European shares were slammed in overnight trading as investor concerns about trade disputes escalated. The arrest of Huawei’s CFO in Canada at the request of the United States raised fears that the US was attempting to increase pressure on China during the 90 day trade negotiation period. The US dollar fell, industrial commodities tanked and commodity currencies were caught in the downdraft. A late rally in tech stocks eased much of the losses, but Asia Pacific traders face a nervous session.

The extraordinary developments focussed attention on the lack of confirmation from China of details of initial trade talks announced by the US president. Pessimism on trade leads directly to global growth fears. Bonds in Europe and the US rallied again, pushing yields to three month lows. The Japanese yen was a major beneficiary of the worry. Once again data releases showed strong current conditions (PMIs, productivity, employment) but weaker forward indicators (factory orders, durable goods).

This leaves regional markets poised precariously. Futures are pointing to flat openings in Japan and Australia, but significant drops for Hong Kong and Shanghai. The market mood suggests that important information such as the US non-farm payrolls and China trade numbers will fly under the market radar.