Chew On This warned about this in July about the potential pivot of the USD when the Fed finally changes its cycle. The reverse of the Japanese carry trade may have given risk assets a bumpy summer so far. The depreciation of the USD against major currencies after a two-year bull run appears to have just started. The only surprise in September will be if the weakness does not continue. Equity investors in the money on US stocks could do well to take any profits (if still there) off the table and bring it home.
As the US and European summer holidays ease and the Hungry Ghost Festival (or Seventh Month) ends in Singapore, equity markets and risk assets have recovered from the early August “flash crash”. The madness of 20% or more collapses in stock price and even indices, in one to three days from late July, have been erased, with institutional investors coming back from the beach, retail investors keeping faith with US tech, and even keeping the sun rising on Japanese stocks.
To be sure, the very crowded trades of the AI-related stocks and Japanese equities, which have been flavours of the last two years, have not recovered above mid-year highs recorded before the sell-off. For Japanese equity index investors, the strengthening of the yen has kept the retreat from the year-long highs more muted in Singapore dollar (SGD) terms. For US dollar (USD) investors, the strengthening of the SGD to $1.30 from $1.35 has reduced the gains from nominal price returns of USD stocks somewhat. For those in the red for stocks bought at the highs, it has exaggerated somewhat paper or actual losses incurred when cutting losses in the Nvidia downdraft.
