The Chinese recently devalued their Yuan (aka Renminbi or RMB) for several reasons to gain monetary flexibility, one of which was to have other means to stabilize their currency in a bid to vie for reserve currency status.
The devaluation leads to inflation of goods and services inside China and outside China for global Chinese companies. Hence, the selloff represents a move to liquidity and cash to handle the inflation.
The devaluation of the Yuan causes the US Dollar to appear stronger, hence the price in Yuan of exports increases while in US Dollars it remains the same because the Dollar exchanges for more Yuan.
The US stock markets are affected because there are large funds of Chinese investors selling US stocks for US dollars (also in London for £) that are now stronger against the devalued Yuan.
Short US financials until the Chinese market finds its new level which may be as long as a week. Then cover. Good luck with the timing which is key and no, I have no crystal ball for that.
The US markets have been propped up by the Fed Reserve anyways via the inflated bond markets who move funds between bonds and stocks and back to bonds on a regular basis. This fact has disturbed me and others for many years. At some point QE has to end (why?) because there’s no good fast way to spread the fiat funds into an economy where 93 million people are unemployed or underemployed without blowing a lid on inflation. Therefore, Asian goods must come in at lower prices else their whole game collapses. The US consumer is the endpoint of most of Asian manufacturing. And the fall in oil prices means other global regions are now short of funds to allow China to become less dependent on the US consumer.
Oh my, Prince Alwaleed started this whole cycle from his fear that US frackers would emerge so large as to bury his Kingdom. Well, golly gee gosh, looks like he’s lost control of the game as the world races to the bottom.
Donald Trump could not come at a better time in American History.
China’s heavy-handed intervention has shown the world that they are completely unable to operate a real market, and the harder they try the faster it will crash.
Face saving doesn’t work in finances.
Trump has called this from, well, years ago.