Well, it was a long time coming and markets were about as resilient as resilient gets (bless their hearts), but it looks like the combination of i) Trump leaking highly classified information to Sergei Lavrov and Sergey Kislyak who, optics be damned, were invited to the White House just hours after James Comey was fired, and ii) a leaked memo penned by Comey that suggests Trump was/is engaged in the obstruction of justice, finally did it.
Things rolled over in risk land overnight as traders seemed to suddenly come to terms with the fact that there’s a man with the political disposition of an African dictator and the mind of a fourth grader occupying the Oval Office.
The wheels came off almost immediately after the the latest Comey headline hit on Tuesday evening with S&P futs falling, Treasuries rallying, and USDJPY dipping:
“At the very least the view is that Trump’s economic policies will be delayed over this, and the dollar is being sold,” Tomoichiro Kubota, an analyst at Matsui Securities in Tokyo said, as S&P futures extended losses Tuesday evening. “At the moment there’s a strong sense of investors trying to gauge how far this will go [and] it’s a situation where you can’t completely rule out the possibility of impeachment down the road, so it’s difficult for investors to buy.”
Right. “Difficult for investors to buy [because] impeachment may be down the road.”
And so the yen gained…
…and the euro rose to a fresh six-month high against the dollar.
Not everyone was convinced that this is the beginning of the end. “The Republican Congress will keep President Trump’s position secure in the White House,” Mansoor Mohi-uddin, NatWest’s Singapore-based strategist imagined, adding that “the greenback, isn’t facing more sustained pressure and U.S. equities are still trading around their record highs.” That sounds a little less like a forward-looking assessment and a little more like a recap of what’s already happened.
Meanwhile, other analysts were clearly concerned. Bloomberg summed up the consensus as follows:
The yen may have seen its near-term lows and strengthen from here as the dollar is under pressure on the back of U.S. political risk, below consensus economic data, concerns on Federal Reserve hawkishness and drifting Treasury yields, according to market participants interviewed by Bloomberg.
“Concerns are growing that the Trump administration may face difficulties in executing his policies such as tax and health- care reforms, resulting in pressure on the dollar,” Yuji Saito, executive director at Credit Agricole CIB’s forex department in Tokyo offered. “The market is taking this as a political risk factor to buy the yen.”
Former acting Attorney General Sally Yates (who Trump fired) made things even worse in an exclusive interview with CNN that ran just hours after the Comey memo hit the wires. Here’s a summary of the quotables from that:
“I think this is a really troubling situation,” former acting Attorney General Sally Yates says of FBI Director James Comey’s firing in an interview with CNN’s Anderson Cooper.
“I think there are serious questions about the timing and motivation” of the firing, she says.
Yates also disputes characterization from White House spokesman Sean Spicer that she merely gave White House counsel Don McGahn “a heads up” about former National Security Adviser Michael Flynn
“There was nothing casual about this,” Yates says
“I called Don McGahn and I told him I had a very sensitive matter and I needed to discuss it with him that day”
“We conveyed a sense of urgency when we went over” to talk to McGahn, she says
Asked if Flynn did anything illegal, Yates says “there’s certainly a criminal statute that was implicated by his conduct”
Hmmmm. Nothing good about any of that.
And here’s SocGen’s Kit Juckes:
In ‘market Top Trumps’ the US President trumps just about everything else, at least in the very short term. ‘Comey memo says Trump asked FBI Chief to drop Flynn probe” is the FT headline on the story doing the damage overnight, though we do also have softer oil prices after the release of strong US inventory data. 10-year Treasury yields are 4bp lower than when markets closed yesterday evening, 10bp lower than they were on Thursday before the US CPI and retail sales data releases. European yields are opening lower too, but the 10year has narrowed to 189bp, and the Treasury/JGB spread to 226bp.
The yen is the FX winner, still faithfully tracking Treasuries, and getting ready to test the hypothesis that in the current climate, any sell-off for risk assets is a short-term affair that will be followed by investors returning in the search for yield. I suppose the question is whether these are US political rain showers like the ones drenching London’s commuters, or real storms with lasting damage.
Needless to say, Asian equities were sold and in Europe, it’s pretty much the same story:
- Nikkei down 0.5% to 19,814.88
- Topix down 0.5% to 1,575.82
- Hang Seng Index down 0.2% to 25,293.63
- Shanghai Composite down 0.3% to 3,104.44
- Sensex up 0.3% to 30,659.65
- Australia S&P/ASX 200 down 1.1% to 5,786.03
- Kospi down 0.1% to 2,293.08
- FTSE 7520.61 -1.42 -0.02%
- DAX 12761.05 -43.48 -0.34%
- CAC 5384.02 -22.08 -0.41%
- IBEX 35 10951.70 -30.70 -0.28%
Summed up with one lonely, red hat….
I think I can hear the humming of the BOJ’s printing presses from clear across the Pacific.