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Daily Close

Equity markets erred directionless, failing on each side of a push lower and down yesterday, still adding 0.2% for most US and international indices as per the US close. While the decision was not totally unexpected with D. Trump himself leaking his confidence yesterday that he thought G. Kohn would leave, the actual announcement after the close of the White House Chief Economic advisor leaving spooked the S&P overnight which dropped 18 points within seconds and 30 within a few minutes of the news. What will be left from this overnight move by the time markets reopen tomorrow is unsure...but it is certainly not good news for what was left of the credibility of the US administration. It is the latest, maybe not the last but certainly the most important defection from D. Trump’s team. It may require some heavy weight lifting and real sense of conviction at the opening. Yesterday and ‘before’ this announcement, the action had moved decisively towards currencies and precious metals amidst broad based dollar weakness. The dollar index dropped -0.5% in seemingly breakout conditions (defined as a move above or below 2std vs the 20dma, see our z-score report). FX volatility had been low compared to equity vols lately. EURUSD gapping 70 ticks higher in the early going despite the headwind of the Italian elections outcome, despite the 3 to 4 Fed rate hikes still scheduled for this year and despite the nearby ECB meeting on Thursday are no good omen for an already fundamentally and now technically weak dollar and an indication that volatility is set to rise in forex markets as well. This movement at least will not be fought by D. Trump either. 10y bonds were flat in the US and 4bps higher in Germany yesterday (again before the overnight news) with gold and silver gaining respectively 0.8% and 1.8% yesterday with some moderate further gains seen overnight. This Thursday brings the ECB meeting and Friday the February job report. The January report and the 2.9% increase in hourly earnings is what many pointed as the reason for February’s gruesome volatility jump and global equity markets selloff. We will have to see what Friday’s job report brings, on top of the aftermath of Kohn's resignation and the likely confirmation that Trump remains on the trade war path. 

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