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Despite the weekend's eyebrow-raising events, the broader markets took it in stride, displaying all the volatility of a sloth on a Sunday nap. Stock market mavens, unwaveringly fixated on the allure of rate cuts and corporate earnings, maintained their cool. The S&P 500 breezed past 5,630, while Apple Inc. (AAPL) ascended to new heights, presumably waving at passing satellites. The Russell 2000, the little engine that could, chugged up nearly 2%, enjoying its best four-day sprint since 2020. Goldman Sachs Group Inc. (GS) joined the party, riding high on a wave of profit spikes.

The risk-on sentiment continued to sizzle, bolstered by another cameo from Chair Powell, whose performance did little to dissuade investors from betting on September as the start date for rate cuts. Fed speak will continue to set up the July FOMC meeting, where changes to the policy statement might just be the market's equivalent of a nod and a wink—a signal that policymakers are kicking back, confident that the great pandemic-era inflation scare has lost its edge. In market circles, the debate rages on: will it be two cuts, or three?

Hints of the Trump victory trade made a mild appearance, with the dollar inching higher, the US curve steepening and stocks also moving higher. Traders seemed to be placing their chips on Trump ushering in tax cuts and other growth-boosting policies. Are we in for a 2016 Redux or just getting a taste of nostalgia?

Well, the enthusiasm for the "Trump trade" did fizzle out as the day wore on with the S&P 500 closing well off the session highs. The dampening effect might have come courtesy of Trump's running mate, JD Vance, who champions a more populist twist in Republican politics—one that might not be as cozy with big business. So, is it a sequel or just a teaser trailer? Stay tuned.

At the Asian market open, expect a bit of a tug-of-war: on one side, higher U.S. yields and a buoyant dollar are pulling bearishly, on the other, investors remain buoyed by expectations that U.S. interest rates will be cut sooner and more significantly in 2024. But the big storm cloud on the horizon is the increasingly gloomy situation in China. Despite economists hoping for a break in the weather, China's domestic gloom continues to shock, leading to downward revisions in growth forecasts. Barclays now expects growth in the second half of the year to average just 4.5%, while JP Morgan has trimmed their full-year outlook to 4.7% from 5.2%

SocGen's latest analysis doesn't mince words: they characterise the Chinese economy as having "severe imbalances," with domestic demand "very depressed" and Beijing's current policy mix being "highly deflationary."

In a nutshell, SocGen sounds the alarm: "The imbalance of the Chinese economy is increasingly dangerous, given rising trade tensions from all directions and the very likely return of Trump. A course correction will be inevitable at some point." In other words, folks, buckle up—it's going to be a bumpy ride.

Needless to say, a domestic course correction—be it greater fiscal support, monetary support, or both—is becoming more urgent. Investors are eagerly anticipating positive signals from the ruling Communist Party's third plenum, which kicked off on Monday.

What else are we looking at?

As usual, we're gearing up for some intraday punts on the dollar. Japan's markets will reopen on Tuesday after Monday's holiday, and the yen's direction is set to be the day's trendsetter, especially after last week's apparent yen-buying intervention.

Currently, USDJPY is hovering around 158.10, up from NY session lows of 157.60, omitting the possible fat finger spread widening spike that saw a 157.15 print. This is all part and parcel of the Trump trade, the lack of a clear signal from Chair Powell on rate cuts, and the insatiable demand for carry trades from the ever-enterprising Mrs. Watanabe.

In other words, it's shaping up to be another day of high-stakes currency manoeuvring in the Land of the Rising Sun.

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