Selling intensifies in global indices, extending Tuesday's selloff, which was triggered by a combination of questions about the path of Fed policy and conflicting statements about the Trump-Xi deal. The latest wave of risk-off attack began at the open of futures 11 hours ago amid the announcement of Canada's arrest of Huwawei's Chief Financial Officer on behalf of the US. Meng Wanzhou is the daughter of Huwawei's founder and CEO as well as a former high officer at the Chinese Army. Accusations of spying are undoing the work of any deal done between China and the US, hence the selloff in the markets. The existing index short is currently 420 pts in the green.
S&P 500 futures are down 50 points to 2655, Dow futures down 450 pts to 24600 and the small cap index Russell 2000 suffering its worst day since November 2011. The bond market was rattled as well as 2-year yields rose above 3s and 5s in what might be the start of a classic recessionary signal. That thinking may have created a feedback loop in stocks and helped to spark such an aggressive move.
Another factor is commentary from the Fed's Williams. Almost struck a defiant tone on rate hikes, repeatedly touting the strength of the economy and implying that it was obvious to hike rates and saying that he expects further gradual hikes will be appropriate in 2019.
Perhaps the most-important factor was pushback from the Chinese. Multiple reports suggested China was unhappy with the style and substance of the White House's actions after the Buenos Aires meeting. There are indications they did not agree to what Trump's team said, or did not agree to take actions immediately. Instead, they plan to take them after a completed deal.
China watchers also say that Beijing doesn't believe in announcing part of the deal before it's done and that Trump's triumphant tone is insulting.
Despite the drops in equities and yields, FX continues to mostly take it in stride. Yen crosses fell with USD/JPY down a full cent to 112.70. JPY, GBP and CHF are all gaining vs USD. Commodity currencies also sank but it didn't have the sense of disorder that we saw in long-end bonds.
Cable is a chart to watch in particular. It very briefly hit a 18-month low below August support but it quickly rebounded. May lost a vote in parliament that forced her government to publish legal opinions on Brexit. More importantly, it was seen as a soft indicator on how the Dec 11 vote on the Brexit deal will go.
Loonie continues to be hit by the effect of plummeting oil as well a cautionary note from the BoC. A weekly close above 1.3450 could further induce CAD bears.