Well, Trump finally did it (no, not the Putinesque image of himself as a boxer) – he signed the Hong Kong Treaty after UK markets closed, sending risk appetite into a tailspin.
As always, his timing raises questions, given that U.S. markets had closed ahead of Thursday's Thanksgiving public holiday. But then I guess this also allows him to pump-up the markets again with the usual “talks are going well” spiel in due course. Still, China has vowed to retaliate so we’ll see what comes of it.
As we’d expect, risk-assets got smashed, money flowed into safe-haven assets such as JPY, CHF and gold and out of riskier assets such as equities and commodity FX. At the time of writing, S&P E-mini futures are down -0.3% from their record highs and close to testing yesterday’s low.
Risk appetite from here will likely be dictated by China's response and how detrimental it's perceived to be for the trade deal
The S&P 500 E-mini is on track to close with a bearish 2-bar reversal pattern (dark cloud cover) at record high. Moreover, it has occurred outside the upper Keltner bands which places potential for mean reversion on the cards. Today’s news is not yet enough to go all out bear and call a top (as this rarely ever works out well) but given the timing of the news, once layered with the technicals, then a deeper pullback is not out of the question if tensions escalate.
