The Chinese stock market is closed this week for the Golden Week holiday. On this side of the Pacific the markets have been busy this week with US Treasury bond yields breaking out and stocks selling off—especially technology—based on the revelation that China implanted devices in technology products shipped to the US. After being closed for five days, there is a lot of potential energy to be released on Monday when Chinese stocks and bonds re-open.

The movement of Chinese stocks and bonds has been informative to the general environment for risky assets. After peaking on January 26, 2018, Chinese stocks have slid about 25% while the yield on 10-year government bonds has tumbled about 40bps. On August 3, Chinese yields bounced and have increased about 16bps while stocks have meandered sideways.

If Chinese stocks and yields tumble next week, taking out recent lows, this will be strong information about whether trade-related concerns are moving into a new, worse phase. If the currency follows and takes out new lows also, we would interpret this as a very negative input for global risky assets.

I think there are three indicators that are instructive in thinking about which direction Chinese stocks and bonds go next week. The first is the iShares Emerging Markets ETF (NYSE: EEM). The EEM took out recent support, closing at a new YTD low today.