US stock futures, longer dated bonds and the dollar sank as traders weighed President Donald Trump’s threats to try to remove Federal Reserve Chairman Jerome Powell.
S&P 500 futures sank more than 1% and the dollar index weakened to a 15-month low with Wall Street set to re-open after the long holiday weekend. Treasuries fell, pushing the 10-year yield close to 4.4%. While investors turned away from American securities, haven assets climbed. Gold jumped to another record high, above $3,400 an ounce, while the Swiss franc led a rally in other Group-of-10 currencies.
National Economic Council Director Kevin Hassett said on Friday that Trump is studying whether he’s able to fire Powell. The comments raised new questions about whether the Fed can maintain its longstanding independence with the president increasingly venting dissatisfaction in harsh terms that the central bank hasn’t moved to lower interest rates.
“Were Powell to be fired, the initial reaction would be a huge injection of volatility into financial markets, and the most dramatic rush to the exit from US assets that it is possible to imagine,” said Michael Brown, senior research strategist at Pepperstone. “Not only is the independence of the Fed clearly under threat, but the prospect of de-dollarisation and a move away from US hegemony is an increasingly realistic one.”
Rebuking the Fed risks politicizing US monetary policy in a way that markets will find deeply unsettling, said Christopher Wong, a currency strategist at Oversea-Chinese Banking Corp.
“Frankly, firing Powell stretches belief,” said Wong. “If the credibility of the Fed is called into question, it could severely erode confidence in the dollar.”
The Bloomberg Dollar Spot Index slid 0.8% on Monday. Every Group-of-10 currency gained against the greenback. The jump in the yen weighed on stock indexes in Japan, pushing the Nikkei 225 down 1.3%.
The yen, euro and Swiss franc rallied. WTI crude fell more than 2% to below $64 a barrel. European stock markets were largely still shut for a public holiday.
Fed Chicago President Austan Goolsbee warned against efforts to curtail the central bank’s independence. “There’s virtual unanimity among economists that monetary independence from political interference — that the Fed or any central bank be able to do the job that it needs to do — is really important,” Goolsbee said on CBS’s Face the Nation on Sunday.
Legal scholars say that a president can’t dismiss a Fed chair easily, and Powell has previously said he wouldn’t resign if asked by Trump.
In a sign that investors are rotating investments away from the US, Deutsche Bank AG said that Chinese clients have reduced some of their Treasuries holdings in favor of European debt. European high-quality bonds, Japanese government bonds and gold are likely to be the potential choices for investors as alternatives to Treasuries, said Lillian Tao, head of China macro and global emerging market sales at the bank.
Tesla Inc. slipped 4% in premarket trading. Wedbush Securities analyst Dan Ives said the company faces a “code red” moment as it prepares to report earnings on Tuesday, and that Elon Musk should step back from his work at the Department of Government Efficiency to focus on Tesla.
Some of the main moves in markets:
Stocks
- S&P 500 futures fell 1.1% as of 9:19 a.m. New York time
- Nasdaq 100 futures fell 1.5%
- Futures on the Dow Jones Industrial Average fell 0.9%
- The MSCI World Index rose 0.3%
Currencies
- The Bloomberg Dollar Spot Index fell 0.8%
- The euro rose 1.2% to $1.1530
- The British pound rose 0.8% to $1.3402
- The Japanese yen rose 0.9% to 140.83 per dollar
Cryptocurrencies
- Bitcoin rose 2.2% to $86,956.96
- Ether rose 2% to $1,621.37
Bonds
- The yield on 10-year Treasuries advanced six basis points to 4.38%
- Germany’s 10-year yield was little changed at 2.47%
- Britain’s 10-year yield was little changed at 4.57%
Commodities
- West Texas Intermediate crude fell 2.5% to $63.07 a barrel
- Spot gold rose 2.8% to $3,418.88 an ounce
