NEW YORK: Stocks jumped and the dollar rose in a relief rally after President Donald Trump said he doesn’t plan to fire Federal Reserve Chair Jerome Powell and optimism grew that trade tensions with China may ease.
US equity-index futures soared, Treasuries rallied and a gauge of the dollar advanced for a second day in a broad lift for American assets. Asian shares gained at the open while the Aussie rose amid optimism of US trade talks with China. Shares of Tesla Inc. rose in after hours as Chief Executive Officer Elon Musk said he will step back "significantly” from the Department of Government Efficiency.
Trump’s comments on the Fed chief late Tuesday (April 22) in Washington walked back opinions expressed in the past week that sparked concerns about the US central bank’s independence, and reinforced a Sell America trade. Signs of progress in some trade talks also helped improve market sentiment, with Treasury Secretary Scott Bessent saying that a standoff with China will ease.
"While it is still early days, the mood in the market is evidently shifting,” wrote Chris Weston, head of research at Pepperstone Group Ltd. in Melbourne. "What was a strong ‘sell America’ vibe flowing through markets yesterday has in part reversed.”
Trump - frustrated that the central bank hasn’t moved to lower interest rates - posted on social media last week that Powell’s "termination cannot come fast enough! Rebuke of the Fed and comments from officials that Trump was studying whether he could fire Powell had sent the dollar to the lowest level since December 2023.
On Tuesday, Trump said he had no intention of firing Powell despite his frustration with the central bank not moving more quickly to slash interest rates.
"It just highlights that there is too much uncertainty and the headline risk is back on the table,” Rupal Agarwal, a quantitative strategist at Sanford C Bernstein, said in a Bloomberg TV interview. "Investors are really grappling on how to deal with not just the political uncertainty but also the macro uncertainty,” she said.
US stocks surged Tuesday with headlines about trade talks driving the momentum. White House Press Secretary Karoline Leavitt said that progress is being made and that the "ball is moving in the right direction with China.” The comments followed a Politico report that the White House is nearing general agreements with Japan and India on trade.
Stocks were also supported by a Bloomberg report of closed-door comments by Treasury Secretary Bessent saying the tariff standoff with China is unsustainable and that he expects the situation to de-escalate. The US president also said on Tuesday that final tariffs on China wouldn’t be "anywhere near” the 145 per cent level set.
The US also said it’s made "significant progress” toward a bilateral trade deal following talks between Vice President J. D. Vance and Indian Prime Minister Narendra Modi.
"We are looking at more successful trade negotiations with key trading allies,” Stuart Kaiser, head of equity trading strategy at Citigroup Inc., said on Bloomberg Television on Tuesday. " I put Europe, India, Japan, South Korea, Australia in that category. I think we will see good progress there and that is good for markets.”
One by one, equity benchmarks in Asia are recouping the losses they suffered since Trump’s announcement of his wide-ranging reciprocal tariffs on April 2. India, which has emerged as a relative safe haven amid the tariff wars, was the first major global market to wipe out such declines last week. South Korean and Australian stock gauges did so on Wednesday.
Haven assets such as gold and the Japanese yen sold off.
At the same time, the International Monetary Fund sharply lowered its forecasts for world growth this year and next, along with a warning that the outlook could worsen because of the trade war.
The unease around US assets that sparked a selloff in long-term government bonds and sent yields soaring is showing up in the options market, where premiums to protect against even bigger losses are at their highest since the "flash crash” of 2021.
"We are in a period of extreme uncertainty, where one should not react too much to daily moves,” Anwiti Bahuguna, Northern Trust Asset Management’s CIO of global asset allocation, said on Bloomberg Television on Tuesday.
Bitcoin advanced above US$90,000 for the first time since early March, fueling optimism that the biggest digital token is finally breaking free of a longstanding tendency to move in the same direction as US tech stocks. - Bloomberg
