Riders On The Storm(y).

Well, today probably should have been about trying to discern what markets were trying to say about the Fed statement and also about how folks are setting up for payrolls, but instead the focus shifted to Michael Cohen and presidential porn star payoffs, as the nation’s focus is wont to do in 2018.

It turns out Rudy Giuliani might be too old and senile to be trusted when it comes to defending a sitting President and damage control efforts notwithstanding, ol’ Rudy really screwed the pooch on Hannity Wednesday night. That would have been bad enough on its own, but then we learned that the Feds had Cohen’s phones tapped and intercepted “at least” one call with the White House. This Stormy Daniels situation is getting like, really bad, you guys. Riders on the Storm. Literally. Or maybe, “Riders of the Stormy”.

It’s just a matter of time before Trump has some kind of epic meltdown on Twitter over this and I for one can’t wait to see what he comes up with wandering around the White House eating a greasy KFC chicken leg and drowning his sorrow in a 32 oz. container of mashed potato gravy.

Meanwhile, markets were cautious ahead of the April jobs report and on the heels of the Fed – apparently, no one knows whether the May statement was a “hawkish hold” or a “dovish relent” and in the current environment – characterized as it is by nascent signs of wage pressures and late-cycle fiscal stimulus, the difference between those two interpretations is profound.

The dollar gave some of its rebound off the post-Fed knee-jerk lows back on Thursday:

Treasurys bull flattened after Wednesday’s rarely-seen-in-the-wild bull steepening episode. 10Y yields fell below 2.93 at one point.

https://twitter.com/USRateBot/status/992127366909644802

The Dow erased a 400-point decline to close green. A quick look at S&P futs tells an amusing story:

Horrible day for Tesla after Elon Musk’s epic conference call meltdown. If you haven’t already, you really should read my roundup of the analyst commentary on that in “‘M-A-R-S’! A Disillusioned Wall Street Picks Up The Pieces After Elon Musk’s ‘Downright Bizarre’, Extraterrestrial Conference Call.”

The stock was not lovin’ it (worst day in over a month):

And neither were the bonds, for that matter:

Lisa wants to know who the hell is buying these:

My question with Tesla isn't why the bonds are falling, it's who's buying them right now, even at 88 cents on the dollar? https://t.co/oL1rmiKoKS

— Lisa Abramowicz (@lisaabramowicz1) May 3, 2018

Speaking of riders on the storm, emerging markets may be about to take a hit as the dollar rises and the Fed sticks to its guns on the rate path.

The carry trade seems to be unwinding and markets are suddenly questioning the viability of yet another previously “foolproof” strategy that depends on a weak dollar. We talked about this a few days ago in “Cracks In The Carry Trade“, and it’s a fluid situation:

Carry Trade Goes Negative in Latin America After Year of Gains

— Heisenberg Report (@heisenbergrpt) May 3, 2018

EM equities have been under pressure and although the ETF pared losses with other equities during the U.S. day, this is something you need to keep a close eye on.

The peso is super fucked – Argentina hiked for the second time in less than a week, as the currency plunged the most since the December 2015 free float.

Long story short, the central bank is in deep shit after failing to act earlier and there are now serious credibility questions. They’ve blown through nearly 10% of their reserves YTD in an effort to stanch the FX bleed, but to no avail (obviously).

Remember those 100-year bonds Argentina sold last year amid EM euphoria? Yeah, well:

“At this stage the central bank should deemphasize the 15% inflation target for 2018, for it is now even less credible as a target than it was before the recent currency move,” Goldman’s Alberto Ramos wrote on Thursday afternoon, before noting that “given the risk of short-term capital outflows and the limited capacity for spot market intervention the monetary authority should entertain the possibility of using alternative intervention instruments, such as Dollar swaps or NDFs, given that they are not a direct claim on reserves as they settle in local currency, and offer valuable FX hedging/protection to the market in a period of significant uncertainty but no large spot market outflows.”

You get the idea – that’s an increasingly desperate situation.

Meanwhile, Turkey is having FX problems of its own. As documented extensively earlier, the lira plunged to a fresh record low on Thursday as inflation continues to accelerate ahead of snap elections. Erdogan’s not helping and neither are broad-based EM jitters regarding the prospect of a resurgent dollar and higher rates in the U.S. 10-year local-bond yields in Turkey spiked 49 basis points to 13.03%. Here’s an annotated lira chart for you:

On Thursday morning, we noted that the rupiah looks like it’s in trouble as well:

The central bank pledged to stay in the market to shore things up. Bank Indonesia will have to tighten to protect the currency if the Fed hikes more than three times this year, former Finance Minister Chatib Basri said. Stocks aren’t loving it and have fallen to 7-month lows:

Finally, for your moment of zen, this right here is why Michelle Wolf was right:

Reporter: "How are the American people to trust or believe what is said here or what is said by the president?”

Press Sec. Sanders: "We give the very best information that we have at the time. I do that every single day and will continue to do that every day under this position" pic.twitter.com/emFxVQmCQ9

— NBC News (@NBCNews) May 3, 2018