Financial markets swung on Tuesday as investors pored over a series of headlines about President Donald Trump’s criticism of Federal Reserve Chairman Jerome Powell and looked for clues about progress in tariff talks.
U.S. assets recovered some of their losses, with stock futures extending gains after the S&P 500 plunged more than 2% late Monday. The dollar index recovered after falling to a 15-month low, while 10-year Treasury prices stabilized. Asian stocks were largely flat, while oil and gold prices hit record highs.
Trump may be ready to fire Powell for refusing to speed up interest rate cuts, becoming the latest market worry. Markets were already uneasy after Trump raised tariffs to the highest level in a century. Sentiment on Wall Street has shifted from optimism to “sell America” mode as Trump upends the global trade order with tariffs. Economists say the move will drive up inflation and push the U.S. into recession.
“The multi-front trade war has weighed heavily on stocks on its own, and when you add in the Fed’s independence crisis, markets are naturally nervous,” wrote Jeff Buchbinder, chief equity strategist at LPL Financial.
The president further pressured the Fed chair in a speech on “Truth Social” on Monday, insisting that inflation was “almost” nonexistent and that it was time to “preemptively cut rates.” The latest reading on the Fed’s closely watched inflation gauge remained above the central bank’s target, with new data due next week.
Kevin Hassett, director of the National Economic Council, said Friday that Trump is studying whether he has the power to fire Powell. The comments raised new questions about whether the Fed can maintain its long-standing independence. Trump’s tirade forced a reassessment of assets that are critical to the U.S. economic dominance. The dollar and U.S. Treasuries, traditional havens in times of economic stress, suddenly looked less attractive.
Against this backdrop of uncertainty, investors have piled into gold, sending prices above $3,444 an ounce after surging 2.9% on Monday.
Hedge fund elites have also expressed concerns. Elliott Investment Management founder Paul Singer recently warned at a private event in Abu Dhabi that the dollar could lose its reserve currency status, according to people familiar with the matter.
Investors’ attention is turning to progress in U.S. tariff talks with Japan, the European Union, India and other countries.
Japanese Prime Minister Shigeru Ishiba said on Monday that Japan will not always give in to U.S. demands to reach a deal on tariffs. It was one of Ishiba’s most fiery remarks since Trump pushed Japan to expand access to sensitive auto and agricultural sectors in the global trade war.
“Optimism appears to be fading, and the market may begin to price in a less favorable outcome,” wrote Jun Rong Yeap, market strategist at IG Asia. “Tough talk from major U.S. trading partners such as Japan highlights the challenges of reaching consensus and suggests that negotiations may take longer.”
The impact of Trump’s tariff actions has already spread to Japanese companies, according to a survey. About 10% of respondents said the measures have already affected their business, and more expressed concerns about future shocks. Finance Minister Katsunobu Kato said Japan is communicating with other countries on how to best convey the widespread concerns about the impact of tariffs at meetings in Washington this week.
Meanwhile, Bank of Japan officials see no need to change their current stance of gradual rate hikes at this time, despite uncertainty over U.S. tariffs, according to people familiar with the matter.
Some of the key moves in the market:
Stocks
S&P 500 futures rose 0.6% as of 11 a.m. Tokyo time
Japan’s Topix was little changed
Australia’s S&P/ASX 200 fell 0.1%
Hong Kong’s Hang Seng fell 0.5%
Shanghai Composite rose 0.3%
Euro Stoxx 50 futures fell 0.4%
Currencies
Bloomberg Dollar Spot Index rose 0.1%
The euro fell 0.2% to $1.1495
The yen was unchanged at 140.86 against the dollar
The offshore yuan fell 0.2% to 7.3114 against the dollar
Cryptocurrencies
Bitcoin rose 1.4% to $88,588.32
Ether rose 0.8% to $1,589.82
Bonds
The 10-year Treasury yield fell 1 basis point to 4.40%
Australia The 10-year Treasury yield fell 2 basis points to 4.26%
Commodities
West Texas Intermediate crude oil rose 1% to $63.73 a barrel
Spot gold rose 0.8% to $3,450.57 an ounce
This report was produced with the assistance of Bloomberg Automation.
