All hell broke loose in the markets yesterday and continues today. with the sharp shooters having given way to the heavy artillery.

The trade war just got very hot, just as we thought things were improving. And just as the Fed had come up short as far as the market is concerned. What can the Fed do now?! Markets are like Test matches – you think you’re on top and suddenly a big hitter comes to the crease and knocks you all the park.

Donald Trump torpedoed the markets with a surprise decision to slap a 10% tariff on an additional $300bn in Chinese goods effective Sep 1st. China is sure to retaliate – this is real escalation.

Commodities hammered as risk-appetite evaporates

Risk assets took a pounding and gold rallied very hard from its lows of the days. Gold found bid to rally about $40 off its lows – incredible. It has eased back slightly today but still remains around a two-week high. Bond yields have sunk as investors sought shelter. These kind of risk-off moves are quite phenomenal.

Oil was absolutely hammered. We saw enormous selling in crude oil and Brent with the latter retreating to the $60 handle. Having been hanging around the $63 mark it gave up 5% in a matter of minutes. WTI shipped $4 from $58 to $54 in minutes too. Those are big, big moves and highlight the kind of sensitivity the market has to trade. Today the two benchmarks are on the rise, but even with gains of 1.5% for crude and 1.9% for Brent yesterday’s pre-announcement levels are still far away.

Equities sink on tariff drama

US equity markets, which had been in the green, turned sharply lower. SPX dropped 40 points or so from its highs in short order to breach the key 2970 level and trade around 2952 at the lows. Today is has shed another 6 points to trend around 2,943 – after a brief drop all the way down to 2,933.

European indices are still being hit hard – the FTSE 100 is off 0.75% to trade around 7,446, while the DAX has drop a whole percentage point to trade sub-12,000.

FX: Yen leaps on flight to safety

Bid for the yen, which had been strengthening all day, accelerated markedly as USDJPY returned to the 107 handle – and today it dropped lower, bouncing off support at 106.70 to trade a little shy of 106.90. GBPUSD has held its ground and the euro also a touch firmer as the dollar has taken a knock. USDCNH has firmed up – a possible retaliation by China is to let the 7 handle be breached. Australia’s dollar has been hit for six.

All bets are off as trade war escalates

The new tariffs have completely taken the market off guard. You have to question the motives when a) the trade team have been in China this week conducing talks, and b) it’s coming just a day after the Fed disappointed the president by not signalling enough cuts. Trump got his cut, so he’s pushing China again. It’s just gaslighting.

Your move, Beijing…