The last 12 hours have seen more swings and reversals than in any recent 12 hours and more is yet to come. Just as markets were licking their wounds after Wednesday's slump (800-pt plunge in the Dow), a new selling wave emerged in late  Thursday morning London after China stated that Trump's tariff delay was not enough to stop retaliation --without specifying how it would retaliate. 2 hours later, markets erased all of the morning's losses with JPY losing broadly on reports that Beijing was willing to meet the US halfway in negotiations. Markets pushed further higher after US retail sales posted their biggest rise in 4 months and US jobless claims as well as Philly Fed survey came in all stronger than expectations. US industrial production contracted unexpectedly.

All of this is a fresh reminder why traders must stay relatively small in their positions and exercise extreme care when leaving positions overnight.

Wednesday's violent sell-off was all about the spread between 2-year and 10-year treasury yields -- A classic recession signal with a sparkling record of forecasting contractions in the two years ahead. It was triggered Wednesday in the US, UK as well as Canada as a massive bid gripped the long end on economic fears. The US 30-year yield fell 15 basis points below 2.0% for the first time on record.

It led to 2-3% declines in equities in North America and Europe. The damage wasn't quite as dramatic in FX as USD/JPY sank 80 pips and didn't close the prior day's gap. Commodity currencies were hit a bit harder but not enough to break the ranges for the year. It may only be a matter of time. At turning points in the economy sentiment can be as important as hard data. The relentless trade war headlines are sure to take a bite out of business investment and consumers may soon retrench.

Euro Falls on Rehn

EURUSD broke below its 2-week range, shedding half a cent on dovish comments from ECB Governing Council member Olli Rehn telling the WSJ: "It's important that we come up with a significant and impactful policy package in September”. The comments send a reminder of the ECB's counterweight to any Fed easing.
Meanwhile, President Trump has taken to relentless criticism of the Federal Reserve. He attacked Powell on

our separate occasions Wednesday and his deputies did the same. The Washington Post reported that it's part of a strategy to prop up the economy by lowering rates. We see it as more of a sign that the President can't stomach a deep fall in equities.

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