Late last Wednesday, with hours left until the Thanksgiving holiday, Trump signed the controversial Hong Kong bill, knowing well it would upset Beijing and risk an escalation in the trade war, however as we said, "it appears the president was confident enough that a collapse in trade talks won't drag stocks too far lower" with the S&P just hitting an all time high above 3,150. Since then, the assessment that Trump was confident enough that a resumption in trade hostilities wouldn't have too negative of an impact on the market has only been borne out, resulting in Trump launching new trade war fronts in both Latin America and Europe, and this morning, appearing to hammer the final nail in any trade deal with China in 2019, and perhaps ever, when he said it may be better to wait for a trade deal until after the 2020 election.
The news promptly sent US equity futures tumbling below the critical 3,100 level where there is a mountain of dealer gamma, and where negative convexity means selling will beget more selling.
Meanwhile, China also decided to remind Trump that it would have a say in the matter, and moments ago the Global Times directly accused the US of "backpedaling", but noting that it was prepared for such as "worst case scenario", to wit:
The US appears to be backpedaling in #tradetalks as officials threaten tariff hikes, but that will have zero effect on China's stance because Chinese officials have long prepared for even the worst scenario: Mei Xinyu, an expert close the Chinese Commerce Ministry.
The US appears to be backpedaling in #tradetalks as officials threaten tariff hikes, but that will have zero effect on China's stance because Chinese officials have long prepared for even the worst scenario: Mei Xinyu, an expert close the Chinese Commerce Ministry pic.twitter.com/P7Ai3NYXdO— Global Times (@globaltimesnews) ٣ ديسمبر ٢٠١٩
And just in case the complete collapse in diplomatic relations was lost on someone, moments ago the director of the Chinese foreign ministry Hua Chunying compared Mike Pompeo to a mentally ill woman.
CN Spokeswoman Hua Chunying called Pompeo “Xianglin Auntie” (祥林嫂) today, quoting a character from Lu Xun novel to paint Pompeo, who criticized IP theft, as a mentally illed woman who keeps repeating stories. It’s tone deaf af even by China standards. Literature breakdown: 1/n pic.twitter.com/Hght7FM9yJ— Toni (but what’s your *real* name?) (@tony_zy) December 3, 2019
In any case, the rapidly deteriorating back and forth sent futures to another sharp leg lower, now well below 3,100...
... and the risk is that the record VIX short position we have been warning about, is about to see a historic squeeze.