Chinese equities took a big hit after traders returned from a week-long holiday. Efforts by the People’s Bank of China to free more than $100 billion in liquidity through cutting the reserve requirement ratio were not enough to offset the fear of slowing growth, the escalated trade dispute, and the rise in U.S. interest rates. The CSI 300 fell 3.6% late morning led by the technology sector as investors had the chance to respond to reports claiming that Chinese intelligence agents planted microchips to hack big tech firms and U.S. government agencies.

Risk assets may continue to be under pressure with future markets indicating a lower open to European stocks today. Increasing geopolitical risks, Brexit negotiations, the U.S.-China trade dispute, and U.S. mid-term elections are all sources of uncertainty. However, in my opinion, the biggest threat to the U.S. bull market remains the rise in U.S. interest rates. Last week’s selloff in Treasuries took the 10-year yields to 3.25%, a level last seen in April 2011. The longer-term 30-year yields climbed to 3.42%, the highest since July 2014. The U.S. has $230 billion worth of debt auction this week, and if this caused a further rally in yields, investors might start considering pulling back from riskier assets as risk-free ones are beginning to look very attractive.

Friday’s non-farm payrolls report proved to be mixed, with job creation in September coming well below expectations at 134,000 vs the anticipated 185,000. However, the August figure was revised higher by 69,000, and the unemployment rate fell to a 50-year-low of 3.7%. The wage growth component of the report which has become a key indicator for inflation grew 0.3% in September and 2.8% Y-o-Y. Overall the report suggests that the labor market continues to tighten and the Fed needs to continue raising rates to manage the booming economy.

In currency markets, the Dollar was slightly higher against its peers. Euro and Sterling traders need to keep focusing on politics and interest rate differentials. Italy’s Deputy Prime Minister Luigi Di Maio intends to stick to plans to increase the budget deficit in 2019. If Rome and Brussels continue to clash over Italy’s budgetary plans, expect to see a renewed selloff in Italian assets and the Euro.