Sittin’ On The Dock Of The Bay.

Yeah so, as Heisenberg readers know, I do a fair amount of my midday pontificating/bullshitting from various spots on the island where I reside, and while there’s decent WiFi by the pier (the site of the aerobics classes I mentioned a couple of weeks ago in a piece about Italian credit) and also by this quaint little oyster bar that I am not at all sure has proper refrigeration units, I try to make it back to the old bungalow in time to do my U.S. market wrap.

Unfortunately I didn’t make it back today, so this coming to you live from an actual dock (Otis Redding style) and you can attribute any errors to a bad connection and/or to various distractions (as Sam Zell would say, “pussy on the block“).

I really did think this was going to be a lackluster, uneventful session and indeed it was right up until the bottom fell out for the Brazilian real. It’s funny too because this is an ongoing story that I’ve covered a ton here and in my last two daily wraps I’ve kind of hinted that something might be about to snap there, although to say “I told you so” would be entirely disingenuous, because all I knew was what everyone else knew which was that 3.80 was bad and “since Dilma” is never good.

Well, BCB tried again to intervene on Thursday after it became clear that the wheels were still coming off, but that effort fell flat, bigly. By 2:00-ish, the bottom had fallen out.

“BRL’s liquidity is tied to BM&F’s local futures market where dollar offers are vanishing, a total absence of USD sellers was seen several times during today’s session,” Bloomberg detailed, adding that “the short-term rates market [was] already halted at BM&F after rates rose to the maximum daily limit [and] DIs expiring from July 18 to January 20 are paralyzed.” So that sounds fun.

I’m squinting to see this, but as far as I can tell out here in this bright ass sun, this was at least the second worst day for the Brazil ETF since the crash in May of last year and it looks like volume exploded:

That comes a day after El-Erian warned on Brazil:

After #Argentina / #Turkey , is #Brazil next in facing disruptive #FX #markets ?
Recent #currency slide (chart) puts #CentralBank in quite a tricky position — and there's little room for error as its response function is being monitored closely by domestic and foreign #investors pic.twitter.com/lGQCOQFLbN

— Mohamed A. El-Erian (@elerianm) June 6, 2018

Well that looks like it ended up catalyzing a safe haven bid, manifested most clearly in Treasurys where 10Y yields collapsed all of the sudden right around the same time the real was getting pummeled:

“[A] surge in futures trading pushed [the] 10-year contract higher by 15.5 ticks over 10 minutes from 1:30pm ET, with more than 185,000 contracts traded,” Bloomberg writes, recounting the action before adding that “traders in New York and Chicago pointed to an array of possible catalysts including emerging-market FX jitters with particular focus on Brazil.”

There at one point, 10Y yields were down 9bps and the same rally showed up across the curve:

Obviously, some of this could have been that short squeeze everyone has been waiting on for weeks.

The EM ETF hit session lows around the same time:

And the yen was bid in and around there too on the heels of Trump’s comments on North Korea:

When I say “Trump’s comments on North Korea”, those actually came in two waves. Here’s what he said around lunchtime:

TRUMP SAYS SUMMIT WITH KIM ALL READY TO GO'
TRUMP SAYS NORTH KOREA ISSUE IS NOT AONE MEETING DEAL’
TRUMP: NO DEAL IF NORTH KOREA DOESN’T GIVE UP NUCLEAR PROGRAM
TRUMP SAYS HE EXPECTS KIM MEETING TO BE `VERY FRUITFUL’

And then here’s what he said later at a presser with Abe:

TRUMP: KIM’S LETTER TO ME WAS A VERY WARM LETTER
TRUMP: KIM'S LETTER WAS BASICALLY JUST A NICE GREETING TO ME
TRUMP PREDICTSGREAT SUCCESS’ IN KIM TALKS, NOT JUST 1 MEETING
TRUMP: `WE COULD SIGN AN AGREEMENT’ WITH KIM IN SINGAPORE
TRUMP: HOPE TO NORMALIZE N.KOREA RELATIONS WHEN ALL IS COMPLETE
TRUMP: MORE SANCTIONS ON HOLD, READY IN CASE N.KOREA TALKS FAIL
TRUMP WILLING TO WALK AWAY IN NORTH KOREA TALKS IF NEEDED
TRUMP SAYS KIM JONG UN COULD BE INVITED TO THE WHITE HOUSE

Yeah, I know: full retard. But consider the source.

It’s also worth noting that BTPs closed on the lows with 10Y yields rising  some 12bps. We’re creeping back up here:

2Y yields in Italy are at one-week highs and it’s largely the same story with the BTP-bund spread –  that is, grinding back higher/wider:

U.S. stocks held up pretty well, especially considering the clear risk-off move in other assets, but tech took a breather. I guess I’m supposed to mention this juxtaposition from Thursday because everyone else invariably will:

So yeah. That’s about it. Oh, oil was up. The dollar was marginally lower. And the ECB really wants to get on with things.

Now I’m going back to the beach and I’ll get back to you folks later. Meanwhile, I’ll leave you with this:

Trump says he'd invite Kim Jong Un to the White House instead of Mar-a-Lago pic.twitter.com/YjT7KnFF6W

— Washington Examiner (@dcexaminer) June 7, 2018