Dollar drops, gold surges as Trump’s Fed pressure campaign raises fears
Precious metals are jumping to records. The US dollar is falling. Stocks are volatile.
Monday is all about the “Sell America” trade, following Federal Reserve Chairman Jerome Powell’s bombshell statement saying he was under criminal investigation. Market participants see this as a sign of President Donald Trump’s interest in stripping the central bank of its political independence.
“This is clearly risk aversion,” said Krishna Guha, head of global policy and central bank strategy at Evercore ISI.
Guha said a so-called Sell America trade could play out similar to what the stock market saw in April after Trump first announced his plan for broad and steep tariffs. As global investors place a higher risk premium on US assets, safe haven trades are as follows: gold He said he had to take steps in response to the turmoil.
Dow Jones Industrial Average It fell nearly 500 points at one point in morning trading. US dollar index 0.3% spilled. However, the popular safe-haven trade of gold and silver reached its all-time high in the session.
“Obviously the market doesn’t like it,” Ed Yardeni, president of Yardeni Research, told CNBC on Monday.
Gold COMEX, all time
JPMorgan’s trading team also highlighted Monday that “Sell America” is a major driver for the market.
Beyond the Powell investigation, the desk noted that oral arguments are planned at the Supreme Court for the case over whether Trump can fire Fed Governor Lisa Cook later this month. On top of that, bank stocks fell after Trump called for a one-year credit card interest rate cap of 10%.
“Combined, the ‘Sell America’ theme may be the dominant narrative,” JPMorgan wrote to clients.
Of course, JPMorgan said the macro and institutional backdrop supports a tactically bullish stance on the stock market. But the overhang caused by concerns about the Fed’s independence offers reason for caution in the short term, the team said.
How worried is the market?
In a video statement, Powell said the investigation stems from the fact that the Fed sets interest rates as it believes is best for the economy rather than “following the president’s preferences.” Trump has repeatedly scolded Powell for what he sees as rates that are too high and has previously fired the Fed chairman.
Markets have become accustomed to such “hostile chatter” and halted trading around Fed independence without further evidence of risk, according to Evercore ISI’s Guha. But he said Powell’s announcement of the investigation could provide a reason for concerns about the Fed’s independence to be at the forefront of investors’ minds once again.
CBOE Volatility Index (VIX) The index, also known as Wall Street’s fear gauge, rose in Monday’s session. But it hasn’t broken out of the recent range, which may mean investors aren’t yet confident this will be a long-term story.
Stocks rebounded from late morning lows in Monday’s session, signaling that investors may be hesitant to commit to the “Sell America” trade until more indications emerge that Trump will continue his credit card plan and attempt to oust Powell. Still, international markets outperformed U.S. stocks. iShares MSCI ACWI ex-US ETF (ACWX) It rose about 0.6%, highlighting the Fed’s stress on investors.
“Volatility is likely to dominate markets in the near term,” said Mark Malek, chief investment officer at Siebert Financial. But the VIX’s muted movement suggests “investors are waiting for all of this to be over or don’t want to focus on it as we head into Q4 earnings season later this week.”
