Back in mid-June, the markets sold off in tandem as Trade War was on all investors’ lips. Some pundits explained the US would win this war, while others explained everybody will lose and markets will fall sharply.
As the chart below shows, initially the S&P 500, Shanghai and Euro Stoxx 50 all sold off in tandem as well as the yuan tumbled (yuan is white and inverted on this chart).
The correlation between the assets has changed over past sessions. While the Western indices have continued the bounce, both Shanghai and the Yuan trade “heavily” to the downside. There is definitely decoupling to be seen, but let’s see if this continues or we see a reversal again?
The Yuan is taking out new recent lows today and volatility continues spiking.
Below is a chart showing the Yuan (yellow) and the 30 and 60-day historical volatility.
The spread between S&P 500 and the Emerging Market ETF (EEM US) has reached lows this year. We are far out on the normal distribution chart.
Time for a contrarian relative Emerging Market long trade here?
Source: charts by Bloomberg