q1 2025 Results
JPMorgan, Morgan Stanley, and Wells Fargo delivered resilient first-quarter numbers while simultaneously preparing for potential economic headwinds. The contrast between stellar trading performance and cautious credit provisions reflects the sector's paradoxical stance: thriving in current volatility while fortifying against future uncertainty.
The banks' swollen capital cushions—15.4% at JPMorgan, 15.3% at Morgan Stanley, and 11.1% at Wells Fargo—signal preparation for stormier seas. Jamie Dimon's "fifty-fifty" recession call and Wells Fargo's 19 consecutive quarters of headcount reduction suggest this operational caution is more strategic than incidental. The sector's health now hinges on how trade tensions and monetary policy evolve in coming months.
JPMorgan: Battleships Prepare for Choppy Waters
JPMorgan's $14.6bn quarterly profit on $46bn revenue delivered an impressive 21% return on tangible equity while simultaneously building nearly $1bn in credit reserves. Markets business sparkled with equities surging 48% year-on-year, yet management's decision to increase the weighted average unemployment rate in its models from 5.5% to 5.8% signals growing caution.
Morgan Stanley: History Resumes, Opportunities Persist
Morgan Stanley's transformation continues with $94bn of net new assets flowing into wealth management this quarter, while institutional securities delivered the fireworks with record equity trading revenues of $4.1bn, up 45% year-on-year. CEO Ted Pick's "pause not delete" characterization of the deal pipeline and comments on the "end of the end of history" position the bank for a more fractious geopolitical landscape where global capital flows persist despite higher embedded risk premiums.
Wells Fargo: Rehabilitation Progress Amid Revenue Pressures
Wells Fargo's first quarter EPS of $1.39 (up 16% YoY) demonstrates cost discipline offsetting revenue headwinds, with the termination of five consent orders representing tangible progress in the bank's long rehabilitation journey. Despite maintaining a solid 11.1% CET1 ratio while returning $4.8bn to shareholders, management's "modest adjustment" to reserves beyond model outputs suggests wariness about risks not yet captured in backward-looking data.
Technology & AI
· Meta (META) launched Llama 4 series with new models: Scout, Maverick, and Behemoth (in preview). These models use innovative "Mixture of Experts" (MOE) approach that only activates necessary parameters, improving efficiency and performance. Maverick reportedly outperforms GPT-4o and Gemini 2.0 Flash on most benchmarks.
· Amazon (AMZN) CEO Andy Jassy released a shareholder letter focusing on the company's "Why Culture" of constant questioning and innovation. Amazon is investing heavily in AI capacity, with its GenAI business growing at 100%+ clip. The company's Trainium2 chip offers 30-40% better price performance than competing GPUs for certain use cases.
· Alphabet (GOOGL) reported 80% increase in developer usage of its AI Studio and Gemini API. The company announced its 7th generation tensor processing unit (TPU) called Ironwood, delivering nearly 10x performance gains vs. its 2023 product.
· Shopify (SHOP) founder Tobi Lutke issued a letter mandating AI usage across the company. This includes making AI usage part of performance reviews and requiring teams to prove they can't accomplish work with AI before requesting additional resources, potentially leading to improved margins.
· Cloudflare (NET) acquired Outerbase to enhance its serverless developer platform capabilities, making it easier for teams to build and deploy applications on Cloudflare's global network
Digital Advertising: Big Tech Consolidates Power as Smaller Platforms Struggle
· Widening competitive moat: The flight of ad dollars to Meta, Google, and Amazon during economic uncertainty demonstrates their strengthening competitive advantages in targeting, performance measurement, and AI-driven optimization—suggesting the value gap between market leaders and challengers is expanding rather than contracting.
· Investment implications: This consolidation trend likely supports premium valuations for the dominant platforms despite broader market headwinds, while smaller ad-dependent companies may face compressing multiples unless they can demonstrate unique audience or conversion advantages.
· Regulatory counterbalance: The emerging digital advertising oligopoly creates increased antitrust exposure for the dominant platforms, with potential regulatory intervention representing the most significant threat to their expanding market power and concentrated revenue growth.
Consumer Platforms & Services
· Uber (UBER) showed encouraging performance data for its Waymo partnership in Austin, with ride volume 80% higher than in San Francisco after 27 days of operation. This demonstrates Uber's ability to deliver strong utilization rates, strengthening its position as more autonomous vehicle partners emerge.
· DraftKings (DKNG) continues to close the market share gap with FanDuel. During March Madness, FanDuel's bet volume lead over DraftKings shrank from 28% to 5% in New York compared to last year. DraftKings enjoyed 20% Y/Y growth in handle while FanDuel grew just 2%.
· SoFi (SOFI) web traffic jumped nearly 20% month-over-month in March, its largest growth in over a year. Meanwhile, its Galileo unit debuted a new deposit sweep product allowing non-chartered fintechs to access partner banks for offering higher-yield deposit options.
Disclaimer: This musing is for informational purposes only and should not be considered as investment advice.
By
Kristal Advisors
April 14, 2025
Liked it?
Share it with your friends & colleagues!
April 11, 2025
By
Kristal Investment Desk
A fully digital onboarding process that can be completed within 15 minutes.
No more voluminous paperwork and queuing!
.svg)
We are licensed in Singapore, Hong Kong and India. Kristal Advisors (SG) Pte. Ltd. presently operates under the CMS license by the Monetary Authority of Singapore (MAS). Kristal Advisors (HK) Ltd is licensed and regulated by the Securities and Futures Commission (SFC) to carry out Type 4 and Type 9 regulated activities and is not involved in the discretionary management of any collective investment scheme. Kristal Advisors Private Ltd. presently operates as a Registered Investment Advisor under the jurisdiction of the Securities and Exchange Board of India (SEBI).
Read more about our privacy policy - Here
Copyright © 2023 Kristal Advisors (SG) Pte. Ltd. UEN: 201711235E
.png)
.png)
We are licensed in Singapore, Hong Kong and India. Kristal Advisors (SG) Pte. Ltd. presently operates under the CMS license by the Monetary Authority of Singapore (MAS). Kristal Advisors (HK) Ltd is licensed and regulated by the Securities and Futures Commission (SFC) to carry out Type 4 and Type 9 regulated activities and is not involved in the discretionary management of any collective investment scheme. Kristal Advisors Private Ltd. presently operates as a Registered Investment Advisor under the jurisdiction of the Securities and Exchange Board of India (SEBI).
Read more about our privacy policy - Here
Copyright © 2023 Kristal Advisors (SG) Pte. Ltd. UEN: 201711235E
WE ARE LICENSED IN SINGAPORE, HONG KONG, ABU DHABI, AND INDIA. KRISTAL ADVISORS (SG) PTE. LTD. PRESENTLY OPERATES UNDER THE CMS LICENSE BY THE MONETARY AUTHORITY OF SINGAPORE (MAS). KRISTAL ADVISORS (HK) LTD IS LICENSED AND REGULATED BY THE SECURITIES AND FUTURES COMMISSION (SFC) TO CARRY OUT TYPE 4 AND TYPE 9 REGULATED ACTIVITIES AND IS NOT INVOLVED IN THE DISCRETIONARY MANAGEMENT OF ANY COLLECTIVE INVESTMENT SCHEME. KRISTAL ADVISORS PRIVATE LTD. PRESENTLY OPERATES AS A REGISTERED INVESTMENT ADVISOR UNDER THE JURISDICTION OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI). KRISTAL.AI MIDDLE EAST LIMITED IS LICENSED AND REGULATED BY THE FINANCIAL SERVICES REGULATORY AUTHORITY (FSRA) FOR CAT 3 A LICENSE.
Read more about our privacy policy - Here
Copyright © 2023 Kristal Advisors (SG) Pte. Ltd. UEN: 201711235E
USD 10,000
Minimum investment amount
ETF
Available Investment Products
Financial guide
Use while investing on Kristal
We encourage our India investors to use a financial guide. Kristal does not charge any additional fees for investing through them.
In case you already have a guide, we will try to bring them onboard. In case not, we can recommend one of our qualified partners to advise you through the journey.
I understand the financial products and would want to proceed with investing without a financial guide
ProceedIt is a structured product issued at par. In working it is similar to a Reverse Convertible but includes the barrier feature to protect downside to some extent. The underlying can be a basket of shares where the worst performing share may be delivered on expiry at the strike price.
Learn more about BRCs
It’s a structured product which is similar to ELONs, except the underlying can be a basket of stocks. This means that in addition to normal ELON factors, there are additional knock-out, knock-in rules associated with them.
Learn more about ELNs
An equity linked note which is issued
at par. The payment is made on initiation, by the client, in the form of shares that he/she might already hold and wants to unlock more returns especially during the periods when the stock is not giving any dividends.
Learn more about RELNs
.png){kind=icon}
