Update 2: Things are escalating fast, with the Chinese embassy in Canada said China has complained to the U.S. and Canada and asked them to "rectify wrongdoings" and free Huawei CFO Meng Wanzhou. The embassy said it will closely monitoring development of the matter and take all actions to protect legitimate interests of Chinese citizens.

In a statement on its embassy, China says that it firmly opposes and strongly protests Canada’s arrest of a Chinese citizen who didn’t violate any U.S., Canada laws, adding that the arrest upon U.S.’s request severely violates human rights.

And finally, in what may provoke even further deterioration in relations - forget a trade truce - Reuters reports that the hackers behind the breach at Marriott International left clues suggesting they were working for a Chinese government intelligence gathering operation. Reuters adds that the private investigators looking into the breach have found hacking tools, techniques and procedures previously used in attacks attributed to Chinese hackers.

In other words, just like the "Russian hackers" who broke into the DNC and allegedly did so in cyrilic, this time the best Chinese hackers did everything they could to get caught.

Brilliant.

* * *

Update: Huawei, in a statement, said the arrest was made on behalf of the U.S. so Meng could be extradited to “face unspecified charges” in the Eastern District of New York.

“The company has been provided very little information regarding the charges and is not aware of any wrongdoing by Ms. Meng,” Huawei said.

“The company believes the Canadian and U.S. legal systems will ultimately reach a just conclusion. Huawei complies with all applicable laws and regulations where it operates, including applicable export control and sanction laws and regulations of the UN, U.S. and EU.”

***

Having taken a day off to watch Bush's funeral - drifting modestly higher before the early close - reports of the arrest of Huawei's CFO at the request of US authorities has sparked carnage at the re-open on extremely heavy volume...

Zooming in to the ticks, shows CME citing multiple Velocity Logic events causing 10-sec pauses that led to algos being stalled, theoretically allowing participants to enter and slowing the velocity of the collapse...

As we detailed earlier, mere hours after Chinese officials finally affirmed President Trump's description of Saturday's trade 'truce' - this after fears that the true nature of the agreement might have been "lost in translation" helped trigger the worst one-day market selloff since October - the DOJ has gone ahead and kicked the hornet's nest, seriously jeopardizing the prospects for a prolonged trade detente between the world's two biggest economies.

"Wanzhou Meng was arrested in Vancouver on December 1. She is sought for extradition by the United States, and a bail hearing has been set for Friday," Justice department Ian McLeod said in a statement to The Globe and Mail. "As there is a publication ban in effect, we cannot provide any further detail at this time. The ban was sought by Ms. Meng.

Trade truce over?

“If that arrest is linked with tech theft, etcetera, then I don’t think that translates well for China U.S. relations. Timing is very interesting. On one hand we have the U.S. stating that talks are going really well with China and then on the other we have them trying to prosecute the CFO of one of its biggest IT firms," says Nick Twidale, chief operating officer at Rakuten Securities’ Australian unit

Dow futures were down over 500 points as they opened... (NOTE that Dow futures pushed up during the day to test the 200DMA)

Data shows 36,700 e-mini S&P contracts traded in first 10 minutes - usually 1,000 trade in that time.

The selling is across all the major US index futures...

For now there is only a modest reaction in yuan (weaker)...

And Huawei bond yields have surged...

For now it appears that the trade truce is back to square one zero, leaving Trump with a choice: releasing Meng or watching any last hopes of Christmas rally fade into the distance.