Bitter Coffee.

The Trump administration’s decision to move forward with tariffs on $50 billion in Chinese goods and the promise of retaliation from Beijing that decision engendered left markets with something of a bitter aftertaste and that manifested itself in a bit of risk-off sentiment on Monday.

Not helping matters, Americans were forced to choke down some truly pungent “covfefe” with their morning coffee as Donald Trump picked up right where he left off over the weekend with a series of tweets about everything from “gangs” and “thugs” and child trafficking “criminals” to Obama to witch hunts to German politics.

He’s particularly indignant about the fact that America isn’t really feelin’ the whole “putting children in cages” thing. This is – how should I put this – not great?…

Of course according to Trump this is Democrats’ fault, although it’s actually not – as in, he is literally lying about this. He could stop this policy with one phone call, but he’s not going to do it because he’s starting to realize that he is not in fact going to be able to make good on his ridiculous promise to construct a giant wall on America’s southern border. So rather than admit the obvious, which is that that plan was never actually realistic, he’s going to instead put the GOP’s midterm hopes in jeopardy by creating a media circus around the burgeoning border crisis. This about sums it up:

U.S. equities did manage to trim early losses and I guess all’s well that ends not terrible:


Light volume in Treasury futs and 10-year yields traded in a narrow range.

Oil got a boost from reports that some manner of compromise is in the works within OPEC that will see a supply increase that’s ultimately smaller than what some folks were expecting (more on that here):


Energy shares snapped a four-day losing streak as oil moved higher:


The dollar was higher overnight, but ultimately pared gains (as oil rose) and gave way to sideways action:


European shares have now given back the entirety of their post-ECB knee-jerk, weighed down by trade concerns and German political jitters:


Emerging markets were again front and center when it comes to what folks are concerned about.

Argentina is still in focus coming off last week’s central bank shakeup designed to calm markets amid an acute plunge in the peso. Luis Caputo unleashed a series of measures designed to shore up confidence on Monday and the peso regained some footing, but generally speaking, the situation is far from resolved.

In Brazil, a BCB official who spoke to Bloomberg on the condition of anonymity suggested the current strategy of deploying swap sales to stanch the bleeding in BRL “is not sustainable through the October general election.”

“Maintaining pace of currency swap sales would mean the stock would exceed the amount Brazil has in its international reserves”, the official went on to say.

Clearly that’s disconcerting especially considering the fact that the market has demonstrated a propensity to test BCB’s commitment. Here’s my recap of last week as posted over the weekend:

BCB managed to stop the bleeding last Friday by pledging to flood the market with dollars, and in a repeat of what unfolded last Thursday, BCB appeared to lose control this week when the dollar surged following the dovish ECB meeting. BRL breached 3.80 at one point despite the BCB offering a record $5 billion in FX swaps. They broke that record just a day later, selling $5.75 billion in swaps on Friday on the way to engineering another last minute rally and helping the currency close the week on a positive note.


Here’s how Monday panned out:


The Brazil ETF has fallen in seven of the last 10 sessions and is now down some 30% since late February:


ZAR was the big loser on the day:


Both the MSCI EM FX index and the MSCI EM equity index fell to fresh six-month lows:


Finally, for your moment of zen (and yes, we’ve already shown this once today, but how could we not close Monday with this?)…


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