Yuan’s Weakness A Negative Signal for Global Equity Prices

Over night, the yuan briefly hit a 5-year low against the dollar at 6.6050 CNY per dollar. It has rallied a marginal amount but remains basically at 5-year lows at 6.5818 CNY per dollar. Over the past four years, a weakening yuan has been associated with lower global stock prices. In the chart below, we show the CNY per dollar exchange rate with a one month forward lag compared to the year-over-year change in the MSCI World Index. This relationship has had a very negative correlation over the past several years and further weakness in the CNY probably will be associated with lower global equity prices.

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