"Warning! US equities can occasionally go down as well as up a lot."

That's how Deutsche Bank's Jim Reid begins his morning wrap note, and sure enough after months of warnings that the market has gotten way ahead of itself in pricing in the success of Trump's various domestic policies (confused? read last week's preview of just this event occurring from JPM), global markets are waking up to a sea of red as the US risk rout spreads, leading to a slide in European stocks for the third consecutive day led by banks and miners, Asian markets suffering their worst day of the year, and S&P 500 futures pointing to a modestly lower open again as the yen and gold rise.

The catalyst, it will come as no surprise, is the end of the Trump rally which yesterday finally ended with a bang, not a whimper, as investors questioned the U.S. president’s ability to enact his pro-growth policies, casting doubt on the so-called reflation trade. Equities dropped across the globe as safe-haven assets advanced. A rally in government bonds continued and gold and the yen both extended gains. Base metals tumbled, with iron ore approaching a bear market. Investors’ flight to safety pushed down U.S. Treasury yields. The closely watched gap between U.S. and German 10-year yields touched its narrowest since November at around 195 basis points. German 10-year yields fell further and were last down 4.8 basis points at 0.41 percent.

"Market participants are worried about the effects and feasibility of Donald Trump's growth program," DZ Bank strategist Birgit Figge said. 

As noted last night, bank and commodity shares led the selloff as the benchmark index in Europe fell a third day, following markets in Asia. Futures on the S&P 500, down 3% as of 6:15am ET, showed the broad US stock market index to extend its decline from Tuesday, when it sank more than 1% for the first time since October. Emerging-market stocks halted an eight-day winning streak.

The dollar touched a four-month low against the Japanese currency, whose strength helped push Tokyo stocks to a three-week low, while the euro held close to its highest since early February at around $1.08.

As Bloomberg puts it, "volatility in financial markets is soaring after a period of relative calm as concern mounts that Donald Trump’s flagship policies, which have underpinned a global rally since his election, won’t sail through Congress." Attention will next turn to Thursday’s crucial vote on the plan to repeal and replace Obamacare; top Republicans have warned failure to pass the health-care bill could imperil tax and spending reforms.

“This bill has wide implications for President Trump’s plans for the U.S. economy as it is due to reduce government spending, with the freed up funds being used for the proposed tax cuts/reform and infrastructure spending” Rabo bank wrote in a note to clients.

Societe Generale currency strategist Alvin Tan, in London, said an FBI investigation into possible ties between Trump's campaign and Russia was also adding to investor worries. "All in all, that’s adding to a picture that the much hoped-for and hyped fiscal stimulus package may not be coming as soon as markets would like it to come, if at all," he said.

The dollar swung between gains and losses as a slump in stock markets spurred haven demand for the yen, while investors reduced their exposure. Risk aversion was evident in both the spot and options markets: dollar-yen was lower a seventh day, set for its longest losing streak in two months, while bearish sentiment as expressed through risk reversals touched its strongest level in six weeks. Aussie-yen, a common risk barometer, was lower by the most in three months on a two-day basis.

Refuge seeking amid equities tumble and the possibility that President Donald Trump’s fiscal policies will be delayed until Autumn didn’t result in a sharp drop for the greenback. According to Europe-based traders, quoted by Bloomberg, opposing market forces kept the greenback in consolidation mode. Some investors were seen cutting back on their longs given the currency’s latest weakness while others, mainly short-term accounts and fast-money names, faded the latest dip. The greenback as measured by the Dollar Index may be due for a rebound, a relief one at least. DeMark’s TD Sequential points to a recovery as a Buy Countdown was completed on March 17 while Wednesday price action also satisfies a Buy Setup series.

Meanwhile, in equities, the MSCI Asia Pacific Index dropped 1.4 percent as benchmark indexes in Tokyo and Sydney slid the most since Trump’s election. Japan’s Topix lost 2.1 percent as the yen rose for a seventh day, touching the highest since November.A measure of Chinese shares traded in Hong Kong lost 1.8 percent after closing at the highest in almost 17 months on Tuesday. Japanese stocks fell 2 percent, Australian shares tumbled 1.6 percent and mainland Chinese shares closed down 0.5 percent. MSCI's main measure of emerging market equities slid nearly 1 percent.

In Europe, the MSCI Emerging Market Index fell 1 percent in its first retreat in almost two weeks. MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.4 percent at one point, its biggest intraday percentage fall since Dec. 15. In the previous session, the index hit its highest level since June 2015.

The Stoxx Europe 600 Index dropped 0.8 percent as of 9:51 a.m. in London, the biggest decrease in a month. The European STOXX 600 index fell 0.9% to a two-week low, led lower by banks and miners. Britain's FTSE 100 index fell 0.9 percent.

E-mini futures on the S&P 500 and Dow Jones Industrial Average indicated Wall Street would open lower and the CBOE VIX index topped 13 percent for the first time since mid-January.

"Alongside this, speculation is persisting ... that the ECB may possibly scale back its ultra-expansionary policy stance to some extent at an earlier point in time than is currently being assumed."

Gold hit a three-week peak of $1,248.47 and last traded up 0.2 percent at $1,247 an ounce. It has rallied almost $50 from last Wednesday's low after a less hawkish policy statement than many investors had expected from the U.S. Federal Reserve. Waning risk appetite also hit commodities: Brent crude oil fell 20 cents to $50.76 a barrel, while copper fell 0.5 percent to $5.747 a ton.

Bulletin Headline Summary from RanSquawk

• Risk off tone across EU bourses with stocks led lower by softness in financial and commodity names
• JPY remaining firm against its major counterparts as USD/JPY touches 4-month lows
• Looking ahead, highlights include US existing home sales and DoE Crude Oil Report

Market Snapshot

• S&P 500 futures down 0.1% to 2,339.5
• Stoxx Europe 600 down 0.9% to 372.29
• MXAP down 1.4% to 147.11
• MXAPJ down 1.2% to 477.10
• Nikkei down 2.1% to 19,041.38
• Topix down 2.1% to 1,530.20
• Hang Seng Index down 1.1% to 24,320.41
• Shanghai Composite down 0.5% to 3,245.22
• Sensex down 0.7% to 29,275.30
• Australia S&P/ASX 200 down 1.6% to 5,684.51
• Kospi down 0.5% to 2,168.30
• German 10Y yield fell 3.8 bps to 0.421%
• Euro down 0.1% to 1.0796 per US$
• Brent Futures down 0.7% to $50.63/bbl
• Italian 10Y yield fell 4.5 bps to 2.319%
• Spanish 10Y yield fell 4.8 bps to 1.767%
• Brent Futures down 0.7% to $50.63/bbl
• Gold spot up 0.3% to $1,248.02
• U.S. Dollar Index down 0.02% to 99.79

Top Overnight News from RanSquawk

• Akzo Nobel Rejects PPG’s Sweetened, $24 Billion Takeover Bid
• Nike Gives Doubters Fresh Ammunition as Sales Miss Estimates
• FedEx Sees Rebound in Ground Unit as E-Commerce Fuels Expansion
• Takata Said to Be Ready to Let Carmakers Decide on Revamp
• Blackrock Reports New Stakes in Nintendo, 12 Others; Raises Sony
• Bats Indexes to Measure Brexit Impact on U.K. Companies
• Movado CFO Says Watchmaker in Talks to Reduce Swiss Job Cuts
• Galapagos Starts Phase 1 Study With Cystic Fibrosis Potentiator
• Indonesia to Own Majority Stake in Local Freeport Unit 2019
• Gemalto Warning on U.S. Payment Business Drags Down Ingenico
• Amazon’s Alexa Takes Its Fight With Siri to Marriott Hotel Rooms
• Billionaire Lifts Stake in L.A. Times Publisher, Exits Board
• Meredith Boosts 3Q EPS View on Strong Advertising
• Novartis Heart Medicine Fails in Late-Stage Clinical Trial
• Apple May Invest in China Phone Apps Besides Didi: Caixin
• Sun Basket Said to Hire BofA, Jefferies for IPO: Reuters

Asian equity markets traded negative as the downbeat tone rolled over from the US where stocks posted their worst day YTD amid a slump in financials. ASX 200 (-1.6%) suffered from the weak financial sector as well as declines in commodities, while Nikkei 225 (-2.1%) underperformed amid a firmer currency with USD/JPY below the 112.00 handle. Elsewhere, Hang Seng (-1.2%) and Shanghai Comp. (-0.5%) conformed to the negative tone with earnings in focus, despite the PBoC's efforts to inject liquidity. Finally, 10yr JGBs traded higher as they benefited from safe-haven flows, with support also seen following a well-received 40yr bond auction. PBoC injected CNY 50bIn 7-day reverse repos, CNY 20bIn in 14-day reverse repos and CNY 20bIn in 28-day reverse repos PBoC set CNY mid-point at 6.8889. BoJ minutes from January 30th-31st meeting stated that Japan's economy continues its moderate recovery trend and that most members agreed that price momentum is not firm yet. The minutes stated that exports picked up led by auto-related exports and that industrial production picked up reflecting moderate increase in demand at home and abroad, while 1 member suggested the BoJ should accommodate rising yields.

Top Asian News

• PBOC Injects Funds for Third Day After Money-Market Rates Climb
• China Shadow Banks Squeezed by Record Premium for One-Week Cash
• Japanese Exports Jump Most in Two Years, Led by Sales to China
• Asia Trade Talks Chief Warns Against Turning Pact Into New TPP
• China H Shares Join Regional Selloff to Fall the Most This Year
• MediaTek Cuts 1Q Operating Profit Forecast, Raises Pretax View
• PHP Falls Before BSP Meeting as INR, TWD Consolidate: Asian NDFs

European equity indices are down an average of 0.8% in early trade as risk off sentiment bites. The financial and materials sector are the amon the worst performers with the latter being hit by poor performing commodities prices today. In equity specific news, Gemalto (GTO NA) are by far the worst performer this morning, down 22% after the Co. downgraded its forecasts for both profit and revenue. Fixed Income markets have benefited from the aforementioned risk off sentiment as bunds now trade and are approaching the 160.46 resistance level. In line with this price action the USD 10yr yield is also falling down to 2.40% ahead of the 2.30% base which was noted in Feb and Jan this year.

Top European News

• Goldman, Morgan Stanley Signal London Job Moves as Brexit Looms
• Hermes 2016 Profit Climbs on Handbag Sales, Europe Growth (1)
• Warburg to Buy Stake in Swiss Banking Software Maker Avaloq
• BBVA Completes Acquisition of Additional Garanti Stake

In currencies, the Bloomberg Dollar Spot Index rose 0.1 percent in its first advance in more than a week.The British pound fell 0.2 percent. The euro decreased 0.3 percent to $1.0783. The Japanese yen rose 0.4 percent to 111.26 per dollar, hitting the strongest in almost four months with its seventh straight advance. USD/JPY broke through 111.60 as stock markets in the US sold off yesterday, subsequently spurring safe haven flow back into the JPY. Today we get the latest from the RBNZ with rates expected to remain at all-time lows, the key note for today will be the tone of the accompanying statement. The market will be looking for clues regarding the future path of policy but this is also expected to be neutral. Commodities currency have been hit in general with morning in line with both copper and oil, USD/CAD has retraced some of its recent losses and is looking to test 1.34. AUD/USD rejected the 0.7740 area which had been tested on the 23rd Feb and the next significant area of support is the psychological 0.76 level.

In commodities, the big mover was gold which pushed firmly through the USD 1245/oz resistance level with the next resistance higher up at the 27th Feb high of roughly USD 1263/oz. WTI and Brent crude trade near session lows amid no real fundamental data but today we look out for the DOE inventory levels after the API's produced a build of 4529k barrels. Copper is looking heavy after a poor day yesterday the next level of support on the downside USD 2.552 after US policy doubts loom.

Looking at the day ahead, the calendar is again fairly sparse today. There is nothing of note in the European session this morning while in the US we’ll get the January FHFA house price index reading followed then by the February existing home sales data. Away from the data the ECB’s Villeroy and Lautenschlaeger are both scheduled to speak this morning. The EIAweekly crude oil inventory report is also due out.

US Event Calendar

• 7am: MBA Mortgage Applications, prior 3.1%
• 9am: FHFA House Price Index MoM, est. 0.4%, prior 0.4%
• 10am: Existing Home Sales, est. 5.55m, prior 5.69m
• 10am: Existing Home Sales MoM, est. -2.46%, prior 3.3%

DB's Jim Reid concludes the overnight wrap

Warning! US equities can occasionally go down as well as up a lot. Yesterday actually saw the fourth consecutive daily decline for the S&P 500 and the first > -1% down day since October 11th after the index tumbled -1.24%. It was a streak which lasted 109 days and fell just short of the 110 day streak in 1995. For those interested, there have only been 8 instances of a longer run than the one that just ended with the longest being 184 days set all the way back in 1963. There didn't seem to be one overriding issue for the market but US banks were weak (-3.86%) on lower yields and perhaps a relatively measured update from Morgan Stanley. The sector had its worst day since June 27th . Stretched valuations were also cited as a factor while markets were also concerned about the increasingly fractious health care debate in the US with a bill struggling to get the numbers to pass at the moment. This in turn leaves the market wondering about the efficacy and timing of tax reform plans supposedly coming over the coming months. The noise over the FBI probe into Trump and possible Russianconnections isn't helping and neither is the bad run for oil with yesterday seeing the tenth fall in twelve days with WTI tumbling -1.82% to $47.34/bbl. That is the lowest closing price since November 29th.

Just on the health care bill quickly, it was House Freedom Caucus Chairman Mark Meadows who said that “currently there are not enough votes to pass the legalisation” after House conservatives were said to have not gotten the changes that they were demanding. The House is expected to vote on the repeal of Obamacare on Thursday and President Trump fired back at those critics yesterday by telling lawmakers that “the danger of your not voting for the bill is people could lose their seats”. Losing more than 21 Republican lawmakers through the 435-seat House is likely to result in the bill not getting through, assuming all Democrats vote against. So it’s one to watch given the potential implications for other reforms further down the line.

It’s worth highlighting that our US economists do think that the health care reform will pass however. They highlight that while there is some concern that the Freedom Caucus, a group of roughly 40 House conservatives who have not endorsed the bill, may indeed block, this is a low probability event. Since much of the Trump agenda rests on the ability of the Republicans to pass healthcare reform, its failure would seriously dent the party’s political capital and imperil other legislative actions. For this reason, they expect Republicans to ultimately come together, even in the Senate, with the contours of the health care act to take shape before April 6th.

Meanwhile, adding to the string of risk-off news and helping to push the selloff into the US close was a Reuters article suggesting that North Korea is to pursue an “acceleration” of its nuclear and missile programs. This is said to include a “preemptive first-strike capability”. The article also cited a US official in Washington as saying that Trump is considering sweeping sanctions to counter North Korea’s nuclear threat.

Back to markets where, as well as that fall for the S&P, the Dow closed last night -1.14% and fell to its lowest level since February 17th. The Russell 2000 index also tumbled -2.71% and had its worst day since September 9th. That index is now actually into negative territory YTD (-0.78%) which seems hard to believe given the optimism that has prevailed in 2017. In contrast the MSCI EM index closed up a very modest +0.08% yesterday, but still finished higher for the eighth consecutive session. This morning in Asia the risk off tone has continued with heavy falls across most major bourses including the Nikkei (-1.82%), Hang Seng (-1.16%), Shanghai Comp (-0.46%), Kospi (-0.67%) and ASX (-1.35%).

Credit markets also got swept up in the selloff yesterday in the US with CDX IG 1.3bps wider and CDX HY 9bps wider. Those moves came despite a backdrop of falling Treasury yields. The 10y dropped 4.3bps to 2.418% and has now fallen at least 4bps in each of the last 3 sessions. In fact the 10y is now trading at the lowest yield since March 1st. In FX the USD index (-0.59%) fell for the fourth time in the last five sessions and closed below 100 for the first time since February 6th. Elsewhere in commodities, Iron Ore (-4.26%) suffered its biggest one-day fall since December 14th while Copper (-1.77%) and Zinc (-1.22%) also fell sharply.

Gold (+0.86%) was the clear outlier benefiting from a safe haven bid.

Over in Europe yesterday equity markets were much more of a tale of two halves. Sentiment was generally positive for the most part in the morning session and into the early afternoon before the US led markets lower into the close. The Stoxx 600 finished -0.53% having been up as much as +0.40%. There was a similar pattern in credit with iTraxx Main finishing unchanged on the day but trading in a 2.5bp range after doing a roundtrip. Meanwhile in bonds 10y OAT yields were just over 2bps lower following that first presidential debate in France. We noted yesterday that a snap poll following the debate found that Macron was seen as the victor at 29%, while Le Pen was seen as most favoured by 19% of respondents. Following that an Elabe poll last night found that first round support for Macron has grown to 26% while support for Le Pen has dipped to 24.5%. That 1.5% advantage for Macron compares to a 0.5% margin advantage in an Elabe poll from a few days ago. Filllon is running at 17% (from 17.5%) and Melenchon at 13.5% (from 13%). In the second round a Macron Le Pen race has the former coming out on top at 64% to 36%. That is up from 63% versus 37% previously. The odds on Fillon getting through the first round have fallen but nevertheless a second round head to head between Fillon and Le Pen has the former coming out on top at 54% to 46%. That is down from 56% to 44% previously and that is now the tightest margin of victory in polls that we have seen.

Before we look at today’s calendar, despite politics largely dominating the front pages yesterday there was also some interesting data in the UK to comb through. It was the latest inflation data which really caught investors’ attention after headline CPI was reported as rising +0.7% mom in February, exceeding expectations for a +0.5% rise. That has pushed the annual rate up five-tenths to +2.3% yoy and the highest since September 2013 while the core also rose four tenths to +2.0% yoy and so equaling the high mark set back in June 2014. The consensus was only for a one-tenth rise in the core. Meanwhile headline RPI also rose more than expected (+1.1% mom vs. +0.8% expected) last month while at the upstream level the PPI outputs index rose +0.2% mom. Away from that the CBI’s industrial trends survey for March edged down 3pts to 29 but still remains at elevated levels. Sterling was the big winner in currencies yesterday, closing up +0.97% versus the US Dollar and edging closer to $1.250. Gilt yields also ticked higher, particularly at the short end of the curve where 2y and 5y yields were up 5.5bps and 4.1bps respectively.

This morning in Asia the data has largely been focused in Japan with the latest trade numbers out. In February, exports were reported as rising +11.3% yoy (vs. +10.1% expected) which is up notably from +1.3% in January. Imports also declined to +1.2% yoy from +8.5% helping to fuel a larger than expected surplus. Sales into China were reported as increasing +28.2% yoy from +3.1% in January although that will likely be impacted by the timing of the Lunar New Year celebrations. Finally, the BoJ minutes from the January meeting were also out this morning with the most interesting takeaway being a slight change in inflation perceptions between members with the latest minutes revealing that only “a few members” expected CPI not to reach 2% during the projected period, compared to “many members” in December. The Yen is little changed this morning after rallying +0.75% yesterday.

Looking at the day ahead, the calendar is again fairly sparse today. There is nothing of note in the European session this morning while in the US we’ll get the January FHFA house price index reading followed then by the February existing home sales data. Away from the data the ECB’s Villeroy and Lautenschlaeger are both scheduled to speak this morning. The EIA weekly crude oil inventory report is also due out.