Well, market participants are scrambling around on Friday in a futile effort to try and determine how to handicap the Flynn bombshell while simultaneously trading the tax news.
“The [Flynn] news doesn’t impact the future of tax legislation,” KBW’s Brian Gardner insists in note out this morning, adding that “Flynn [will have] little, if any, impact on policy, especially in the short term, with the tax bill likely on track to pass the Senate, regardless of Flynn outcome.”
Gardner also contends that irrespective of what happens with Flynn, the political calculus around deregulation will remain unchanged next year.
That’s probably true, but the very fact that people are debating this speaks to the seriousness of the issue. Flynn potentially testifying against Trump himself is big news and it’s being treated as such by markets.
The VIX spiked as much as 29% on Friday, the biggest intraday leap since early September.
Amid the drama, VIX options trading exploded to more than four times the 20-day average, Bloomberg notes, with one investor apparently rolling a bullish December VIX position to January. The VIX is up five days in a row.
As far as the doomsday vehicles go, XIV is having its worst day since everyone thought Gary Cohn was going to resign in disgust back in August. And that’s ironic because the reason the market was so spooked that day had everything to do with the assumption that if Cohn was out, the tax plan was dead. And now here we are as close as ever to getting something done on taxes, but with Trump once again indirectly throwing a monkey wrench in the whole thing:
And speaking of “monkey wrenches,” TD’s Mark McCormick wants to talk to you about them. To wit from an interview with Bloomberg:
The Russian investigation, which appears to be moving closer to the president, may throw a monkey wrench into tax reform and potentially much more.
The second big concern is beyond tax reform and broader implications of the administration and other spillover effects. This would reinforce the pullback in the USD just on the political uncertainty alone.
