Our Knife at China's Throat

Chinese spy-chips are background to a sharp correction in equities, but are not necessarily the cause. The rhetoric is the same pressure that has gotten progress with North Korean denuclearization and trade deals with Mexico and Canada (virtually an anti-China pact), South Korea and the EU. Ahead of the mid-terms, it could earn Trump a China deal, and either way an unassailable rallying point. A renewed bear market in Chinese stocks and a drop in FX reserves add to non-tariff pressure on China. A pre-election deal could be an upside black swan, especially for China and the emerging markets. The global back-up in yields is not a "risk-off" reaction consistent with trade fears, nor is it the result of contractionary Fed policy expectations.