Traders seem worried that 2019 will be 2016 all over again, when worries about China's economic growth were front and center.
One force behind Thursday's market tremors appeared to be concerns the arrest of Huawei Technologies' Meng Wanzhou will further heighten tensions between the U.S. and China. Tariff talk hasn't helped either.
By most appearances, the U.S. market moves Thursday have been a textbook flight to safety. The stock market is down about 2%, with the worst losses in growth- and trade-sensitive sectors like materials, energy and industrials. Crude oil is down more than 4%.
Meanwhile, the yen, euro, and Swiss franc are all climbing. Treasuries are rallying, and the 10-year yield has dropped to 2.856%, its lowest level since August.
But under the hood, a couple of market moves distinguish this selloff from last month's drop, which was driven by concerns about corporate debt. This time, traders are more worried about a drop-off in global trade.
The dollar's underperformance is the first clue. When risky assets sell off, the dollar tends to outperform. But today, its performance has been mixed. It is stronger against commodity-producing countries like Australia and Canada, as well as the South Korean won. But it is weakening modestly against other havens: It is down 0.7% against the yen and 0.3% weaker against the euro.
The bets on dollar weakness almost certainly reflect concerns about slowing economic growth globally and in China, rather than the state of the U.S. economy. (After all, not only is the dollar the currency in which global trade is invoiced, the U.S. is also a net commodity producer now.)
The second hint that this may be more than a knee-jerk move is the market's outlook for Federal Reserve policy. Interest-rate derivatives markets imply traders expect just one rate increase next year-if the Fed raises rates at all, as Bloomberg reported.
A rate-hiking pause would make sense if we think this selloff is the result of worries about U.S. trade and Chinese growth. Back in 2016, concerns about Chinese growth coincided with a global stock-market selloff and an oil-price slide. Those financial-system stressors led the Fed to pause tightening for a year. (The central bank raised rates for the first time since the financial crisis in December 2015, and didn't raise rates again until the end of 2016.)
What's different this time is that even if the Fed doesn't raise rates in 2019, the central bank will probably still be tightening policy by shrinking its balance sheet.
And the tone of the tensions with China is different as well. Or as Evercore ISI writes in a Thursday note: "Detention of Huawei's CFO and extradition to the U.S. paints an ugly picture of what a technology trade cold war would look like."
Write to Alexandra Scaggs at email@example.com