The die was cast for today's open with a weekend tweet from President Trump who indicated he is going to lower the tariff rate boom on China because it is moving too slowly in getting a trade deal done. A 10% tariff rate on $200 billion of imported Chinese goods is going to 25%, effective Friday, and the president is threatening to place a 25% tariff on an additional $325 billion of imported Chinese goods.
With this plan in the public domain, the dye has been cast for today's open and it is red all around.
The S&P futures are down 45 points and are trading 1.5% below fair value. The Nasdaq 100 futures are down 147 points and are trading 1.8% below fair value. The Dow Jones Industrial Average futures are down 471 points and are down 1.7% below fair value.
The sudden change in tone has caught global markets by surprise, as they were content to think trade negotiations were making progress and that a deal could be struck possibly by this Friday.
That's still not entirely out of the question, as there is some chatter that the president lowered this boom as part of a strategy designed to get China to make a deal soon. Moreover, the timing of the tweet -- right after a strong employment report that sent the S&P 500 within a whisker of a new closing high -- has also been looked upon as a vintage Trumpian move, as the president has often lauded the strength of the U.S. economy and bull market for stocks as clear signs of the strong hand the U.S. has in these trade negotiations.
The concern that a deal might not happen, however, and that there could potentially be an escalation and elongation of the trade war, was registered in the Shanghai Composite, which plunged 5.6%.
Things aren't as bad in Europe, yet they aren't good either. Major bourses there are down between 1% and 2%.
Interestingly, the flight-to-safety trade has been a low altitude one. The 10-yr note yield is down four basis points to 2.49% and the dollar is little changed against a basket of major currencies.
In other words, the concern domestically about the negotiations unraveling isn't off the charts. In fact, the outsized weakness this morning is perhaps stemming from the charts, as there has been some attention of late paid to the specter of the S&P 500 forming a "double top," which is technical speak for raising awareness that a down leg of some note could be seen soon.
Throw into the news mix a rash of geopolitical headlines -- rockets fired from Gaza into Israel; the U.S. aiming to keep Iran in check by sending a carrier strike force to the Middle East; the U.S. Secretary of State warning all options are on the table when it comes to Venezuela; and North Korea reportedly test firing short-range missiles -- and there is ample basis for a negative start that includes broad-based selling.