Just when you thought it was safe to go all-in leveraged long stocks and sell all the volatility you can eat, a spasm of fear cracks through markets this morning... driven by our 'friends' in Beijing.

While many are taking the call "to slow or halt" its Treasury-buying at face-value, former fund manager Richard Breslow believes there was a deeper, darker reason behind this shot across Washington and Wall Street's bow.

Via Bloomberg,

How do you turn a relatively quiet trading day into a riveting one?

Have someone with enormous amounts of actual money at work in the markets remind everyone that not everything is wonderful in paradise.

The news about China at least re-evaluating its attitude toward its U.S. Treasury holdings has stood everything that was happening overnight right on its ear. And you would be hard pressed to argue that the instant reaction across a wide spectrum of global assets wasn’t entirely appropriate nor overdone.

I get a real sense that the Chinese officials making the comments weren’t simply studying their charts of U.S. breakeven rates and concluding that yields may have bottomed. It sounded very much more a statement of, “Who the hell do you think you are?” And probably should be taken in that context.

Actions do have consequences.

You can’t incessantly bash another country, even if you think there are pieces of the criticism that are fair points, and be surprised that eventually you get some blow-back.

The U.S. objects to China’s increasingly strong economic ties to Latin America. Then Congress passes a bill last night to strengthen ties with Taiwan. The U.S. makes no secret of the fact that it will pursue policies that directly support domestically flagged companies. And then this morning in Brussels, Treasury Under Secretary David Malpass said China is creating market distortions by favoring state-owned enterprises.

I’m not even trying to argue who is right or wrong. Just warning that the very understandable inclination of traders to treat this as just another tempest in a teapot may be too cavalier. In truth, the market moves have been muted in the grand scheme of things, but the players, and bilateral relationship and relative strengths of these two countries isn’t what they were during past episodes.

This latest incident may indeed pass quickly from the market’s immediate consciousness. But it shouldn’t be forgotten. Nor the fact that the reaction wasn’t just to sell a few bonds, but to hit everything with a dollar sign in front of it. Did I mention that the Treasury has a lot of bonds to sell this year? This should be seen as an extremely cheap reality check.

Meanwhile, equities are indeed lower but still well up on this new year. Little, if any, technical damage has been done. Although it’s worth noting that the recent move higher has been impulsive enough such that reaching the first important lines of support will feel like a correction. Or at least be portrayed as such.

The dollar fell like a lead balloon but with the exception of yen, hasn’t broken any new ground, by any stretch. If anything we are just confirmed back into the recent lower range. What looked like an attempt to probe higher has been stymied. Or you were just handed a great opportunity.

And bonds? Supply, breakevens, CPI on Friday, questions about Japan’s intentions make this the most important market in major league play. With implications for all assets. The path of least resistance was clearly in evidence with today’s news.

As China prepares to launch its petro-yuan futures contract, and US-North Korea relations suddenly shift to a more positive tone (something that China has pushed for), a crazed digital dickweed could be forgiven for seeing a pattern of hegemonic transfer occurring and today's shot at the financial markets is yet another straw on the unipolar camel's back.