Starting in stocks, spreading to bonds, and now leaking across other asset-classes, volatility expectations are starting to surge everywhere this week since President Trump and China's various media outlets play headline hockey over the trade-deal-endgame.

But, as former fund manager, Richard Breslow, notes, the largest canary in the coalmine appears to be in Emerging Market assets.

via Bloomberg,

Without a doubt the best headline from yesterday came late in the day. The S&P 500 had rallied to be up “as much as” one-half percent. It pointed out that there was “Potential resistance between 2900 and 2909”. That is true and the hint at optimism was admirable. The story was published before the market gave up all of its gains into the close. Traders often talk about buying the rumor and selling the fact. The problem here is they can’t figure out what is the rumor and what is the fact.

What has been interesting about today’s price action hasn’t been the latest set-back for equities. It seems like they have garnered more than 100% of the attention. And they do indeed look like they are on the defensive. But they haven’t yet done anything that says it’s all over. We know what those levels are. And we have a pretty good sense of what will or won’t get us there in the near future.

Of more immediate concern is what is beginning to show up in other markets.

If you look at the Dollar Index, it’s fair to say it remains comatose. It just can’t get away from its big pivot level of 97.70. Uncertainty has bred uncertainty.

But currencies that will suffer should the tariff issue escalate are beginning to show signs of giving up the ghost. The Korean won has been steadily getting caned by the Japanese yen.

Granted the news from the North hasn’t been constructive. Just today, there were reports about the firing of two short-range missiles. But the cross is also an important measure of how relative levels of exposure to China are being evaluated. And the flashing warning signs turned a much deeper shade of red when the cross blew through what was supposed to be a ridiculous extreme from the yen’s January flash crash.

And between reliance on China and out-sized dependence on commodity demand, it is advisable to start watching and perhaps fretting about the Australian dollar. This double whammy is really starting to bite. Earlier this week, the RBA held rates steady. But the central bank and the market still have a dovish bias. Same issue as elsewhere. Good labor market, low inflation. Despite the RBA having issued a statement so recently, tonight’s Statement on Monetary Policy is likely to get extra attention and reaction.

The Bloomberg Commodity Index is really struggling. It is also approaching major league support. Failure down here will have reverberating repercussions. Catching a bid would also. On the positive side it has WTI, which has so far held the important $60 level. On the flip-side, it isn’t possible to look at copper and not be concerned.

What just might be the most important thing to watch, however, may be emerging markets. Being long remains a very well-subscribed trade. To say the least. Well, EM equities are having a really bad day, without much more room at all to fall before critical support.

Of more immediate import, this morning the MSCI EM currency index slipped below multiple-bottom support that has mattered all year. Those promised gains from what may have been the most popular year-ahead trade recommendations set last December are rapidly disappearing.

This could all end with sighs of relief and discussions about who bought the dip. But we are getting close to where that needs to kick in.