The Daily Prophet: This May Be the Day the Trump Trade Died

Connecting the dots in global markets.

Maybe investors should forget the Trump trade and start prepping for the Trump correction. U.S. stocks had their worst day since October. The dollar can't seem to find a bottom. There's no rebound in sight for oil. Havens such as Treasuries and gold are back in vogue. There's an undeniable "risk off" vibe reverberating through markets.  

The optimism that accompanied Donald Trump's U.S. election victory was built on a trinity of lower taxes, infrastructure spending and regulatory reform. Now, doubts are rising about any of those being realized, even with Republicans controlling the White House and Congress. The Obamacare replacement bill is struggling to gain support from House conservatives and Senate Republicans, and some GOP lawmakers argue that a once-in-a-generation opportunity to overhaul the U.S. tax code with cuts for businesses and individuals depends on the outcome. Bank, industrial and technology shares -- some of the biggest beneficiaries of the Trump trade -- were the biggest losers.  

It's a nerve-racking time for investors, who have pushed equity valuations to record highs. Nobel Prize-winning economist Robert Shiller recently said the last time he remembers equity investors being as bullish as they are now was in 2000, and that didn’t end well. "The amazing run the market has had since the election left no room for error, delay or issues of any kind,'' Peter Boockvar, chief market analyst at Lindsay Group, wrote today in a research note.

If markets truly believed that Trump's policies would juice the economy and spark faster inflation, then the dollar would be a prime beneficiary -- except the greenback is on an epic slump. The Bloomberg Dollar Spot Index has fallen for five straight days, the longest stretch of declines since the week before the election. The gauge dropped today to its lowest level since Nov. 10. Bank of America Corp. said based on what it sees in terms of market positioning, sentiment surveys conducted with its clients, and publicly available futures data, bullish dollar positions put on after the election have completely disappeared, according to Bloomberg News's Andrea Wong. What makes the recent weakness even more compelling is that it comes largely at the expense of gains in the euro, which is on a tear even as Europe faces its own political uncertainty with pending elections in France and Germany, as well as new debt troubles in Greece.

Concerns are also rising over oil's decline and its ripple effect through markets. Crude fell again today, approaching $47 a barrel as a Bloomberg survey before a government report on Wednesday showed U.S. supplies probably rose to a record last week. While obviously painful for oil bulls, the drop in crude is weighing on the shares and bonds of junk-rated energy companies. British oil-rig operator KCA Deutag Drilling Ltd. had to sweeten the terms of a $525 million bond sale after investors pushed back on the 8.5 percent to 9 percent rate it was seeking on the five-year debt, according to Bloomberg News's Sally Bakewell and Sridhar Natarajan. It’s now proposing to pay 10.5 percent to 10.75 percent, more than the 9.625 percent it is already paying on the bonds due 2018 it hopes to refinance.

How nervous are investors? Just take a look at the market for U.S. Treasuries. Demand for the ultimate haven is so high that yields on 10-year Treasuries are not only lower than when the Federal Reserve raised interest rates last week, but also lower than when the central bank boosted rates in December. Gold, which is another haven asset, advanced for a fourth straight day in its longest rally since early February. The 3.65 percent gain is the biggest over a four-day period since June. Recent headlines out of Washington "play well into one of our core assumptions about the year ahead in terms of the potential for Trumponomics to disappoint -- namely that as The Donald navigates the minefield that is D.C. politics, he risks quickly burning through his political capital and eroding his effectiveness as an agent of change,'' the bond strategists at BMO Capital wrote in a report today. 

Don't forget about China. The news out of the world's second-largest economy has been relatively positive of late for investors -- except for today. China’s central bank injected hundreds of billions of yuan into the financial system after some smaller lenders failed to make debt payments in the interbank market, according to people familiar with the matter. Tuesday’s injections followed missed interbank payments on Monday, the people said, asking not to be identified because the matter isn’t public. The institutions that missed payments included rural commercial banks, according to three traders who asked not to be identified. One said a borrower failed to repay an overnight repo of less than 50 million yuan ($7.3 million).

Investors tend to be an optimistic bunch (except for bond investors, but that's another story for another day), and a report on the U.S. housing market is likely to brighten spirits by reinforcing notions that consumers are feeling pretty good. The National Association of Realtors will likely say that existing home sales remained at their highest level since 2007, holding above the 5.5 million mark for February, according to the median estimate of economists surveyed by Bloomberg.    

There's Always a Bull Market in Fearmongering: Charles Lieberman

The Quiet Bear Market in Bonds After the Rate Hike: Ben Emons

There's a Good Idea in the Republican Tax Plan: Editorial

Rookie Currency Traders Are Causing Trouble at Crucial Moments

Fed Cheer Turns Investor Focus to Emerging Economies on Rise

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