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Actually, considering the list of fears today, it’s kind of remarkable that the U.S. stock market hasn’t fallen farther. (The U.S. bond market is closed for the Columbus Day holiday.)

In the EuroZone the confrontation between the Italian government and the European Union over the proposed Italian budget continued. The budget would produce a deficit far bigger than that allowed by the rules of the European European Union. Italy’s government, a coalition of parties that ran on a platform opposing the euro and the European Union, has refused to revise its budget. The yield on the10-year Italian government bond rose 14 basis points to 1.56%. (For reference the 10-year U.S. Treasury trades with a yield of 3.23%.)

Chinese stocks in Shanghai and Hong Kong took a beating overnight as overseas investors dumped shares after the market reopened following a weeklong holiday. The Shanghai Composite Index was down 3.72% and the FTSE China A50 Index, composed of large caps with big positions held by international investors, was down almost 5%.
A major cause of the sell off is fear that the People’s Bank will not defend the  6.9 yuan to the dollar level. The yuan dropped by as much as 0.78% to 6.9260 to the dollar. A drop in the yuan against the dollar hurts overseas investors in Chinese assets.

The selling was also exacerbated by the lack of a more forceful response by Chinese financial institutions. The People’s Bank did cut reserve requirements for Chinese banks, enabling them to put more money to work in the economy and in financial markets, but that move was already anticipated. And the market was disappointed that other regulators didn’t move to support stock prices. I suspect those moves are coming since I doubt that Beijing wants to show slowing economic growth while it is “negotiating” with the Trump administration over tariffs and trade policy.

With the U.S. bond market closed, U.S. stock markets were left to guess about the odds for a continuation of last week’s sell off in bonds. But everyone can read the Treasury auction calendar, which shows a whopping $230 billion in Treasury auctions scheduled for thus week.

The Standard & Poor’s 500 was off 0.04% as of 3 p.m. New York time today. The Dow Jones Industrial Average was ahead 0.09%. The NASDAQ fell 0.61%.

The CBOE S&P 500 Volatility Index (VIX) climbed to 15.91, a gain of 7.35%, that recaptured much of the ground lost on Friday afternoon.  The iShares MSCI Emerging Markets ETF (EEM) was a slight 0.10% higher.

Oil drifted a bit lower to $74.16 a barrel (a drop of 0.24%) for West Texas Intermediate and to $83.75 a barrel (a decline of 0.49%) for international benchmark Brent crude.