The latest trade war truce lasted less than a day, and after stocks jumped yesterday following an early report that Mnuchin had resumed trade talks with his Chinese counterpart, a late Tuesday report that the Trump admin is planning to increase the tariff rate on some $200BN of Chinese imports from 10% to 25% led to an immediate slide in risk assets around the globe, and this morning global stocks and futures were a sea of red despite Apple’s stellar results which helped lift the Nasdaq.

In response, China again warned the U.S. against “blackmailing and pressuring” it over trade. China’s Ministry of Foreign Affairs said it will fight back if the U.S. further increases tariffs as it now contemplated. “If the U.S. takes measures to further escalate the situation, we will surely take countermeasures to uphold our legitimate rights and interests,” spokesman Geng Shuang said at a regular press conference on Wednesday.

The return of trade war tensions initially sent the dollar higher across the board, while the Yuan tumbled, with the offshore Yuan tumbling to a one year low of 6.8642 against the dollar, before the PBOC intervened again, and the onshore Yuan reversed losses mid-afternoon after a large Chinese bank was seen selling dollars. According to Bloomberg, at least one big Chinese bank started to sell dollars aggressively around 6.83 yuan per USD, and those flows disappeared after rate went to 6.82. A large Chinese bank also sold dollars onshore earlier in the day, spurring other banks to follow.

The big overnight move, however, wasn’t in China but in Japan, where one day after the BOJ tweaked its monetary policy while leaving its YCC largely intact, bond traders tried to find the new tolerance breaking point for 10Y JGB.

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