Last week's central bank-driven volatility has been followed by an increasingly intense wave of tariff threats as China looks to hit US 'red states' (Republican voters) with soybeans, corn, oil, gasoline, coal, and liquid natural gas all potential targets. 

"The trade war theme is risk-negative and USD-positive," says Saxo Bank Head of Forex Strategy John Hardy, who adds that the Japanese yen is not seeing its customary risk-off bid, most likely due to the country's enormous current account surplus.

"Emerging markets in Asia have been hardest hit with economies tied to Chinese imports [getting the worst of it]," says Hardy. According to Saxo Bank Head of Equity Strategy Peter Garnry, EM equities closed Friday just above their May lows and could head further still on a break of this support level.

"In general we see stocks off to a weak start this week on the new tariffs," says Garnry, adding that he is keeping one eye on the long-rumoured tariffs by the US against the European auto industry.

Source: Saxo Bank

Saxo Bank Head of Commodity Strategy Ole Hansen reports that commodity prices are lower on the dollar strength and trade concerns, with silver putting in a particularly noteworthy performance last week.

"Silver had a crazy week with an eight-fold increase in bullish fund bets Tuesday giving way to the largest sell-off in over 18 months Friday. We also saw gold break below key support at $1,286/oz while oil traded lower in response to the aforementioned themes as well as the upcoming Opec meeting in Vienna.

The ambient volatility is also impacting bond markets, which many investors are watching closely for signs of an impending downturn across asset classes. According to Saxo fixed income specialist Althea Spinozzi, the real problem can be seen in the US yield curve, which is at its flattest in 100 years.

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