The FTSE 100 was weaker on Tuesday as investors turned their noses up at Trump’s latest attack on the Federal Reserve’s independence by ordering the sacking of govenor Lisa Cook.
London’s leading index fell in line with a global retreat in equities that saw declines in Europe and the US. The FTSE 100 was down 0.5% at the time of writing.
Most major central banks are independent and free from the political interference of government for a very good reason, and the entire financial system is built on this independence.
Central bank independence is especially important in the current environment because the Fed’s position acts to counteract Trump’s inflationary trade policies.
Trump’s efforts to undermine independence by pushing for interest cuts and ordering the removal of governors are being met with disdain, and traders reacted by dumping US bonds and selling down positions in stocks on Tuesday.
“A jump in US Treasury yields indicates that bond investors aren’t happy about how Trump continues to meddle with the Fed and threaten its independence,” said Russ Mould, investment director at AJ Bell.
“Equity markets were in the red across Europe and Asia, and futures prices imply Wall Street will follow suit when it opens for trading later today.
“Donald Trump is being relentless in his quest to lower interest rates. He has publicly called for the Federal Reserve to cut the cost of borrowing and has repeating criticised Fed chair Jerome Powell for not pursuing looser monetary policy.”
The bottom line here is that if Trump gets his way, inflation could very well soar and bring with it the negative economic impact the Fed is mandated to avoid.
Attention will likely remain fixed on the US this week with Nvidia due to release earnings tomorrow and provide insight into the health of the AI industry that has powered equity returns over the past two years.
“Expectations are sky-high, with Nvidia’s revenue forecast to surge 55% – already ahead of company guidance – though Nvidia has a track record of topping its own numbers. Investors will be laser-focused on the resumption of China sales and forward guidance, seeking clarity on just how much Chinese revenue is back in play,” explained Matt Britzman, senior equity analyst, Hargreaves Lansdown.
“US earnings have been strong so far, but this is the big one – and there’s every reason to expect another knockout from Nvidia tomorrow evening.”
In the UK, the FTSE 100’s losses were broad with 81 of the 100 constituents trading negatively at the time of writing.
Bunzl was the top riser, gaining 4%, after announcing the acquisition of Mexican and Spanish distributors.
Kingfisher was at the bottom of the leaderboard, declining 4.8%, as Deutsche Bank analysts cut their rating to hold for buy. Deutsche Bank analysts also cut AB Foods to hold, sending the stock lower by 4%.