“The bull market still has legs, and it’s entirely possible that we see further gains irrespective of what happens with internal and external policy, said Giuseppe Sette at Reflexivity.
The yield on 10-year Treasuries advanced two basis points to 4.18 per cent. A dollar gauge slid 0.2 per cent.
Federal Reserve chair Jerome Powell said the central bank had been served grand jury subpoenas from the Justice Department threatening a criminal indictment. In a forceful written and video statement released Sunday, Powell said the action was related to his June congressional testimony on ongoing renovations of the Fed’s headquarters.
In an interview with NBC News on Sunday, Trump denied having any knowledge of the investigation into the central bank.
The strength of the evidence in favour of greater central bank autonomy lowering inflation has often been overstated, and even complete independence offers no guarantee of low inflation in future, according to Jennifer McKeown at Capital Economics.
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“But sustained political intrusion into monetary policy would come at a cost, even if markets are willing to overlook it in the short term.”
The Trump administration’s latest attack on the Fed’s independence poses a threat to the US stock market, at least in the short term, according to JP Morgan Securities’ trading desk.
“While macro and corporate fundamentals support a tactically bullish stance the risk to Fed independence creates an overhang and thus we are cautious in the very near-term,” Andrew Tyler, head of global market intelligence, said. “The risk around Fed independence is likely to push the US toward near-term underperformance.”
“Are the subpoenas and threat of criminal prosecution simply a ploy to manipulate the Fed? I can’t say, but I can say that I hope not,” said Mark Malek at Siebert Financial. “The Fed must remain independent in order for the central bank to remain effective and – and this is important – or the integrity of the US dollar and the all-important Treasury markets to remain the world’s benchmarks.”
For now, the price action in bonds is consistent with Fed credibility concerns, with the yield curve steepening. That being said, the moves were within the prevailing range, according to Ian Lyngen at BMO Capital Markets.
“After shrugging off last week’s geopolitical surprises, US markets face domestic political headlines as trading kicks off this week,” said Chris Larkin at E*Trade from Morgan Stanley. “Barring additional surprises, the markets will likely turn their attention to earnings and inflation data.”
Bloomberg
