Wall Street was hit by another massive sell-off, with long-term U.S. Treasuries falling along with stocks and the dollar after President Donald Trump’s rebuke of Jerome Powell’s interest rate policy heightened anxiety among investors already caught up in a global trade war.
Trump’s assurances that progress was being made in tariff talks did not stop the stock market from plunging. The S&P 500 and other major U.S. stock indexes each fell about 2.5% in thin trading, while the dollar index fell to a 15-month low. The benchmark 10-year Treasury yield fell to 4.4%. Safe-haven assets rose in price as investors moved out of U.S. securities. Gold hit another record high, breaking through $3,400 an ounce, and the Swiss franc rose about 1% against the dollar.
The unease also spread to U.S. credit markets. In the derivatives market, the cost of protecting a basket of high-grade credit securities against default rose to its highest level in more than a week. Three investment-grade companies considered selling bonds on Monday, but two of them decided to walk away after understanding the market context, leaving only American Express Co. to move forward with the sale.
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Speaking on Truth Social on Monday, the US president further pressured the Fed chairman, insisting that inflation is “almost” zero and it’s time to “preemptively cut rates.” The latest reading on the inflation measure that the Fed focuses on remains above the central bank’s target, and new data will be released next week.
Kevin Hassett, director of the National Economic Council, said on Friday that Trump is looking into whether Powell could be fired. The comments raise new questions about whether the Fed can maintain its long-standing independence? The president’s dissatisfaction with the Fed’s failure to speed up the pace of rate cuts is growing.
“If Powell is fired, the initial reaction will be violent volatility in financial markets and the largest wave of withdrawals one can imagine,” said Michael Brown, senior research strategist at Pepperstone. “Not only is the independence of the Fed clearly threatened, but the prospect of de-dollarization and a break from US hegemony is becoming increasingly realistic.”
Hedge fund elites have expressed similar 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 who attended the event.
Blaming the Fed could politicize U.S. monetary policy, which markets would find deeply unsettling, said Christopher Wong, a foreign exchange strategist at OCBC Bank.
“It’s frankly unbelievable that Powell would be fired,” Wong said. “If the Fed’s credibility is questioned, it could seriously undermine confidence in the dollar.”
Chicago Fed President Austan Goolsbee warned against attempts to undermine central bank independence.
“There’s almost unanimous agreement among economists that it’s very important that monetary policy is free from political interference, that the Fed or any central bank is able to do the job it needs to do,” Goolsbee told CBS’ “Face the Nation” on Sunday.
Legal scholars say the president cannot easily fire the Fed chairman, and Powell has previously said he would not resign if Trump asked him to.
Trade War
A closely watched ETF that tracks the S&P 500 has the second-worst performance among 45 products that track specific countries since the start of Trump’s second term, according to Bespoke Investment Group. The SPDR S&P 500 ETF Trust has fallen about 14% in that period, while a BlackRock ETF that tracks German stocks has surged 12%.
Monday’s stock sell-off came amid light trading volume — about 20% below recent averages — weighed down by the Easter holiday and the ongoing earnings season, where investors are still looking for clues about the economy’s future path. The sell-off brought a record number of shares changing hands compared with the S&P 500 sell-off earlier this month.
Major retailers, including representatives from Walmart Inc and Home Depot Inc, will reportedly meet with President Trump on Monday to discuss his tariff policy. Trump’s tariff offensive has weighed on U.S. markets amid concerns about a future financial recession.
“The global economy is reeling from the U.S. trade war, which we believe is creating an economic shock large enough to threaten the survival of the U.S. economy and the global economic expansion,” wrote Bruce Kasman, chief economist at JPMorgan Chase. “While we note that the risk of a global recession has increased, we also emphasize that such an outcome is unlikely to be immediate.”
The Bloomberg Dollar Spot Index fell 0.7% on Monday. All G10 currencies rose against the dollar. A stronger yen dragged down Japanese stock indexes, with the Nikkei 225 index falling 1.3%.
WTI crude oil prices fell about 2% to below $64 a barrel. European stock markets were largely closed for public holidays.
Deutsche Bank said Chinese clients have reduced some of their holdings of U.S. Treasuries in favor of European bonds, suggesting that investors are shifting investments away from the United States. Lilian Tao, head of China macro and global emerging market sales at the bank, said European high-quality bonds, Japanese government bonds and gold could be potential alternatives for investors to U.S. Treasuries.
Tesla Inc. shares closed down 5.7% on the day. Dan Ives of Wedbush Securities said the electric car maker is facing a “red alert” moment as it prepares to report earnings on Tuesday and called on Elon Musk to resign from his position at the Department of Government Efficiency to focus on the company’s business.
Verizon Communications Inc. and a handful of defense contractors including Northrop Grumman Corp. also report Tuesday. Netflix Inc. was a rare winner Thursday when it reported record profits.
Some of the main moves in the market:
Stocks
The S&P 500 fell 2.4% as of 4 p.m. in New York
The Nasdaq 100 fell 2.5%
The Dow Jones Industrial Average fell 2.5%
The MSCI World Index fell 1.5%
Currencies
The Bloomberg Dollar Spot Index fell 0.7%
The euro rose 1.1% to $1.1514
The pound rose 0.6% to $1.3376
The yen rose 0.9% to 140.86 against the dollar
Cryptocurrencies
Bitcoin rose 2.6% to $87,319.06
Ether fell 0.9% to $1,574.62
Bonds
The 10-year U.S. Treasury yield rose 9 basis points to 4.42%
The German 10-year bond yield was essentially unchanged at 2.47%.
The yield on the UK 10-year gilt was little changed at 4.57%.
Commodities
West Texas Intermediate crude fell 1.8% to $63.50 a barrel
Spot gold rose 2.9% to $3,422.49 an ounce
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