(Bloomberg) — Asian markets will likely come under pressure Tuesday after US stocks, bonds and the dollar were sold off as President Donald Trump ramped up criticism of Federal Reserve Chair Jerome Powell.
Equity futures for Tokyo and Sydney were pointing lower, while Hong Kong’s were flat. The S&P 500 and other major US stock indexes tumbled around 2.5% each in light trading, while a gauge of the dollar weakened to a 15-month low. The benchmark 10-year fell with the yield reaching 4.41%. Trump’s assurances that tariff talks were progressing did little to stop the rout, as concern mounted he may be preparing to fire Powell for refusing to cut interest rates faster.
As investors turned away from US securities, haven assets climbed. Gold jumped to another record, above $3,400 an ounce, while the Swiss franc gained around 1% against the dollar.
The agita also spread to the US credit market. In derivatives, the cost of protecting a basket of high-grade credit securities against default rose to the highest in more than a week. Three investment-grade companies looked at selling bonds on Monday, but after seeing the market backdrop, two elected to stand down, and only American Express Co. moved forward with a sale.
Trump took to Truth Social Monday, amping up the pressure on the Fed chair insisting there was “virtually” no inflation and it was time for “preemptive cuts.” The last reading of the Fed’s preferred inflation gauge remains above the central bank’s target, and there will be a new readout next week.
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 his dissatisfaction that the central bank hasn’t moved faster 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.”
Explainer: Can Trump Fire Powell? How the President Can and Can’t Sway Fed
It’s a fear that’s being echoed by hedge fund elites. Paul Singer, founder of Elliott Investment Management, warned recently at a private event in Abu Dhabi that the US dollar might lose its reserve currency status, according to people present.
Rebuking the Fed risks politicizing US monetary policy in a way that markets find deeply unsettling, according to 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 0.7% 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%.
In Asia, China warned countries against striking deals with the US that could hurt Beijing’s interests, upping the ante in its trade war with Washington and showing how others risk getting caught in the middle.
Meanwhile, Bank of Japan officials see little need to change their existing stance of gradually raising interest rates for now despite uncertainties stemming from US tariffs, according to people familiar with the matter.
WTI crude fell around 2% to below $64 a barrel. European stock markets were largely still shut for a public holiday.
Some of the main moves in markets:
Stocks
- Hang Seng futures were unchanged as of 7:16 a.m. Tokyo time
- S&P/ASX 200 futures fell 0.4%
- Nikkei 225 futures fell 0.4%
- S&P 500 futures fell 0.2%
Currencies
- The euro was little changed at $1.1520
- The Japanese yen was little changed at 140.76 per dollar
- The offshore yuan was little changed at 7.2938 per dollar
Cryptocurrencies
- Bitcoin fell 0.4% to $86,992.37
- Ether fell 0.3% to $1,571.49
Bonds
- The yield on 10-year Treasuries advanced nine basis points to 4.41%
This story was produced with the assistance of Bloomberg Automation.
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