Going forward, we need two things if stocks have any hope of averting potentially hazardous VIX seasonality in a low liquidity environment.
First, we need a stable yuan, which means the Trump administration needs to cool it with the trade escalations and bombast, lest the PBoC should decide to start setting the fix weaker than expectations, effectively green-lighting more depreciation.
Second, the bond rally really needs to take a breather, because the message it's ostensibly sending about the global economy has now become so seemingly dour that the "bad news is good news" philosophy no longer applies. At this point, bad news is just bad news, so to the extent a gradual move higher in long-end yields would suggest that the "global recession" narrative may have overshot to the downside in the near term, that might help equities calm down. Of course, just about the last thing you want to see is a rapid surge in yields (i.e., a "tantrum") because with positioning as stretched as it is, a disorderly unwind of the bond trade has the potential to be highly destabilizing.
Remember, we've only got three weeks or so until the new tariffs are scheduled to go into effect, and after that, we'll get the September Fed and ECB meetings (and very possibly the announcement of an overhaul to China's two-track rates regime).
For the time being, you'll want to watch each evening for the yuan fix. As Stephen Innes, managing director for VM Markets in Singapore, told Bloomberg this week:
"The fix is the number one game in town and will continue to dictate the pace of play for risk assets over the near-term. Nothing else matters at this stage."