When U.S. traders got to their desks on Tuesday morning, they were sure the only thing they would need to try and sort out was the February CPI print.
After all, CPI is one of the key data points in a market where the preservation of the "Goldilocks" narrative (i.e. decent growth but still-subdued inflation) is the only thing that matters when it comes to whether the low vol. regime can reassert itself and make us all rich(er).
With the growth outlook secure (in the near-term at least), the market is laser-focused on the inflation data. Any sign that price pressures are building too fast is bad news, as it suggests central banks will be forced to move aggressively in order to avoid falling behind the curve (although as one derivatives strategist I was chatting with a couple of weeks ago noted, with the old models all broken, it's not even clear what "the curve" is anymore).
A miscalculation in that regard (i.e. the dreaded overtightening) could undercut global growth and potentially force a disorderly unwind of all the trades that represent, implicitly or explicitly, a bet on the continuation of the above-mentioned low vol. regime.
Well if that was all anyone need be concerned with, there was good news. CPI was inline - dead on matching estimates. When taken with Friday's Goldilocks February jobs report (blockbuster headline payrolls print with an AHE miss), the stage was set for a risk rally.
Enter President Dennison.
Just minutes after CPI crossed, Trump fired Rex Tillerson and replaced him with Mike Pompeo, a move that was tipped way back in November but which everyone kind of assumed had been backburnered in light of more pressing staff matters, like getting rid of that Nazi-hatin' globalist pain in the ass Gary Cohn.
Well speaking of Cohn, the market was force-fed a barrage of Trump-speak in the 45 minutes after the Tillerson news and amid the headline hockey were these two "clues" (and that's all this is anymore - we have to try and decipher the ramblings of a madman in a largely fruitless effort to divine something about what's coming next):
- TRUMP SAYS HE LOOKS AT KUDLOW `VERY STRONGLY'
- TRUMP SAYS KUDLOW HAS `VERY GOOD CHANCE' AT TAKING COHN'S JOB
It's good that he clarified the first soundbite with the second one, because Trump "looking at someone very strongly" can mean a variety of things, including that he might be seconds away from grabbin' that someone forcefully by the genitals.
The Kudlow rumors have really kicked into high gear over the past 24 hours and we wrote something about that here yesterday. Generally speaking, Kudlow helping to craft America's trade policy is viewed as bullish (and yes, that's where we're at, folks). The assumption is that it would entail a possible walking back of the reckless trade war banter and could conceivably mean a reduced role for Peter Navarro, who we imagine is looping "Death by China" on all the White House TVs at this point in order to brainwash the President.
So that's what the market had to cope with first thing Tuesday morning. An ostensibly bullish CPI number (which, by virtue of not surprising to the upside, was USD negative), Trump firing America's top diplomat who reportedly learned about his fate by perusing the President's Twitter feed, and a hint from Trump that everyone's favorite 80s rerun does indeed have pole position for the top economic advisory spot at the White House.
For once, you almost feel sorry for the algos. No robot could reasonably be expected to parse those headlines and make any sense of them. Here's stocks, annotated (click to enlarge):
Needless to say, some folks are skeptical about Tillerson's ouster.
Trump’s move to fire the Secretary of State Rex Tillerson "is negative for markets," Terry Haines, a senior political strategist at Evercore ISI, said in a note, adding that "continuing staff 'merry-go-round' highlights instability at [the] White House."
So says you, Terry. But that's just what you would expect from someone who, like Rex, isn't on board the #MAGA train.
And speaking of the #MAGA train, there are more open seats every goddamn day, so get yourself a ticket before you miss out on what comes next...