---
title: "Understand the \"big change\" in the global market with one article!"
type: "News"
locale: "en"
url: "https://longbridge.com/en/news/209907356.md"
description: "The reversal of \"decline trading\" and \"arbitrage trading\" is the main logic, and some analysis believes it is influenced by the \"Trump trade\" and high market expectations"
datetime: "2024-07-26T08:02:42.000Z"
locales:
  - [zh-CN](https://longbridge.com/zh-CN/news/209907356.md)
  - [en](https://longbridge.com/en/news/209907356.md)
  - [zh-HK](https://longbridge.com/zh-HK/news/209907356.md)
---

> Supported Languages: [简体中文](https://longbridge.com/zh-CN/news/209907356.md) | [繁體中文](https://longbridge.com/zh-HK/news/209907356.md)


# Understand the "big change" in the global market with one article!

Recently, the global market has ushered in a "turning point". In the first half of the year, the US stock market continued to soar, technology stocks surged, bulk commodities such as copper rallied, and the weak Japanese yen kept falling...

However, this week, tech giants in the US stock market collectively suffered heavy losses, with the S&P 500 index falling for three consecutive days. The Japanese yen started a strong rebound, the Chinese yuan also surged by a significant 600 points, while copper fell below the $9,000 mark...

The previous "hot trading" suddenly experienced a major reversal. What is the logic behind this?

**Analysts have different opinions on this matter. Some believe it is due to political turmoil in the US, the "Trump trade" heating up, while others think it is the market trading on the US recession, with the unfavorable start of the earnings season in European and American stock markets. The reversal of the "yen carry trade" is also considered one of the reasons.**

**Overall, the two main logics behind the storm of this turning point are the reversal of "recession trading" and "carry trade".** On one hand, the continuous weakening of US economic data has raised concerns about a recession and boosted expectations of interest rate cuts. The US stock market has entered a risk-off mode, with rotation between technology stocks and small-cap stocks, and copper prices showing signs of weakness.

On the other hand, there has been a reversal in global carry trades. The sharp drop in the Nasdaq has led to capital inflows into the Japanese yen. The slowdown in the US economy combined with hawkish signals from the Bank of Japan has raised expectations of a narrowing interest rate differential between the US and Japan. Crowded short positions in the yen were forced to close, leading to accelerated short covering in both the yen and the Chinese yuan.

## Global Market "Big Turning Point"

As the global market closes the first half of the year, US stocks and tech giants have been shining brightly, with the S&P 500 up 14% and the Nasdaq hitting new highs repeatedly. Bulk commodities have also rallied, with copper prices hitting historic highs. Meanwhile, the Japanese yen has been falling continuously, breaking below the 162 mark historically.

**However, in less than a month, the market has undergone a major "change", with the Japanese yen and Chinese yuan surging, and the Nasdaq and AI stocks plummeting.**

**Firstly, looking at the foreign exchange market,** the Japanese yen has surged by 6% in the past two weeks, pulling up from a near 40-year low to the 152 mark, with varying degrees of appreciation against the euro and the pound.

The appreciation of the Japanese yen has boosted sentiment in Asian currencies, with the offshore Chinese yuan approaching the 7.2 mark on Thursday, surging over 600 points intraday, marking the largest intraday gain since September last year.

**In the stock market,** US investors' concerns about AI returns have intensified, with the Nasdaq falling for three consecutive days this week, down nearly 9% from its historical high on July 10, wiping out $2.3 trillion in market value. Popular AI concept stocks such as Nvidia and Broadcom have been heavily sold off.

The outlook for the bulk commodity market is also not optimistic, with London copper falling below the $9,000 mark for the first time since early April, dropping by about 20% from its record high two months ago, while London aluminum has hit a four-month low.

In the bond market, US bonds are approaching the end of the inverted yield curve, with the two-year US bond yield briefly only 12 basis points higher than the ten-year yield on Thursday, the closest to ending the inverted yield curve since mid-2022, a far cry from the over 50 basis points spread just a month ago

## "Recession Trade" Triggers Chain Reactions

From a fundamental perspective, as economic data continues to weaken, concerns about a US recession have begun to dominate the market, with various assets including gold seeing profit-taking at high levels on July 24-25.

**China Merchants Macro believes that this indicates the market is pricing in a hard landing risk off:**

> 1.  The sharp drop in the US June ISM non-manufacturing PMI, coupled with slowing employment and inflation data, along with the dovish stance of the Federal Reserve, has helped boost rate cut expectations.
>     
> 2.  Federal Reserve officials' dovish remarks further strengthen rate cut expectations. Former "number three" at the Federal Reserve Bank of New York from 2009 to 2018, Dudley, who previously advocated for maintaining high interest rates, has now shifted from a hawkish stance to a dovish one, calling for a rate cut this month.
>     
> 3.  Disappointing European PMI data has also sparked recession concerns, with Germany's July PMI unexpectedly falling and the Eurozone manufacturing PMI hitting a 7-month low.
>     
> 4.  The reflexivity of global financial markets has reinforced rate cut and even recession trades.
>     

With the US economy showing signs of weakness and risk aversion spreading, US stocks have plummeted one after another, putting immense pressure on the metal market. **Investors who previously bought copper due to concerns about supply shortages and rising demand in data centers are now worried about increasing inventories and slowing demand.**

Speculation about the Fed's rate cut expectations continues to rise, leading to a noticeable shift in US stock styles. \*\*As expectations for a Fed rate cut heat up, US small-cap stocks have finally turned the tables, with funds flocking to the Russell 2000 index while the heat around tech giants has noticeably cooled off.

## "Arbitrage Reversal" Sparks Impact

From a trading perspective, the reversal of yen arbitrage trades is causing a massive "liquidation" globally, with assets that performed well in the first half of the year experiencing significant reversals.

**The Nasdaq's sharp decline has triggered intense market volatility, with the impact of unwinding leveraged positions particularly evident, compounded by rumors of a "hawkish" Bank of Japan and expectations of a narrowing US-Japan interest rate differential. With various factors at play, global carry trades have reversed dramatically, forcing yen short positions to be closed out.**

Furthermore, the yen's appreciation has boosted sentiment for Asian currencies, with high-yielding currencies like the Australian dollar taking a hit. Both the Chinese yuan and the yen are currently low-yielding funding currencies. As yen short positions are being closed out due to the reversal of carry trades, yuan short positions are also accelerating their closure.

Analysis indicates that USD/CNY has been trading sideways for too long, with low actual volatility. After quickly breaking through key levels of 7.25 and 7.23, triggering a stampede of short positions, the market has accelerated its decline.

## Controversy Arises from "Chaos" Performance

It is worth mentioning that the recent market turmoil has also sparked controversy and discussions.

**Zhongjin's Liu Gang believes that the recent market turmoil doesn't quite resemble a "recession trade":**

> If it were a recession trade, US bond yields should be falling, and gold should be surging. These are the assets that benefit the most from a recession. However, the result is that gold has plummeted, and US bond yields have risen, with little pressure or signs of recession in the USCMB International Macro believes:

> The profit-taking at high levels of various assets, including even gold, indicates that the market is pricing in a hard landing risk off. Although the U.S. Treasury bonds have not reflected multiple rate cuts, if the data continues to weaken, the increasing certainty of a recession will inevitably lead to more rate cuts.

**Regarding the sharp drop in the U.S. stock market, some analysts have mentioned "expectations."** The U.S. stock market had accumulated significant gains, which were already on the high side. Currently, concerns about AI returns have spread in the market, and the disappointing performance of two companies, Tesla and Google, has had a significant drag.

In addition, the recent volatility in the U.S. election has also brought fluctuations to the market. **Trump recently criticized the strong U.S. dollar and expressed dissatisfaction with the depreciation of the RMB and the Japanese yen.** Analysts believe that this stance has contributed to the sharp rise in the Japanese yen. Some analysts also suggest that the increasing popularity of Harris has led to a reversal in Trump's trading, easing some of the pressure on the depreciation of the RMB.

Although there is controversy over the analysis of this "storm," it is undeniable that predicting the next market trend is becoming more complex!

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