Global markets closed Monday’s trading session in the red, with investors supposedly losing confidence in US equities. This was fueled by President Donald Trump’s rash comments about Federal Reserve Chairman Jerome Powell.
Trump insists on pushing the US central bank to make “preemptive” reductions in borrowing costs to avoid a potential slowdown in the US economy.
News of the political disconnect between the POTUS and Powell made major US indexes continue shedding valuations in yesterday’s session. The S&P 500 fell 2.36%, the Dow Jones Industrial Average dropped 2.48%, and the Nasdaq Composite slumped 2.55%, upholding the market bloodbath trend that has stung investors for weeks.
Dollar slides, gold soars as investors seek safety from losses
The ICE US Dollar Index plunged to 97.92, its lowest level since March 2022, and has now weakened more than 9% this year. The fall in USD has prompted traders to retreat to other currencies and asset markets, with the latter experiencing more buyers.
Gold prices surged to an all-time high of over $3,500 per ounce, due to the uptick in demand from investors exiting the stock market for the more “safe” asset. Analysts see the move as a signal that markets are bracing for political interference in US monetary policy.
In Asia, markets responded unevenly to the US turmoil. Hong Kong’s Hang Seng Index rose by nearly 0.5%, while Japan’s Nikkei 225 slipped 0.2%.
Moody’s Analytics said it expects the Bank of Japan to hold off on additional rate hikes in its upcoming May meeting, intended to gauge domestic conditions and global currency market fluctuations.
Safe-haven currencies such as the Japanese yen, Swiss franc, and euro have all appreciated significantly against the dollar. Analysts reckon that these gains can help Asian and European countries reduce inflation by making imports cheaper, but they could also affect exporters dealing with US tariffs.
Magnificent seven selloff spells market anxiety
Monday’s stock market decline also included price tanks from the tech-oriented “Magnificent Seven” stocks, a group that saw the biggest gains in the November-January market upturn but is now bearing much of the market’s falling momentum.
Billionaire Elon Musk’s company Tesla recorded the biggest loss at 6%, ahead of its first-quarter earnings report scheduled for Tuesday. Tesla shares have fallen 44% this year, and the company recently ended its worst quarter since 2022.
On Tesla’s investor question board, where shareholders can post inquiries ahead of earnings calls, one user asked if the board has taken steps to address brand damage stemming from CEO Elon Musk’s relationship with the US government, which has supposedly tainted his name and is giving investors a reason to dump Tesla equities.
Will Powell and the Fed cut interest rates?
According to Jeremy Siegel, Wisdom Tree’s chief economist, the current market state should give the Federal Reserve more reasons to cut interest rates. Speaking on CNBC’s Squawk Box late Monday, Siegel said long-term inflationary expectations, what Powell has mentioned a few times as an indicator that could support or dismiss rate cuts, have gone down.
“I’ve looked at the data, and I do believe there are persuasive economic reasons for the Fed to lower interest rates right now. In the next five years, the long-term inflation expectations is 2.3%. The Fed’s favorite indicator, the personal consumption deflator index, is about three-tenths of a percent below that. So, really, on the PCE, the long-term inflationary expectation that the Fed itself uses is now at 2%. So, you know, on that standpoint, I think there’s a lot of that,” he surmised.
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