Oil and S&P futures have traded in lockstep (with the S&P leading) since the beginning of the year, as the accompanying chart of 1-minute interval data makes clear. That’s another way of saying that equities and commodities are trading like a single big risk.

The extremely high degree of correlation among risk assets is not a healthy sign for global markets. The swoon in equity prices after Trump’s tariff tantrum led immediately to a drop in oil prices. There is now a substantial risk of a general exodus out of risk, especially in dollar-denominated assets. US bonds don’t appear to be a refuge for equity investors. The long Treasury bond is down almost a percentage point today despite the equity sell-off, as the US dollar sinks against other currencies, especially the yen. The risk is significant that the only risk hedges will be outside the dollar sector, in which case US dollar assets could suffer a significant setback.

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