To The Moon

Over the weekend, the market received favorable news: China and the United States reached a basic consensus on addressing each other's concerns during their economic and trade consultations in Kuala Lumpur. This development led to varying degrees of gains and rebounds across most risk assets over the weekend. Given the previous experience of abrupt policy reversals and rhetoric from Trump, this outcome was not entirely unexpected. However, many assets had already sustained considerable damage from prior declines, and whether they can follow the U.S. stock market back to a gradual bull trend remains to be seen. In this context, the performance of the Japanese yen offers valuable reference points.

Since the end of 2024, the yen has been oscillating near its lows without a definitive breakthrough. It is well-known that the yen functions as a carry trade currency; its appreciation indicates deteriorating market risk appetite, whereas depreciation suggests the market structure is healthy. The USD/JPY pair exhibits a broad range-bound consolidation pattern, which can be used as a comparative reference.

Currently, a breakout from this range could happen soon (if the yen weakens) or might continue for a longer period (if the yen stabilizes or strengthens). Assuming the consensus announced over the weekend holds and that the upcoming APEC meeting sees continued peaceful interactions between Chinese and U.S. leaders, along with a bearish move in the yen, investors could continue to enjoy a "strong get stronger" gradual bull market through the end of the year and into the first quarter of next year. The appropriate strategy would be to hold positions and buy on dips.

Among priorities, U.S. stocks rank highest. Precious metals and cryptocurrencies, which had previously shown relative strength, suffered heavy setbacks recently, and their subsequent direction remains uncertain. It is also possible these assets might diverge from U.S. equities moving forward. Conversely, if tensions arise between the two sides, selling these less robust assets on rallies would be advisable. Although U.S. stocks might face some pressure, they are unlikely to lead downward. During such scenarios, the yen would typically strengthen to signal caution. Alternatively, if there is progress in the news but the yen continues to move sluggishly, it is best to watch closely and trade cautiously, as a mismatch between news and market action signals forthcoming uncertainties.

Besides the yen, attention can also be paid to the Chinese renminbi’s movement. The offshore renminbi has hovered near critical levels of 7.10 and 7.00 for some time. Its potential further appreciation can reflect subtle shifts in U.S.-China relations. In general, a renminbi strengthening below 7 signals intensified G2 friction, while a rebound above 7.2 indicates a period of quiet, covert development between the two powers. Given the relatively stagnant nature of foreign exchange markets over recent years, moderate and slow-moving trends are normal. The fundamental approach remains to treat U.S. stocks as the last bastion of a gradual bull market.

This week is expected to hold some noteworthy developments on the news front. Although a stable and improving outlook remains more probable, any discord between the two sides could also present good trading opportunities. Within the larger context influenced by Trump's unpredictable impact on markets, such realities must be respected.

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