Storm Clouds Gather As Trump Headline Risk, Terror Attack Battle Econ Data For Market’s Heart

Well, this market’s mettle is being tested. Again.

On Monday evening we got what might fairly be described as the worst kind of double-whammy: a WaPo report containing new revelations about Donald Trump’s attempts to obstruct justice in the Russia probe and a terrorist attack that killed 22 people in Manchester.

The knee-jerk risk-off move was readily apparent. USDJPY dipped and 10Y yields fell. The broad dollar weakened and indeed the pound was the only G-10 currency to decline against the greenback in the immediate aftermath of the twin tape bombs (one figurative, one literal).

EM currencies came under pressure as well after S&P said it may cut Brazil’s sovereign credit rating.

Ultimately, the pound would pare most of its losses despite the UK suffering its worst terror attack in more than ten years. “There’s a little bit of risk aversion but I wouldn’t say it’s been a big driver in terms of the morning,” Richard Kelly, head of global strategy at Toronto-Dominion Bank said, adding that “this has just become the natural direction for markets to consolidate as we don’t have any good news.”

That said, it’s reasonable to assume the dollar will stay jittery. As Bloomberg noted on Monday night, leveraged accounts and short-term macro funds were seen selling dollars against the yen following the Trump report, “and again on a rally led by client demand over the Tokyo fix.”

“Sentiment for the dollar was deteriorating overnight, so that kind of flows generated general bearish sentiment,” Hiroshi Yanagisawa, a dealer at FX Prime by GMO Corp said. “In such an environment, any news could have been a trigger.”

Meanwhile we got some positive econ data out of Europe which produced the following sign-of-the-times-ish headline:

• Euro PMI Data Overcomes Terrorism Risk-Off

To be sure, in normal times “euro PMI data” wasn’t even exciting enough to “overcome” the Starbucks girl slipping you decaf because she was too lazy to brew a fresh pot of regular. So the fact that decent econ prints are now reason enough to look past a horrific terrorist attack says something about how this market sees what it wants to see.