Red Rally.

In case it’s not clear enough, the geopolitical backdrop is deteriorating more rapidly than anyone can plausibly keep track of, although I took a stab at capturing it all in under 1,000 words in a Tuesday afternoon piece for Dealbreaker appropriately called “This Is The Stuff Crises Are Made Of“.

First thing’s first. Trump is fucking furious over the raid on Michael Cohen’s offices, home, and hotel room. His Monday evening diatribe was characteristically insane and suggests he’s on the verge of moving against Rosenstein who personally approved the Cohen raid. Here are some of the headlines that crossed on Tuesday afternoon:

• MCCONNELL SAYS MUELLER SHOULD BE ALLOWED TO FINISH JOB
• MCCONNELL SAYS HE DOESN’T THINK MUELLER WILL BE REMOVED
• SCHUMER: GOP SHOULD HELP PASS LEGISLATION TO PROTECT MUELLER
• SCHUMER: REMOVING ROSENSTEIN WOULD CREATE CONSTITUTIONAL CRISIS

And here’s Hucka-San letting you know that Trump “certainly believes he has the power” to start a constitutional crisis:

Reporter: Does the president believe he has the power to fire Special Counsel Mueller?

Press Sec. Sanders: "He certainly believes he has the power to do so." pic.twitter.com/Xymycx6s5N

— NBC News (@NBCNews) April 10, 2018

So you know, “where there’s a will there’s a way”!

Global equities soared on Tuesday and the narrative there is apparently that despite a veritable laundry list of geopolitical concerns, Xi will see us all through. His keynote address at the Boao Forum in Asia was well received – a voice of reason amid a cacophony of insanity. Whether he was sincere or not doesn’t even matter right now.

As you can clearly see from futs, the Tuesday rally was all about “the King of China“:

Just call it a “red” rally.

Facebook was up sharply as Zuckerberg testified:

Treasurys were range-bound. Consider this bit of color from Bloomberg’s Brian Chappatta on today’s 3Y sale:

Here’s an interesting factoid from Treasury’s $30 billion three-year note auction: the bid-to-cover ratio fell month-over-month for the fourth-straight sale, the first time that’s happened since the maturity was re-introduced in 2003. In some ways, it makes sense that the ratio would fall. After all, the denominator has increased by $2 billion at each of the past three auctions as Treasury ramps up issuance of shorter-maturity debt. Assuming a relatively steady buyer base, the bid-to-cover will naturally wane. And the gauge can be a bit misleading when auctions happen during especially volatile markets (though that hasn’t been the case for bonds lately). With yesterday’s report from the Congressional Budget Office showing that trillion-dollar deficits are just around the corner, it’s a small reminder that at some point, there’s a limit to the appetite for Treasuries. For now, it’s just another mediocre auction.

European shares were up nicely, following Asia’s lead (i.e. riding the Xi train) as 17 out of 19 Stoxx 600 sectors rose. Here’s a snapshot:

Crude surged as a perfect storm of decreased trade war jitters, increased shooting war worries, and Saudi headlines conspired to drive prices sharply higher. Brent surged to $71.34/bbl, the highest intraday level since December 2014:

Best day for energy shares since November 2016:

The loonie continued to advance, extending its quarter-to-date rally as commodity currencies got a lift from Xi:

Russia is super fucked. The ruble is in a tailspin, diving to its weakest since December 2016 as the market continues to ponder the fallout from the punishing U.S. sanctions that led to yesterday’s turmoil in Russian assets.

The Russian Finance Ministry canceled a bond auction as did Sberbank, which cited “negative market dynamic and high volatility.” 

Speaking of tumbling currencies, the lira is in free fall, hitting fresh lows against the euro and the dollar. This is a goddamn disaster:

I’m sure you know what the problem here is, but just in case: it’s Erdogan. He’s sticking with his long-held position that anyone who advocates for higher rates to arrest the currency’s slide is a literal enemy of the state. As far as whether it’s a good idea to add stimulus to an overheating economy even as inflation soars, Erdogan thinks it’s fine and here’s what he had to say on Monday to anyone who thinks maybe the central bank needs to put the brakes on:

Those who say Turkey’s growth rate is excessive are speaking out of jealousy. Growth means investment. Investment means employment, production, technology, exports and prosperity.

Ok man, but no one is “jealous” of the lira, which is the second-worst EM performer against the euro this year. As for what can fix that situation, it’s looking more and more like a lost cause. “This mismanagement of the currency leads to a loss of confidence in the purchasing power of the lira which is hard to cure,” Capitulum Asset Management Lutz Roehmeyer’s told Bloomberg this week, adding that “only massive one-off hikes can heal this situation, which is of course not popular as it slows the economy.” Yes, “not popular” – as in, Erdogan would lose his fucking mind. 10Y yields in Turkey rose a truly laughable 40bps to 13.5% – that’s a record high.

Through it all, FX vol. remains subdued. If you haven’t read it, you should check out the latest from our buddy Kevin Muir, but here’s the chart that says it all:

Finally, for your moment of zen, let’s go back to Hucka-San who was not amused when April Ryan “went there”:

Reporter:Has the president at any time thought about stepping down before or now?
Sarah Sanders: "No and I think that's an absolutely ridiculous question." https://t.co/HHDpY4Qs7O

— Veronica Rocha (@VeronicaRochaLA) April 10, 2018