NEW YORK: Asian markets will likely come under pressure Tuesday (April 22) 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 per cent each in light trading, while a gauge of the dollar weakened to a 15-month low. The benchmark ten-year Treasury fell with the yield reaching 4.41 per cent. Gold jumped to another record, above US$3,400 an ounce, on haven demand while the Swiss franc gained around one per cent against the dollar.
Trump’s assurances that tariff talks were progressing did little to stop the declines, as concern mounted he may be preparing to fire Powell for refusing to cut interest rates faster. The president 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.”
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.
Concerns are also being expressed 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.
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. - Bloomberg
