What's driving the massive moves

Risk assets are getting mangled in a massive flight to quality with the S&P 500 down 85 points, or 3.0%. The moves haven't been as dramatic in the foreign exchange market but the commodity currencies are under some pressure and yen crosses are especially heavy.

1. China

The market was lifted by yesterday's signals on a truce with China and Beijing has already announced new measures to crack down on IP theft but that hasn't been enough. One particular driver is Lighthizer getting the nod as the lead negotiator because is an

2. Comments from Williams

The selling ramped up today after comments from New York Fed President John Williams. He endorsed gradual rate hikes for the year ahead and repeatedly emphasized the strength of the US economy, implying that it's 'obvious' for the Fed to hike rates.

3. Brexit

Theresa May's government took a hit today in a loss in a contempt of parliament motion related to Brexit. It will force them to publish legal advice they received on the deal but more importantly it's a symbolic loss and perhaps a sign that the Dec 11 vote will fail. We caution against reading too much into it but it's certainly not a great sign.

4. Bonds

The bond market is on fire. The long end is in the midst of a massive two-day rally with 30s down 12 basis points to 3.14% today.

It's a huge flattener with 2-year yields down just 2 bps to 2.79%. The curve is flattening out and 2s/5s have inverted with 2s/10s just 9 basis points away from inversion.

The question is why there has been such a big move in bonds. One answer is that the inversion of 2s/5s is an event unto itself and sparked recessionary fears. Other worries are trade, China and the Fed.

5. Auto tariffs

There hasn't been any new news about tariffs but last week reports hinted they could be coming as soon this week and that's at the back of many traders' minds. Kudlow had some positive talk about China auto tariffs but it was a mixed message because initially the US implied it was a done deal. If you're looking for an unseen fear today, it's auto tariffs, and that's the kind of thing that could leak. German automakers are meeting US officials at the White House today.