This Means War

Thursday went swimmingly.

Just about the last thing the market needed as everyone tries to figure out whether there is or there isn’t a Powell “put” was for Trump to do something rash, but no sooner had Jay put the finishing touches on a half-decent performance on Capitol Hill than a “very stable genius” started a trade war.

And look, spare me your incredulity. It’s a miracle we’ve gone as long as we have without Trump triggering some market mayhem. After all, you know what they say about letting toupeed baboons play President: something about don’t let toupeed baboons play President.

The headlines were conflicting early on after the tariffs were tipped Wednesday evening.

• 8:53: TRUMP IS SAID TO ANNOUNCE TARIFFS AT MORNING MEETING: CNBC
• 10:42: CNBC: TRUMP EVENT AT 11AM WILL BE ON TRADE, NOT TARIFFS
• 12:30: TRUMP SAYS 10% TARIFF FOR ALUMINUM; TRUMP SAYS 25% TARIFFS FOR STEEL

As a reminder, here’s what’s ultimately at stake:

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And here’s another way to visualize it:

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Right now, things are resilient:

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But as Goldman wrote just a few days ago:

Of course, protectionism is still a risk. In particular, the focus of US trade policy which, so far, has been limited to narrow product categories, would become more concerning if it broadened in scope. Our work suggests that the Trump administration may attempt to appeal to mid-term voters through a protectionist pivot (in either word or deed), potentially directed at China and EM Asia: countries that tend to export to the US goods – most importantly, a wide range of machinery – that may be perceived as competing with US labour. Overall, however, the global trade outlook is still ‘volatile, but strong‘, and supports our view that the dollar can weaken, especially against the currencies of NJA and commodity exporters.

The tariff news tanked everything – plain and simple.

Canada is furious. “Any tariffs on the Canadian sectors would be unacceptable,” Canadian Trade Minister Francois-Philippe Champagne said in Ottawa on Thursday.

Europe is pissed too. “We strongly regret this step, which appears to represent a blatant intervention to protect U.S. domestic industry and not to be based on any national security justification,” European Commission President Jean-Claude Juncker said, adding that “protectionism cannot be the answer to our common problem in the steel sector.”

Gary Cohn apparently understands that:

I'm told Cohn argued against tariffs in today's meeting. Argument was warned about higher prices, not a trade war. Trump's reaction, per a person in the room: That's "not the real world," and that result would be a "small price to pay"

— Kayla Tausche (@kaylatausche) March 1, 2018

As do some GOP Senators. “Let’s be clear: The President is proposing a massive tax increase on American families,” Ben Sasse noted, before lambasting Trump’s protectionist bent as “weak, not strong.”

And on, and on. You get the idea. You can see when it started to fall apart:

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"ok Jay, you can't fuck up again today, got it?"

"yeah, I got it, I'll waffle, but I can't do anything about it if you guys push the envelope on those tariffs and that sinks stocks."

"don't worry, we've got that under control."

— Walter White (@heisenbergrpt) March 1, 2018

At one point it got really bad: 

Dow down 500. pic.twitter.com/7VsqE02ATT

— Walter White (@heisenbergrpt) March 1, 2018

Third straight day of losses and, notably, the third straight day of losses over 1%:

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It’s time to update the regime change chart:

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VIX – 25-handle at one point:

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Damage control, comin’ in hot at 3:40 ET:

“Consumer Confidence in February Highest Since November 2000” https://t.co/UgAJRawExx

— Donald J. Trump (@realDonaldTrump) March 1, 2018

Treasurys obviously rallied as the risk-off move gathered steam (remember, there’s still potential for occasional safe-haven bids). The curve bull steepened, but here’s the 10Y just as a snapshot:

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The dollar fell and EURUSD spiked as news of retaliatory measures started to come through:

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The tariff news further undercut automakers that were already struggling after reporting lackluster February sales:

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AK Steel, U.S. Steel and Century jumped at the open on anticipation that something was coming, then fell sharply after the announcement was purportedly delayed (see the bullet point sequence of events above), and then rallied again once Trump basically frontran his own decision:

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The peso was similarly whipsawed:

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Europe was closed by the time shit started to hit the fan stateside, but European shares were already sharply lower. Worst day for the DAX since February 8:

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It really doesn’t look like shares across the pond are in the mood to stage a meaningful rally off the February lows and compounding the problem is the Italian election and the SPD vote in Germany both of which are on Sunday.

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Finally, for your moment of zen, here is White House Press Secretary (and Grimace in a wig) Sarah Huckabee Sanders to explain how Ben Carson has decided to cancel his order for $31,000 worth of tax-payer-funded dining 

Sanders says HUD Secretary Ben Carson’s $31,000 furniture order for his office has been canceled https://t.co/yi7GEcdQzg https://t.co/P0tBEkKWNV

— CNN Politics (@CNNPolitics) March 1, 2018