A last minute spurt on Wall Street, led to the benchmark indices ending higher on Tuesday ahead of results from Nvidia Corp, while other asset classes like the US Dollar Index fell and treasury yields rose amidst concerns over the central bank’s independence.The Dow Jones ended with gains of 135 points, while the S&P 500 and Nasdaq gained 0.4% each, supported by shares of Nvidia.The slide in 30-year Treasuries followed losses in longer-dated debt from France and the UK, extending a drop that’s been driven by concerns about inflation and ballooning budget deficits. A solid $69 billion sale of two-year notes added to gains in short-dated maturities. The gap between five and 30-year yields is the steepest since 2021.
While a dollar gauge dropped just 0.2%, the greenback retreated against most major currencies.Trump said he was prepared for a legal fight after he moved to oust Cook amid allegations she falsified mortgage documents. The Fed, weighing in for the first time this week, said it would abide by any court decision in Cook’s legal challenge of her dismissal by Trump.“Trump’s push to fire Cook has exacerbated concerns about the Fed’s independence,” said Ian Lyngen at BMO Capital Markets. “While the price action in US rates has been largely contained to the recent range, many of the go-to hedges against an erosion of Fed independence outperformed on the news of Cook’s firing.”“This issue likely to get kicked to the courts for resolution,” said Brad Bechtel at Jefferies. “If it does go through, then clearly Trump has another seat to fill and that should then tip the board in his favor from a political alignment perspective.”The Fed’s perceived independence from government whims is a bedrock assumption of US markets, and any change to that perception could weigh on US credit ratings.
S&P Global Ratings has recently warned that the nation’s credit rating could “come under pressure if political developments weigh on the strength of American institutions and the effectiveness of long-term policymaking or independence of the Federal Reserve.”The Trump administration is reviewing options for exerting more influence over the Fed’s 12 regional banks that would potentially extend its reach beyond personnel appointments in Washington, according to people familiar with the matter.Trump’s move to oust Cook, if it holds up in court, would give him an opportunity to a secure a majority on the seven-person Board of Governors. But the central bank’s Federal Open Market Committee also includes five regional bank presidents who — unlike the governors — aren’t nominated by the White House or confirmed by the Senate.US orders for business equipment increased in July by more than projected, suggesting companies are moving forward on investment plans as uncertainty around trade and tax policy gradually diminishes. Meantime, consumer confidence fell slightly in August as Americans worried more about their prospects of finding a job.“Consumers don’t appear afraid, but perhaps restrained,” said Bret Kenwell at eToro. “Corporate conference calls reveal what appears to be a resilient consumer, while retail sales echo similar reassurances.”Fed Bank of Richmond President Tom Barkin said his forecast is for a modest adjustment in interest rates given what he expects will be little variation in economic activity over the remainder of the year.Among S&P 500 companies that adjusted their revenue views in the current quarter, 44% have raised them — the highest proportion since 2021, according to an analysis by Jefferies. The share of outlook downgrades, at 14%, is the lowest in the firm’s data going back to 2015.Meantime, volatility has vanished. Now hedge funds are betting the calm will last, shorting the Cboe Volatility Index, or VIX, at rates not seen in three years. But such eerie calm and extreme positioning has historically foreshadowed a spike in turbulence and stock losses.Hedge funds and large speculators were net short futures tied to the VIX by roughly 92,786 contracts in the week through August 19 — a level last seen in September 2022, data from the Commodity Futures Trading Commission show.
