The US stock market’s fate is no longer intertwined with Japan’s currency

One of the most unsettling dynamics in markets lately has been the tight connection between the movements of the Japanese yen and the US stock market.

Correlated markets where lots of assets are trading in lockstep are generally concerning (with some exceptions), because it suggests that investors are doing the same thing: selling popular and or leveraged positions.

The good news is that seems to be changing on Tuesday. S&P 500 equity futures are up about 1.5% while the US dollar is down 0.3% versus the Japanese yen, and the two have trended in different directions since early this morning.

The breakdown in this cross-asset correlation is an encouraging sign that positioning has reset and cleared up following last week’s volatility shock, and a little more normality and nuanced trading has returned to markets.