China reported a surprise trade deficit for first quarter 2011 on Saturday. While exports climbed 26.5 percent from last year, imports surged 32.6 percent.

On Sunday night's (New York time) Asian opening, risk assets – like oil, copper, and high-yielding commodity currencies – fell across the board. On Tuesday afternoon, the decline continues.

China's quarterly trade deficit – the first in seven years – is worrying.　It's one thing when the trade surplus disappears because China tapped into its vast savings and stepped up consumption.　It's quite another when the deficit was driven by rising commodities prices.

These high costs threaten to derail (or at least slow) the growth of China's raw materials-dependent economy.

Leading economists have been warning for months that inflation in the form of high commodity prices threaten to derail the global economy. On Monday, the IMF reiterated such warnings.

Now, China's trade deficit may be the first major piece of data that give credence to such fears.

Since the global financial crisis, China has been a key driver of global growth and incremental demand.　A slowdown in this economy could be devastating.

In the last few weeks, global risk appetite surged, leading to the tremendous outperformance of risk assets.

For example, AUD/JPY jumped 11 percent from March 18 to April 10 – with 50 times leverage, it amounts to a 550 percent return in less than a month.

However, many analysts thought the risk-on sentiment couldn't last much longer – especially in the current environment of heightened global uncertainties.

In this context, China's trade deficit may have just triggered at least a short-term correction in the global risk-on trade.