Futures Slide, Curve Steepens After Trump Fires Fed’s Cook

US equity futures are a tad lower as the yield curve twists steeper with 5Y yields flat, after Trump moves to fire the Fed’s Cook, sending the USD is weaker. A showdown looms with Cook saying that Trump has no authority to oust her and that she will not quit (previously the SCOTUS indicated that the Fed Governors could not be fired at-will but if it does decide that Trump fired her for cause, Powell would be responsible if he keeps her on after Trump has sacked her). As of 8:15am, S&P and Nasdaq futures are down 0.2% even with Nvidia rising 0.5% ahead of its results on Wednesday. In premarket trading, semis are higher with Defensive sectors outperforming Cyclicals; large-cap Industrials are in the green. In Europe, major markets are all lower with France the biggest laggard on fears of gov’t stability; Germany and UK the relative areas of safety. Commodities are weaker, dragged by Energy. Key events today include the August Philadelphia Fed non-manufacturing index and July preliminary durable goods orders (8:30 a.m.), June FHFA house price index and S&P CoreLogic home price indexes (9 a.m.), August Richmond Fed manufacturing and business conditions indexes and Conference Board consumer confidence (10 a.m.). All eyes on Nvidia earnings tomorrow.

In premarket trading, Mag 7 stocks are mostly lower (Nvidia +0.4%, Microsoft -0.1%, Apple -0.1%, Amazon -0.2%, Meta Platforms -0.08%, Alphabet -0.2%, Tesla -0.4%). AMD (AMD) gains 2% after the company and IBM announced a quantum-centric supercomputing partnership. Here are some other notable movers:

• EchoStar (SATS) soars 58% after AT&T announced an agreement to buy spectrum licenses from the satellite broadband communication company for about $23 billion, adding an average of about 50 MHz of low-band and mid-band spectrum to AT&T’s holdings. AT&T (T) shares are up 0.6%.
• Eli Lilly & Co. (LLY) rises 1.8% after its experimental obesity pill helped patients lose 9.6% of their body weight in a trial that moves the company one step closer to a potential approval.
• Interactive Brokers (IBKR) climbs 3% after the S&P Dow Jones Indices announced that the automated-electronic broker will join the S&P 500 Index before trading opens Aug. 28, replacing Walgreens Boots Alliance Inc.
• Olaplex Holdings (OLPX) rises 6% after announcing the acquisition of Purvala Bioscience, a Boston-based biotech company.
• Semtech (SMTC) gains 3% after the semiconductor device company reported second-quarter results that beat expectations and gave an outlook that’s in-line with expectations.

Key corporate news:

• Eli Lilly & Co.’s experimental obesity pill helped patients lose 9.6% of their body weight in a trial that moves the company one step closer to a potential approval.
• EssilorLuxottica SA, the maker of Ray-Ban sunglasses, is exploring a potential deal to increase its stake in Japanese optical equipment manufacturer Nikon Corp., people with knowledge of the matter said.
• Interactive Brokers Group Inc. shares climb as much as 4.7% in premarket trading on Tuesday after the S&P Dow Jones Indices announced that the automated electronic broker will join the S&P 500 Index
• Brevan Howard Asset Management is set to hand a minority stake to Abu Dhabi’s Lunate in a milestone agreement for the macro-trading firm that turned the emirate into its biggest risk center in just a year after setting up a local office.
• Orsted A/S executives are working to reassure shareholders Tuesday after the Trump administration’s decision to halt one of the company’s two wind-power projects in the US raised questions about the viability of its proposed $9.4 billion stock sale.
• Indonesia’s newly established sovereign wealth fund has sounded out investors on a plan to raise $3.1 billion by selling so-called patriot bonds at below-market yields, people familiar with the matter said.

Overnight risk appetite was jolted after Trump said he had fired Federal Reserve Governor Lisa Cook for alleged criminal cause, stoking fears over the long-term outlook for inflation. The president also renewed his trade brinkmanship, threatening fresh tariffs and export restrictions on advanced technology and semiconductors in retaliation against digital services taxes abroad. Stocks and bonds were already under pressure after the optimism that followed Fed Chair Jerome Powell’s address at Jackson Hole faded on Monday. Doubts about the pace of easing are lingering ahead of an inflation report later this week, expected to highlight sticky price pressures.

“If the Fed is perceived as caving to pressure from the administration and lower rates prematurely to placate the White House, it risks inflation becoming more entrenched,” said Tom Essaye at The Sevens Report. “Since longer-dated yields trade primarily off inflation expectations, this pressure is boosting the 30-year Treasury yield.”

For the Fed, swaps imply about an 80% chance of a Fed quarter-point rate cut next month, with at least one more expected by year-end. Forcing out Cook would give Trump an opportunity to secure a four-person majority on the Fed’s seven-member Board of Governors. Her term wasn’t set to expire until 2038.  Trump said he had “sufficient cause” to fire Cook, the first Black woman to serve on the Fed Board in Washington, based on allegations that she made false statements on one or more mortgage loans.

In Europe, the Stoxx 600 fell 0.7% led by French assets which extended losses for a second day as investors fretted that Prime Minister Bayrou’s proposed confidence vote risks toppling his government. The CAC 40 slid 1.7%, leading declines across European bourses. Construction and banks sectors are among the worst performers, while mining and health care shares are leading gains. Here are the biggest movers Tuesday:

• Bunzl shares rise as much as 6.3% after the value-added distributor delivered first-half results broadly in line with expectations, reaffirmed its outlook and resumed its share buyback
• DiaSorin climbs as much as 4%, the most since mid April after Morgan Stanley upgrades to overweight as the bank continues to see strong prospects for the European diagnostics sector
• Huber+Suhner shares gain as much as 3.3% after Baader raised the recommendation to add from sell, citing strong growth ahead thanks to the firm’s optical circuit switch, which allows data centers to operate more efficiently
• Zurich Airport shares gain 3.1%, the most since May. Vontobel says first-half results topped expectations with strong travel demand, especially among local passengers
• Filtronic shares jump as much as 11% after SpaceX agreed to buy £47.3 million worth of the gallium nitride E-band product from the communication
• French stocks are the worst-performers in Europe on Tuesday after Prime Minister Francois Bayrou unexpectedly announced a confidence vote for next month, prompting a selloff in local assets
• British retail stocks drop after a raft of downgrades at Deutsche Bank. Analysts expect a squeeze in discretionary spending power as UK consumer confidence weakens amid concerns over expected tax increases and rising inflation
• Commerzbank shares fall as much as 6.3% after BofA downgrades the German lender to underperform from neutral, saying that its valuation appears stretched
• British American Tobacco shares slide as much as 2.9% as the maker of Dunhill, Rothmans and Camel cigarettes says CFO Soraya Benchikh is stepping down with immediate effect, after a little more than a year in the job

Earlier in the session, Asian stocks fell as a rally in Chinese equities paused amid signs of overheating, while earlier advances in the Japanese yen weighed on export-focused stocks. The MSCI Asia Pacific Index dropped as much as 1.1%, with tech firms Alibaba and Samsung Electronics among the biggest drags. Benchmarks in the Philippines, Japan and Hong Kong were among the biggest decliners in the region. Chinese gauges ended the day lower, after recording a few strong sessions on optimism that more retail money will flow into the market. Red flags are emerging following the surprise rally in onshore shares that’s mostly driven by liquidity rather than improved economic fundamentals. Japanese stocks underperformed in the region, as gains in the yen pressured exporters. Uncertainty around the Federal Reserve’s rate policy was exacerbated by US President Donald Trump’s move to oust Governor Lisa Cook, which weighed on investor sentiment. Elsewhere, South Korean stocks fell as investors grow impatient for concrete corporate reform measures and clearer insight into US tariffs’ impact on earnings.

“The threat to the independence of the Federal Reserve has exacerbated its difficulties in responding to a challenging economic and political environment,” according to a note from the UBS chief investment office. “The next move of the Federal Reserve remains the focus of attention, as investors are closely monitoring signs of further policy shifts.”

In FX, the Bloomberg Dollar Spot Index pared an earlier 0.3% drop to trade little changed, while the euro swung between gains and losses as the common currency got caught between Fed noise and French political risk.

In rates, treasuries are mixed with 30-year yields up 4 bps to 4.94% while two-year yields slip after Trump ousted Fed governor Lisa Cook for mortgage fraud, setting up a legal fight with the central bank, which he’s aiming to remake in pursuit of interest-rate cuts. With shorter-maturity yields little changed to lower, curve spreads widened, pushing 5s30s over 115bp for the first time since 2021 even as Treasury auctions of 2-, 5- and 7-year notes is set to begin. The 30-year is about 2bp higher on the day near 4.95%. Short-maturity yields reflected higher probability of Fed rate cuts, with the 2-year lower by about 1.5bp; swap contracts linked to future Fed rate decisions continue to fully price in one quarter-point rate cut this year in October and a second one by year-end. Month’s final coupon auction cycle begins with $69 billion 2-year note sale at 1pm New York time; WI yield near 3.68% is lower than 2-year auction results since last September. French 10-year yields slip 1 bp to 3.51% as the spread over Germany widens by another 2 bps to the widest since April.

In commodities, WTI crude drops 1.3% to near $64 a barrel. Spot gold rises $10. Bitcoin rises 0.7%.

Looking at today’s US economic data calendar we get the August Philadelphia Fed non-manufacturing activity gauge and July preliminary durable goods orders (8:30 a.m.), June FHFA house price index and S&P CoreLogic home price indexes (9 a.m.), August Richmond Fed manufacturing and business conditions indexes and Conference Board consumer confidence (10 a.m.) Fed speaker slate includes Richmond Fed President Barkin repeating his Aug. 12 remarks on the economy (time TBD). We also get Nvidia’s results out after the US close tomorrow (with a +33.9% gain, Nvidia has again been the best performer in the Mag-7 year-to-date, but the past couple of quarters saw it deliver smaller earnings surprises after its euphoric growth during 2023-24). Rounding out US events, in tariffs, the “de minimis” exemption will end this Friday, while additional 25% tariffs on India (taking the total levy to 50%) are due to come into effect on Wednesday

Market Snapshot

• S&P 500 mini -0.1%
• Nasdaq 100 mini -0.1%
• Russell 2000 mini -0.2%
• Stoxx Europe 600 -0.8%
• DAX -0.6%, CAC 40 -1.8%
• 10-year Treasury yield +3 basis points at 4.3%
• VIX +0.6 points at 15.37
• Bloomberg Dollar Index -0.1% at 1206.27
• euro +0.1% at $1.1634
• WTI crude -1.2% at $64/barrel

Top Overnight News

• Donald Trump escalated his battle to exert more control over the Fed by moving to fire Lisa Cook over allegations she falsified mortgage documents. Cook said the president has no authority to oust her, and she won’t quit, setting the scene for a legal battle. Trump’s move may become a test of the Supreme Court’s intentions when it signaled earlier this year it would shield the Fed from at-will removal of board members. BBG
• The U.S. will increase tariffs and impose export restrictions on countries that tax or regulate U.S. tech firms, President Trump said on Monday evening, in his most direct threat to retaliate against nations that he views as discriminating against companies such as Google and Meta Platforms. WSJ
• Trump said on US stakes in companies, that he wants to get as much as he can and hopes to have many more cases like Intel, while he added there will be other cases.
• A senior Chinese trade negotiator is heading to Washington this week for what is expected to be the first dialogue in the U.S. capital, according to people familiar with the matter, as both sides seek to establish regular communication during an extended tariff truce. WSJ
• An announcement regarding the US-Japan trade deal involving a $550 billion investment vehicle is due this week, Commerce Secretary Howard Lutnick told Fox. BBG
• The US outlined plans to implement a 50% tariff on products from India. A draft notice said the levies would apply from 12:01 a.m. ET tomorrow. BBG
• Refiners in India, among the largest buyers of Russian crude, are planning to trim their purchases in the coming weeks, a modest concession to Washington’s hawks less than a day ahead of a hike in US tariffs, but also a signal that the country has no plans to sever ties with Moscow. BBG
• France’s minority government looked increasingly likely to be ousted next month after three main opposition parties said they would not back a confidence vote which Prime Minister Francois Bayrou announced for September 8 over his plans for sweeping budget cuts. RTRS
• The intensifying Ukrainian drone campaign against Russian refineries has taken some 13% of Russia’s fuel production offline, according to analysts. Sanctions imposed by the West after the 2022 invasion, meanwhile, have limited Moscow’s ability to repair infrastructure and service remaining installations, and forcing them to ration. WSJ
• The Fed’s John Williams said the neutral interest rate may not be much different than before the pandemic. He didn’t elaborate but the latest median estimate of the neutral rate among Fed officials was 3%, up from 2.5% prior to Covid-19. BBG

Trade/Tariffs

• US President Trump threatened on Truth Social to impose substantial additional tariffs on countries that do not remove discriminatory actions such as digital taxes, legislation, and rules against US tech companies, while he also threatened export restrictions on tech and chips.
• According to Politico, citing Top Trade MEP Lange, the European Commission is expected to reveal its proposals to lift tariffs on US industrial goods and cars.
• South Korean President Lee’s office said Lee and US President Trump talked about shipbuilding and that Trump stressed his support for Lee, while it added that the mood from the meeting was good enough that a written joint statement was unnecessary and the meeting was an opportunity for the leaders to get close to each other, rather than discussing the specifics on trade.
• South Korean adviser Wi said details on trade talks still need to be determined and progress has been made on modernising the alliance, while Wi added that Trump and Lee had meaningful talks about nuclear energy.
• Chinese top trade negotiator Li Chenggang is set to head to the US as talks resume and will meet with US Trade Representative Greer and senior Treasury Department officials later this week, according to WSJ. It was later reported that a US government spokesperson said Washington welcomes Chinese efforts to reduce its persistent and massive trade surplus with the US.
• US President Trump’s administration reportedly weighs visa sanctions for EU and EU member state officials over the bloc’s digital services act, according to Reuters citing sources.
• Canadian and US officials are to meet after Canada removes some tariffs, according to Bloomberg News.
• Brazil’s Foreign Minister Vieira said Canada and the South American bloc Mercosur are to resume negotiations for a free trade agreement, while he added a joint decision was made to resume the negotiations and there will be an important meeting in October regarding Canada-Mercosur talks.
• Indonesia’s chief tariff negotiator says the US agrees in principle to exempt palm oil, cocoa and rubber from 19% tariffs.
• Morgan Stanley expects Fed to cut rates by 25bps in September and December (prev. saw no rate cuts in 2025); now expects 25bps cut in March, June, Sept and Dec in 2026, taking terminal target range to 2.75-3.00%

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded mostly lower after global markets faded last Friday’s post-Powell dovish reaction, while Trump also moved to fire Fed Governor Cook and threatened to impose substantial additional tariffs on countries that do not remove digital taxes and regulations against US tech companies. ASX 200 retreated amid a continued deluge of earnings releases including from the likes of Coles and Fortescue. Nikkei 225 underperformed with notable weakness seen in power names including TEPCO, and with Nissan pressured as Mercedes-Benz is to offload its 3.8% stake in the Japanese automaker, while participants also digested Services PPI data and Japan’s top tariff negotiator is set to travel to the US as early as this week. Hang Seng and Shanghai Comp pared early losses and returned to flat territory with some resilience seen after another firm liquidity operation by the PBoC, while it was also reported that China’s top trade negotiator Li Chenggang is set to head to the US and will meet with US Trade Representative Greer and senior officials at the Department of the Treasury later this week. US equity futures (ES -0.1%, NQ -0.1%) lacked demand amid Fed independence concerns and after Trump’s latest tariff warning, while participants also await earnings from NVIDIA on Wednesday. European equity futures indicate a lower cash market open with Euro Stoxx 50 futures down 0.5% after the cash market closed with gains of 0.8% on Monday.

Top Asian News

• RBA Minutes from the August meeting stated the board saw a strong case for a 25bps cut in the Cash Rate and judged some further reduction in the Cash Rate is likely needed over the coming year, while the stance of policy was still judged somewhat restrictive and it noted the pace of rate cuts would be determined by incoming data and the balance of global risks. RBA Minutes also stated that the board saw arguments for both a gradual pace of easing and for a faster pace, as well as noted the labour market was still a little tight, inflation remained above the midpoint, and domestic demand was recovering. Furthermore, it said uncertainty about spare capacity and the neutral rate also argued for gradual easing, but faster easing might be needed if the labour market was already in balance, risking inflation undershooting the midpoint.
• Japan will invest USD 68bln in India over 10 years including in AI and chips, while India and Japan’s PMs intend to revise their countries’ joint declaration on security cooperation for the first time in 17 years, according to Nikkei.

European bourses (STOXX 600 -0.7%) began the session on the backfoot and continue to languish around these levels, driven lower by notable underperformance in Paris; France’s Government is at risk of collapse after PM Bayrou called for a confidence vote. European sectors opened almost entirely in the red and continued their bearish bias throughout the morning. The underperformers are led lower by French heavyweights, hurting the likes of Banks, Construction and Insurance. French listed Socgen, BNP Paribas, Vinci, AXA and Alstom are the underperformers in the CAC, with losses ranging between -8% to -4%.

Top European News

• UK think tank Resolution Foundation’s analysis highlighted a rapid weakening of the jobs market and warned the UK unemployment rate could hit 5% in the three months to August which would be the highest level since the start of 2021, according to FT.
• French Finance Minister Lombard says certainly not resigned to Government falling on September 8; needs to find path to prepare the 2026 budget which will be a recovery budget.

FX

• DXY is steady after Monday’s paring of the post-Powell downside. The DXY took a brief leg lower overnight after US President Trump posted a letter removing Fed Governor Cook from her position. If successful, this would put Trump on course for a majority on the Fed board. That being said, Cook has been defiant in stating that she will not resign and that President Trump has no authority to fire her. For today’s docket, US durable goods orders and consumer confidence are both due on deck. DXY held above support via its 50DMA at 98.06.
• EUR is resilient despite an unfavourable Eurozone risk backdrop over the past 24 hours. French politics is back in the headlines after French PM Bayrou called for a vote of no confidence on his government’s fiscal plans on September 8th. Whilst the EUR is unfazed today, French assets are showing greater concern with the CAC 40 down over 2% and the FR/GE spread at its widest level since April. EUR/USD is back below its 50DMA 1.1651 and towards the bottom end of Monday’s 1.1603-1.1723 range.
• JPY is slightly firmer vs. the USD but unable to hold onto the bulk of its APAC gains that were seen as the risk mood soured post-Trump/Cook. A decline in services PPI had little follow-through to the JPY. USD/JPY delved as low as 147.00 overnight, with the pair unable to test its 50DMA to the downside at 146.91.
• GBP is slightly firmer vs. the USD as UK participants return to market after the long weekend. UK traders return to little in the way of positivity however, with the latest BRC shop price data showing that UK food inflation in August rose to its highest level since February 2024. That being said, ING writes that EUR/GBP looks to stay offered this week as French politics prompts some reassessment of long euro exposure. Cable ran out of steam ahead of its 50DMA at 1.3492.
• Antipodeans are both are marginally weaker vs. the USD alongside the downbeat risk tone. There was little follow-through into AUD from the RBA minutes release, which showed that the board saw a strong case for a 25bps cut in the Cash Rate and judged some further reduction in the Cash Rate is likely needed over the coming year.
• PBoC set USD/CNY mid-point at 7.1188 vs exp. 7.1670 (Prev. 7.1161)

Fixed Income

• USTs are trading on the back foot today and lower by a handful of ticks, to currently trade in a 111-25+ to 112-03+ range. A tinderbox of catalysts for markets to digest on Monday and overnight, including trade developments and US President Trump’s decision to fire Cook. On the latter, ING highlights that “the US 2-30 year yield curve broke to a new cyclical high overnight at 122bp”, levels not seen since the start of the Russia-Ukraine war. Ahead, some Tier 2 US data, and with more focus on 2yr supply.
• Bunds are outperforming across global paper today, seemingly catching a “safety” bid, following on from the increasing risks of a French government collapse (discussed in OAT section). Currently trading in a 129.15 to 129.45 range, with price action fairly muted throughout the morning.
• OATs are lower today to the tune of around 10 ticks, extending on the prior day’s losses where French paper reacted to PM Bayrou’s calls for a confidence vote – it doesn’t seem likely he will get that (discussed below). In terms of price action today, OATs have traded in a 121.54 to 121.98 range. As it stands, the 10y German-French spread sits at 78.06bps, heading back towards levels seen on Liberation Day. As a reminder, in the prior session the spread widened roughly 4.3bps, a move which has continued slightly to make a total widening of 12.8bps at most (from Monday’s open to current).
• Gilts are the clear underperformer today as UK paper returns from holiday, and plays catch-up to the broader losses seen in the prior session. Of course, French/US political uncertainty is factoring, but also as UK fiscal woes gradually come into the forefront of traders’ minds. As it stands, political commentary has been exceptionally downbeat on how Chancellor Reeves will enact her high growth/no tax increase budget this autumn.

Commodities

• Crude futures trade with losses near USD 0.90/bbl amid a downbeat mood across global markets, and a broad reversal of geopolitical gains made on Monday as Ukrainian Strikes on a Russian oil terminal did not have a great impact to any barrels.
• Spot gold is boasting gains, and is the clear outperformer in the metals space, with Silver flat and Palladium and Platinum continuing losses. The yellow metal benefits after US President Trump ordered the removal of Fed Governor Lisa Cook, alleging false mortgage statements. XAU/USD is currently trading around 3,375/oz.
• Copper outperforms in the base metals space, as it catches up to Chinese optimism after LME trade was closed on Monday. The industrial metal trades within USD 9,792.35-9,867.38/t parameters.
• Chile’s mining regulator added requirements to restart sectors of Codelco’s El Teniente copper mine affected by the collapse.
• Shanghai Futures Exchange lowers price limits and trading margins for aluminium alloy futures effective from close of settlement on 28 August

Geopolitics: Middle East

• US President Trump said Gaza has to be settled soon, while he thinks they will have a good and conclusive ending within the next 2-3 weeks.
• Australian PM Albanese said the Iranian government directed at least two antisemitic attacks in Australia and the Iranian ambassador will be expelled, while he added that operations at Australia’s embassy in Tehran have been suspended and Australian diplomats are now safe in a third country. Furthermore, the government will legislate to list Iran’s Islamic Revolutionary Guard Corps as a terrorist organisation.

Geopolitics: Ukraine

• US and Russian government officials have discussed several energy deals on the sidelines of negotiations in August that sought to achieve a peace deal in Ukraine, according to multiple sources, via Reuters; talks included Russia purchases of US equipment
• Ukrainian President Zelensky said he had a good meeting with US Envoy Kellogg and that Ukraine values US readiness to be part of Ukraine’s security architecture, while he discussed with Kellogg how to exert pressure on Russia to hold “real talks” to end the war and said military cooperation is important with the US, particularly on purchases of weapons and accord on drones. It was separately reported that US and Ukrainian officials are expected to meet later this week.
• US President Trump said regarding talks with Russian President Putin that they are also talking about nuclear missiles and stated “we” would like to denuclearise, while he added that Putin is reluctant to meet Ukrainian President Zelensky because he does not like him. Furthermore, Trump later commented that he discussed denuclearisation with Putin, and thinks that Russia and China would be willing to do it.
• US President Trump said Russian President Putin and Ukrainian President Zelensky should meet, while Trump said he may be there for the Putin-Zelensky meeting or may not and there could be consequences if they do not meet, but we will see what happens over a week or two and at that point, he will step in.

Geopolitics: Other

• US President Trump thinks they can do something on North and South Korea and he looks forward to meeting with North Korean leader Kim, while South Korean President Lee said Trump is the only person who can solve the North Korean issue and that he would like to meet Kim this year.
• South Korean President Lee said he agreed to work closely with US President Trump for peace in the Korean peninsula and noted that North Korea keeps developing its weapons programme as a result of sanctions. Furthermore, Lee said problems cannot be solved solely by pressuring North Korea and that North Korea reached a stage with capabilities of making 10-20 nuclear weapons per year, while it was separately reported that South Korean President Lee invited US President Trump to APEC to pursue a meeting with North Korean leader Kim, according to Newsis.
• North Korea’s military said US-South Korea drills prove a US intention to occupy the Korean peninsula, according to KCNA.

US Event Calendar

• 8:30 am: Jul P Durable Goods Orders, est. -3.8%, prior -9.4%
• 8:30 am: Jul P Durables Ex Transportation, est. 0.2%, prior 0.2%
• 8:30 am: Jul P Cap Goods Orders Nondef Ex Air, est. 0.2%, prior -0.8%
• 8:30 am: Jul P Cap Goods Ship Nondef Ex Air, est. 0.17%, prior 0.3%
• 9:00 am: Jun FHFA House Price Index MoM, est. -0.1%, prior -0.2%
• 9:00 am: Jun S&P CoreLogic CS 20-City YoY NSA, est. 2.08%, prior 2.79%
• 9:00 am: Jun S&P CoreLogic CS U.S. HPI YoY NSA, prior 2.25%
• 10:00 am: Aug Richmond Fed Manufact. Index, est. -11, prior -20
• 10:00 am: Aug Conf. Board Consumer Confidence, est. 96.5, prior 97.2

DB’s Jim Reid concludes the overnight wrap

Readers rejoining us after the bank holiday weekend in the UK will have plenty to catch up on since Powell’s dovish tilt in Jackson Hole drove a buoyant market mood just in time for the European close on Friday. That strong cross-asset rally lost momentum on Monday, while President Trump’s move last night to dismiss Fed Governor Lisa Cook has led long-end Treasuries to sell off amid renewed concerns over Fed independence. Meanwhile in Europe, political risks resurfaced in France yesterday, where the minority government is at risk of collapse in a confidence vote expected on September 8. French assets struggled in response, with the 10yr BTP-OAT spread falling its lowest level since the start of the century.

Starting with the overnight Fed news, in a letter posted last night Trump claimed he had “sufficient cause” to dismiss Governor Cook and was removing her effectively immediately. This follows allegations that Governor Cook had applied for “primary residence” mortgages on two separate properties within two weeks of each other in 2021 before she became Fed Governor. In a statement reported overnight, Cook challenged the move, saying she will not resign as “President Trump purported to fire me ‘for cause’ when no cause exists under the law, and he has no authority to do so”. So this could turn into the most market-relevant test so far of Trump’s ability to fire officials of independent government agencies. Were Cook’s dismissal to hold, it would open up another seat for Trump to fill on the seven-person Federal Reserve Board. With Stephen Miran nominated for the seat recently vacated by Governor Kugler and with Governors Waller and Bowman dissenting in favour of a rate cut at the July meeting, this would increase the prospects of a dovish majority on the Board.

With Trump’s move seen as further escalating the US administration’s attempts to exert influence over the Fed, the dollar saw a kneejerk drop of nearly -0.4% on the news though it has largely reversed this decline as I type. Gold spiked by +1% and is holding on to most of this overnight gain, while futures on the S&P 500 (-0.14%) and the Nasdaq (-0.18%) are modestly lower. Meanwhile, the Treasury curve has seen a sizeable steepening, with the 2yr yield trading -0.7bps lower but the 10yr up +2.9bps and the 30yr +4.5bps to 4.93%. This has brought the 2s30s slope to 122bps, its steepest since January 2022 when the Fed had not yet started its post-Covid hiking cycle.

Earlier on Monday Treasuries had reversed some of Friday’s rally, with 2yr yields up +3.2bps (-9.7bps Friday) and 10yr up +2.5bps (-7.4bps Friday) even as markets still priced an 83% likelihood of a Fed rate cut in September (up from 71% before Powell spoke on Friday). The S&P 500 (-0.43%) lost ground after having its best day since May on Friday (+1.52%). The headline decline was mitigated by continued gains for the Mag-7 (+0.38%) as Nvidia rose +1.03% ahead of its results after market close tomorrow. However, there were broad declines otherwise with 80% of the S&P 500 constituents declining, which was the most in nearly six weeks.

As a brief recap, Powell’s speech at Jackson Hole showed a couple of notable dovish shifts. First, as the Fed Chair suggested that “downside risks to employment” were rising and second, as he noted that the “shifting balance of risks may warrant adjusting our policy stance”. This left a sense that in Powell’s view further labour market weakening was no longer needed to ease policy. Our US economists updated their near-term Fed view in response, now expecting a 25bps cut next month, with further 25bps cuts in December and March (see their reaction on Friday for more).

Remarkably, the moves over the past couple of sessions have been a near-carbon copy of those seen after Powell signaled impending rate cuts at Jackson Hole last year (see our EMR at the time). Both in terms of a strong cross-asset rally on Friday partially reversing on Monday, and in terms of the S&P 500 being within 1% of its all-time highs. Last year this was followed by 100bps of rate cuts over the next three FOMC meetings. This time round – with the fed funds rate now 100bps lower, unemployment stable at 4.2% over the past 12 months and core PCE inflation at 2.8% a smidgen higher than it was a year ago – it’s hard to see economic fundamentals justifying swift policy easing.

In Europe, the big news yesterday came in France where Prime Minister Bayrou called for a confidence vote as he seeks to force support for his budget plan that foresees EUR 44bn of fiscal tightening. The vote is due on September 8 and comments from opposition parties suggest that Bayrou’s minority government is likely to lose it. The government would need to achieve a simple majority in the National Assembly to survive, but officials from both the far-left and the right-wing populist RN said yesterday that they would vote against it. It would then require many of the centre-left Socialist MPs to support the government, but the Socialists’ leadership have suggested overnight that the Party will also vote against it. Should the government lose the confidence vote, President Macron may seek to nominate a different Prime Minister to form a government, who would then face the immediate challenge of passing a 2026 budget.

Alternatively, Macron could call snap elections. Current polls point to another fragmented outcome as happened after the summer 2024 snap vote, though with the far-right RN leading in polls, investors would be watchful whether it could translate this lead into an outright majority this time round.

Following the news, the 10yr OAT-Bund spread widened by +5.3bps to 75bps, its highest level since April, while the spread on Italian BTPs over OATs fell to just 9.8bps, its lowest since the start of our Bloomberg series in 1999. France’s CAC index (-1.59%) posted its biggest decline in three weeks, while the euro had its worst day against the dollar so far this month (-0.85%), closing at 1.1618.

Elsewhere in Europe, bonds and equities saw milder declines on Monday. 10yr bunds yield rose +3.6bps to 2.76%, helped by a decent August Ifo survey that saw its expectations series rise from 90.8 to 91.6, its highest level since February 2022. However, stocks still lost ground across the continent, with the Stoxx 600 down -0.44% as both the DAX (-0.37%) and FTSE MIB (-0.19%) posted modest declines.

Recapping yesterday’s other data releases, US new home sales totaled 652k in July, exceeding expectations (630k) as June data was revised higher from 627k to 656k, while median new sales prices edged lower. Meanwhile, we saw underwhelming regional readings in the Chicago Fed’s activity index (-0.19 vs -0.11 exp) and the Dallas Fed’s manufacturing index (-1.8 bs -0.9 exp).

Overnight in Asia, equity markets are reflecting Monday’s losses from Wall Street as well as President Trump’s intensified rhetoric on tariffs yesterday evening. Trump’s comments included a threat of ‘200% tariffs or something’ on China if it does not export rare-earth magnets. He also warned of fresh tariffs and export restrictions on countries that do not remove digital taxes and associated regulations that hit American technology companies. Both the Nikkei (-0.88%) and the KOSPI (-0.94%) are seeing notable declines.

Chinese stocks are mixed this morning, with Hang Seng down -0.22% but the CSI (+0.14%) and the Shanghai Composite (-0.11%) edging higher after rising for the previous four sessions. Indeed, the Shanghai Composite has surged by over +9% since August 1, reaching a new 10-year high on Monday on news of potential additional property market assistance. In a note yesterday (see here ), our China economists dissect what has driven the sudden risk-on performance of China’s on-shore market despite lacklustre economic data and discuss what to expect moving forward.
Looking forward to the rest of the week ahead, Friday will see key inflation data out on both sides of the Atlantic. In the US, our economists expect the July core PCE deflator to come in at +0.29% MoM (vs. +0.26% previous), bringing the YoY rate a tenth higher to 2.9%, with risks of this even rounding up to 3.0%. A 3% reading would be the highest since March 2024. In Europe, we expect the flash August CPI prints for Germany, France and Italy to show a slight uptick in annual inflation (see more from our European economists here).

Before that, we have Nvidia’s results out after the US close tomorrow. With a +33.9% gain, Nvidia has again been the best performer in the Mag-7 year-to-date, but the past couple of quarters saw it deliver smaller earnings surprises after its euphoric growth during 2023-24. Rounding out US events, in tariffs, the “de minimis” exemption will end this Friday, while additional 25% tariffs on India (taking the total levy to 50%) are due to come into effect on Wednesday.