(July 17): The dollar recouped some of Wednesday’s losses, and Asian stocks struggled for direction after US markets had a volatile session amid speculation about the future of Federal Reserve (Fed) Chair Jerome Powell.
The greenback gained versus all its Group-of-10 peers, resuming this month’s advance. The yen weakened to 148.43 per dollar as some currency strategists predicted a possible slide past 150. Equity-index futures for the S&P 500 fell 0.1%, following a gain in the US session after President Donald Trump played down the prospect he may soon fire Powell.
Treasuries dipped with yields on the 10-year rising one basis point to 4.47%.
Speculation about Powell sent the dollar, US stocks and Treasury yields downward Wednesday before Trump’s clarification soothed market fears, saying he’s “not planning on doing anything” to the Fed chair. Trump wants lower interest rates, the cause of his unhappiness with Powell, just as New York Fed President John Williams defended the central bank’s restrictive stance, saying it’s entirely appropriate.
“After the president’s subsequent backing off on remarks to remove Powell, the immediate crisis may have passed, though we doubt we are entirely done with this saga,” said Michael Feroli, chief US economist at JPMorgan Chase & Co.
In tariff news, Trump dialled down his confrontational tone with China in an effort to secure a summit with counterpart Xi Jinping and a trade deal. Trump also said he would send letters to more than 150 countries notifying them of tariff rates and that the levies imposed could be 10% or 15%.
Top bosses at some of Wall Street’s biggest banks emphasised the importance of an independent Fed.
Bank of America Corp’s chief executive officer Brian Moynihan and Goldman Sachs Group Inc’s David Solomon joined JPMorgan’s CEO Jamie Dimon in stressing how critical the Fed’s autonomy is. Moynihan said in an interview with Bloomberg TV on Wednesday that the Fed was “set up to be independent”.
The Fed’s independence is “absolutely critical”, Dimon at JPMorgan said on a conference call Tuesday. Meddling with the Fed “can often have adverse consequences”, he noted.
A Trump dismissal of Powell would be an underpriced risk that could trigger a selloff in the dollar and Treasuries, Deutsche Bank AG’s George Saravelos recently said. If Trump were to force Powell out, the subsequent 24 hours would probably see a drop of at least 3% to 4% in the trade-weighted dollar, as well as a 30 to 40 basis point fixed-income selloff, he said.
In commodities, oil edged higher while gold steadied.
Some of the main moves in markets:
Stocks
- S&P 500 futures fell 0.2% as of 10.33am Tokyo time
- Japan’s Topix was little changed
- Australia’s S&P/ASX 200 rose 0.7%
- Hong Kong’s Hang Seng rose 0.2%
- The Shanghai Composite was little changed
- Euro Stoxx 50 futures rose 0.6%
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro fell 0.2% to US$1.1616
- The Japanese yen fell 0.4% to 148.43 per dollar
- The offshore yuan was little changed at 7.1834 per dollar
Cryptocurrencies
- Bitcoin fell 1.2% to US$118,550.76
- Ether fell 0.7% to US$3,357.19
Bonds
- The yield on 10-year Treasuries advanced one basis point to 4.47%
- Japan’s 10-year yield was little changed at 1.575%
- Australia’s 10-year yield declined four basis points to 4.36%
Commodities
- West Texas Intermediate crude rose 0.7% to US$66.83 a barrel
- Spot gold fell 0.3% to US$3,338.61 an ounce
Source: The Edge
