Risk retreats as Powell investigation raises fears on Fed independence

It’s no wonder why precious metals continue to stay so bullish. Trump is making the headlines again to start the new week and in case you missed it:

• NYT: Federal prosecutors open probe into Fed chair Powell amid renovation scrutiny
• Fed Chair Powell calls out Trump on his witch hunt, part of ongoing threats against the central bank

This just continues the episode from last year as Trump continues to take aim at the Fed independence amid his disdain for Powell. While it isn’t new, it serves as a good reminder of how the situation is playing out. And markets are clearly responding with contempt as evident by the risk selling we’re seeing to start the week now.

S&P 500 futures are down 0.6% with Nasdaq futures down 0.9% and Dow futures down 0.5% as we look towards European morning trade today.

The Fed will surely continue to do their job regardless of this investigation. However, it’s just unnecessary drama for something that shouldn’t even be an issue. Politics and central bank don’t tend to mix in well together. Just take a look at what’s happening with Japan now as another example.

But essentially, Trump’s continued attacks will just keep drawing flak and raises fears about credibility and independence at the Fed moving forward. And that is something that will keep chipping away at confidence in the central bank and the dollar in general.

For now, risk trades are taking a step back amid the unprecedented attack on Powell. And it comes at a crucial time for US stocks as well. Earnings season is kicking off this week with the big banks set to report, but also keep an eye out on TSMC earnings. The latter is a bellwether for how chipmakers might fare and so that might be the biggest name to watch this week.

Besides that, geopolitical risks are also still not completely out of the picture just yet. Trump continues to raise threats on Greenland and Iran, keeping a more nervous mood on the global stage after the situation in Venezuela.

This article was written by Justin Low at investinglive.com.