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Trump’s terrible day

Bloomberg
Trump’s longtime lawyer Michael D. Cohen admits breaking campaign finance laws. U.S. stocks reach new heights. And Xiaomi struggles to live up to its IPO hype. Here are some of the things people in markets are talking about.

A Double Blow for Donald Trump

President Donald Trump’s former attorney admitted that he

violated campaign finance laws ahead of the 2016 election — at the direction of his then-boss, presidential candidate Donald Trump. Michael D. Cohen made that explosive admission during a hastily convened appearance in a federal courthouse in Manhattan on Tuesday, where he pleaded guilty to eight counts of tax fraud, bank fraud and campaign finance violations and could face up to five years in prison. The admission came shortly after a jury in Virginia found Trump’s former campaign chairman, Paul Manafort, guilty of tax and bank fraud charges.

Back in Record Territory

The S&P 500 climbed to a fresh record Tuesday, eclipsing January’s high to mark yet another milestone in a nine-year bull run that by some measures is now tied for the longest in history. An expanding economy and surging earnings erased a six-month drought in which stocks tumbled into a correction and price volatility briefly tripled. The dollar retreated as investors speculated the Trump administration would ease trade tensions with China, while Treasuries drifted lower amid the recovery in risk appetite. Crude oil rose, and most metals edged higher.

Australia Mutiny Wounds Turnbull

While Australian Prime Minister Malcolm Turnbull fought off a leadership challenge on Tuesday to stay in power, the main opposition Labor party may ultimately be the biggest winner from the drama in Canberra. Turnbull, 63, put down a right-wing rebellion for the time being, defeating Home Affairs Minister Peter Dutton by 48 votes to 35 in a ballot of lawmakers from his Liberal Party. But he’s not out of the woods yet: Dutton, 47, quit his post and refused to rule out another challenge, which may come before parliament is adjourned on Thursday, while other ministers threatened to resign.

Xiaomi Struggles to Live Up to the Hype

Xiaomi Corp. raised $5.4 billion by selling investors on its promise as a high-growth internet company. Some are starting to lose faith. The Beijing-based purveyor of mostly cheap smartphones has sunk 19 percent from its post-IPO peak despite a spate of positive ratings — mostly from the same banks and outfits that sponsored its coming-out party. On Wednesday, Xiaomi’s maiden financial report will offer a close-up of two of its most important initiatives: an international expansion and its evolution beyond hardware and into online services from music to video, a la Apple Inc.

Yuan Off the Trade-War Table

China won’t use competitive currency devaluation or the foreign-exchange rate as a tool to cope with trade frictions, according to a senior central bank official. “The yuan’s exchange rate is decided by the market,” Li Bo, director of the People’s Bank of China’s monetary policy department, said at a press conference in Beijing. He said the currency has more flexibility this year and the central bank is confident of keeping the rate “basically stable at a reasonable equilibrium level.” Li said the PBOC has taken measures to prevent pro-cyclical activities in the foreign exchange market, and the good fundamentals of China’s economy supports the currency. Li’s comments on Tuesday came after President Donald Trump accused China of manipulating its currency in an interview with Reuters.

What we’ve been reading

This is what caught our eye over the last 24 hours.

And finally, here’s what Cormac’s interested in this morning

Investors are increasingly wagering on a stronger U.S. dollar, and even President Donald Trump seems to have changed his tune, boasting Thursday that investors were pouring money into the greenback. But history shows such strong positive sentiment can be a contrarian signal for the currency. In one sign of extreme dollar bullishness, speculators now hold net bearish bets against all available Group-of-10 currencies for the first time since January 2017, according to the latest Commodity Futures Trading Commission data. When that happened last year, the Bloomberg Dollar Spot Index fell about 10 percent over the next nine months.

Buoyed by rising interest rates, a strong domestic economy and haven flows, the greenback hit a year-to-date high last week and is up over 6 percent from its February low. Its strength has helped create a wave of pressure on other asset classes from emerging market stocks and bonds to currencies and commodities. If the contrarians are right and the dollar does weaken, expect a sigh of relief from Ankara to Argentina.

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