Offshore Yuan continues the one way direction and is breaking further today. Last time we saw these levels was in June 2017. The move since recent lows is a staggering 9% move. That is huge for FX!

So far people seem to view it as a “local problem” but it is probably wise to consider if this “local situation could become more global”?

Below is a chart showing S&P 500 (red) and the Yuan (green). Since 2015 almost every sharp move in the Yuan was accompanied by a move lower in the S&P 500. The sharp move from spring lows is 9% for the Yuan while the S&P 500 trades just shy of all time high.

Below chart shows the same as the above chart but with the yuan inverted. Note how the S&P 500 has moved in tandem with the yuan until recently.

A few “diverging” charts doesn’t necessarily mean there is correlation and imminent risk to equities falling, but given what is going on and where equity volatility has come down to, there is opportunities for the prudent investor to look at cheap hedges/speculative options plays.

VIX is down to practically lows this year.

Source: all charts by Bloomberg