Well, this is officially a f*cking trainwreck.

As you’re probably aware by now, President Trump was forced (gun to his head) to fire the acting Attorney General after she perpetuated what is fast becoming an open mutiny against the new administration by directing the DoJ not the present arguments in favor of the new President’s Executive Order on immigration.

“The acting Attorney General, Sally Yates, has betrayed the Department of Justice by refusing to enforce a legal order designed to protect the citizens of the United States,” Steve Bannon, the White House said on Tuesday evening, adding that “President Trump relieved Ms. Yates of her duties and subsequently named Dana Boente, U.S. Attorney for the Eastern District of Virginia, to serve as Acting Attorney General until Senator Jeff Sessions is finally confirmed by the Senate, where he is being wrongly held up by Democrat senators for strictly political reasons.”

Translated: President Trump got to relive his Apprentice days for a few minutes on Monday evening (“You’re fired!”), as he moved even further down the path to making America an autocracy, and all of this could have been avoided if only “the liberals” would just let a known racist become Attorney General.

As always, the markets rendered their own judgement:

“USD/JPY extends decline, down as much as 0.3% to 113.46 after headline hits wire saying U.S. President Trump fires acting attorney general who defied immigration ban,” Bloomberg wrote, adding that “the drop is limited ahead of BOJ’s policy decision.”

Right, well that policy decision came about a half hour later. Here are the summary bullets:

BOJ MAINTAINS POLICY BALANCE RATE AT -0.100%
BOJ MAINTAINS 10-YEAR JGB YIELD TARGET AT ABOUT 0.000%
BOJ FY2017 CORE CPI FORECAST IS 1.5%
BOJ EXTENDS LENDING-SUPPORT PROGRAMS
BOJ BOARD VOTES 7-2 TO KEEP POLICY UNCHANGED
BOJ: WILL CONTINUE QQE WITH YCC AS LONG AS NEEDED TO HIT TARGET

So basically nothing surprising in there. Subsequently, the dollar made new lows.

“USD/JPY upside is limited by dollar sell orders on uncertainties over Trump’s policies,” Kengo Suzuki, chief currency strategist at Mizuho told Bloomberg, adding that “BOJ outcome is within consensus but may disappoint some looking for higher yields; the decision on its own could have been a yen weakening factor in terms of widening interest rate differentials.” Remember, those differentials are important. Dollar strength has been highly correlated with 10Y differentials since the election and USDJPY is especially sensitive in that regard because Japan is where rates are most anchored (as opposed to say, Germany). Here’s some color from SocGen:

President Trump’s travel ban – and his associated decision to fire the acting Attorney General – dominates sentiment and remains good for Treasuries, the yen (and gold), but bad for bonds and the dollar. How long will market sentiment to be affected? How far can the dollar and yields fall on this? I’m not sure serious analysis is possible, and I don’t trust my gut instincts on something as far from the usual state of affairs.

I’d have to agree.

In light of the BoJ, the “Fed meeting this week likely to be ‘positive’ for USD/JPY, which has been weighed down by a deteriorating geopolitical backdrop,”  Macquarie’s Gareth Berry said a few hours later. Westpac’s Imre Speizer doesn’t agree. “USD/JPY may drop below 112.60 in coming weeks amid safe-haven demand for yen as President Trump’s isolationist policies increase risks associated with U.S. assets,” Speizer said, adding that the “firing of acting attorney general Yates adds to case for higher U.S. risks.”

In any event, the dollar regained its footing later in the overnight session, but not before the Nikkei closed down by 1.7%. Here’s the rest of the Asia wrap:

• Nikkei down 1.7% to 19,041.34
• Topix down 1.4% to 1,521.67
• Sensex down 0.7% to 27,655.96
• Australia S&P/ASX 200 down 0.7% to 5,620.91
• Kospi down 0.8% to 2,067.57

Meanwhile, in Europe, inflation came in hot, rising 1.8% y/y in January against estimates of a 1.5% increase.

Core inflation remained subdued at 0.9%, but that didn’t stop markets from rallying across the board.

FTSE 7151.66 33.18 0.47%
DAX 11693.72 11.83 0.10%
CAC 4797.00 12.36 0.26%
IBEX 35 9393.40 32.10 0.34%

German 10Y yields rose on the inflation data. As a reminder, money managers the world over contend that deeply negative real rates in Germany are not sustainable.

We also got eurozone GDP data which showed a 0.5% q/q gain, matching estimates.

• STOXX Europe 600 up 0.2% to 363.32
• German 10Y yield rose 2.9 bps to 0.478%
• Euro up 0.09% to 1.0705 per US$
• Brent Futures unchanged at $55.23/bbl
• Italian 10Y yield rose 10.2 bps to 2.329%
• Spanish 10Y yield fell 1.0 bps to 1.62%

In the US, investors are looking ahead to tomorrow’s Fed statement, but in the meantime we’ll get the following economic data on Tuesday:

• 8:30am: Employment Cost Index, 4Q, est. 0.6% (prior 0.6%)
• 8:55am: Redbook weekly sales
• 9am: FOMC holds closed meeting; rate decision on Wednesday
• 9am: S&P CoreLogic Case-Shiller housing price index y/y, Nov., est. 5.0% (prior 5.1%)
• 9:45am: Chicago Purchasing Manager, Jan., est. 55.0 (prior 54.6)
• 10am: Conf. Board Consumer Confidence, Jan., est. 112.8 (prior 113.7)
• 4:30pm: API weekly oil inventories

It’s also a big day for earnings with Apple on deck, among others. Futs are lower as is crude while gold is up on safe haven flows.

• S&P 500 futures down 0.09% to 2,274.00
• US 10Yr yield little changed at 2.49%
• Dollar index little changed at 100.4
• WTI futures down 0.3% to $52.47/bbl
• Gold spot up 0.2% to $1198.42/oz

Happy trading.