Trump ‘Fed Up’ With Powell But Is the Market Listening

Animosity is nothing new between the US President and Fed Chairman Jerome Powell. After all, Trump threatened to fire Powell last year (though it never materialised). This week's news that Powell is under criminal investigation by the US Justice Department appeared to escalate matters further. But is this an attempt to undermine the so-called independence of the US central bank? Or merely an extension of the personal spat, taken to a new level?

We don’t yet have the facts to determine whether there is a legitimate legal case regarding the Fed’s renovation costs. In which case, it would be an overreach to label this a deliberate attempt to undermine the Federal Reserve’s independence.

What we can say is that, based on the market reaction so far, investors are more focused on the 'here and now' of economic fundamentals than on the yet-to-be-determined outcome of legal proceedings involving the Fed Chairman. Trump is sounding well and truly 'fed up' with Powell, but with his term ending in May, the President’s next pick for the top job at the US central bank could prove far more pertinent for markets than these court proceedings.

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The latest Trump-Powell drama isn’t the only curveball thrown at traders this week. The President’s proposal for a one-year 10% cap on credit card interest rates, a 25% tariff on countries doing business with Iran (announced as effective immediately), and signals of potential US military involvement amid Iran's ongoing protests are all adding fresh doses of uncertainty to financial markets. With US earnings season getting underway this week, the proposed cap on credit card rates could cast a shadow over financial stocks—even if the banks deliver EPS beats for the prior quarter.

Precious metals have been on the march higher this week, with gold viewed as an ideal ‘uncertainty hedge’ against ever-evolving geopolitical and policy uncertainties. With Trump seeming to entertain the possibility of US involvement in Iran, this is keeping gold in favour with investors. Gold notched a new all-time high this week (around $4634), with the anticipation of lower US interest rates arriving this year also adding to gold’s credentials. The outlook remains bullish however a consolidation phase could emerge should geopolitical risks start to abate. Levels to watch include support around $4570 and $4420, and resistance at $4640.

The potential of disruptions to Iran’s oil supply amid ongoing protests and potential US involvement have given oil prices a lift, with US crude breaching $60 per barrel. So, for the time being at least, possible Iranian disruptions are outweighing the effects of increased Venezuelan supply. With the global oil market expected to be in a state of oversupply this year, further geopolitical escalation may be required for crude prices to have a sustained run higher.

In FX, the Dollar has been making moves to the upside, most notably against the yen. With a possible Japanese lower house election likely to be called for next month, the ruling LDP party in Japan could be poised to gain further seats, which would lead to a greater likelihood of fiscal stimulus measures being introduced, This is weighing on the yen, and was a key factor in propelling the Dollar Index (DXY) back above the 99 level this week.

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