More Questions, Less Answers.

Tuesday wasn’t what I would call a particularly “upbeat” session. More questions were raised than answered both on the political front and in markets.

Jeff Sessions’ testimony before the House Judiciary Committee did not go swimmingly which isn’t particularly surprising. It is now abundantly clear that the Attorney General knowingly misled lawmakers in previous testimony on the Trump campaign’s ties to Moscow although really, it’s probably not accurate to say he “misled” lawmakers because that implies anyone believed him the first place. Additionally, Sessions claimed that his Justice Department has not been improperly influenced by Trump, a laughable proposition, especially in light of recent tweets from the President who has all but demanded that Sessions open an investigation into Hillary Clinton. That all came just hours after The Atlantic revealed that Donald Trump Jr. had an ongoing (if largely one-sided) dialogue with WikiLeaks both during and after the campaign via Twitter DMs.

On the tax front, there were more headlines on state and local property tax deductions, the fate of the Obamacare individual mandate, and on and on. Chuck Schumer is irritated. “The Republicans’ tax plan isn’t ready because President Trump keeps tweeting about changes, such as repealing the individual mandate, and Republicans are fearful of the president’s ludicrous ideas,” the Senate Democratic leader said in opening floor comments, adding that “the president doesn’t know what’s in the bill, he just tweets about it.” So that’s amusing.

But Goldman is still hopeful. “The tax reform debate is moving forward faster than we or most other observers expected [and] while there are a number of issues that could still slow it down, or stop it altogether, we believe the odds that tax reform will be enacted by early 2018—already our base case—have risen to 80% (from 65% previously),” the bank writes, in a note out this morning. So the market has that going for it.

U.S. stocks were lower across the board, which means someone is sad:

Trump

The junk rout resumed on Tuesday although the debate has now devolved into whether it’s appropriate to call it a “rout.” Here’s the performance disparity since late last month:

JunkStocks

And here’s the increasingly precarious-looking visual that’s got folks asking questions:

HYGSPX

For his part, Evercore ISI’s Stan Shipley thinks there’s an obvious connection to the tax jitters. The weakness in high yield is likely tied to tax reform given that “the most beat-up industries are the ones that would benefit the most from tax cuts — the most financially leveraged, distressed, or with the weakest pricing power, such as telecom, broadcast, retail or consumer,” Shipley wrote on Tuesday.

2s10s is back below 70bps:

Curve

New multi-year lows on the 5s30s, which has become a standing joke:

5s30s

Crude plunged after the IEA cut demand forecasts for next year by 200k b/d to 98.9m b/d, marking a stark contrast to OPEC’s rosier outlook.

WTI

Consensus continues to grow for extending the cuts with the latest confirmation coming from U.A.E. Minister of Energy Suhail Al Mazrouei who said at a conference in Abu Dhabi that there’s “definitely” a need for an extension. This was the worst day for crude in a month.

Three interesting things in FX today. A subpar inflation print out of Sweden raised the specter of still more dovishness from the Riksbank, driving EURSEK to a one-year high:

EURSEK

The euro was higher versus all of its G-10 peers, helped by the upbeat GDP data out of Germany. Here’s EURUSD:

EURUSD

Finally, the lira is in deep shit, falling to a record low versus the euro on Tuesday as the market now looks to the CBRT for signs that the central bank will intervene before things spiral completely out of control:

EURTRY

The euro’s surge weighed on European stocks, which did not need another reason to keep falling. Things are getting ugly there now:

Europe

LinesThatAreMeaninglessStoxx600

The big story overnight was Chinese 10Y yields rising above 4%. We’re now at the highest levels since 2014:

ChinaYield10

Oh, and just two weeks to go before we break (another) record:

DurationRally

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5 thoughts on “More Questions, Less Answers.

  1. About Sessions… he is either incompetent, has Alzheimer’s, just too stupid for words, shyster — all of which should result in his immediate removal as AG. No longer qualified. What a sham that was today. And the few that loved him and the ass kissing made me puke. Can you tell it truly pissed me off!

  2. The Heisenberg: Your equity and bond market expertise is enlightening. Your political commentary sucks! wax eloquent on those subjects you can be pragmatic about but stop the crap on your slanted views of politics.

    • You know, I don’t want to take the fun out of H’s job, but I think he’ll probably keep posting whatever he likes on his site.

      Just my two cents.

      ~SM

  3. Spunky,
    I think your’e right. Hate for him to stop & Probably not a chance. I was just whining I guess. Mea Culpa.
    Me and the other conservative speak out from time to time!

    • It’s his east coast way of writing (an echo of his talking) – lotta scatological hyperbole.
      Strip all the adjectives out and it flows better.

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