Fed Governor Cook fights back against Trump's removal attempt

In focus today

In the US, Conference Board's August consumer sentiment survey is due for release. We will keep a close eye on consumers' inflation expectations after the latest round of tariff announcements, as well as their perception of labour markets following the weak NFP data.

In Sweden, the minutes from the Riksbank's meeting will be released, offering valuable insights into the board members' thoughts. While the overall tone of the press conference was dovish and they kept their downside bias from the June MPR, Governor Thedéen has since adopted a slightly more hawkish stance in the media. It will be interesting to see if Deputy Governor Bunge and Deputy Governor Breman express any concerns about the high inflation observed over the summer, as they were the most dovish members in the minutes from June.

In Hungary, the central bank (MNB) will announce their key rate decision. Recently, inflation has accelerated and currently runs above the top end of the MNB's tolerance band (4%). Meanwhile, GDP growth has disappointed and the MNB foresees a meagre 0.8% growth for the full year of 2025. With the stagflation-esque tendencies putting the MNB in a tough spot, we expect them to leave the key rate unchanged at 6.50% for the time being, matching Romania for the highest key rate within the EU.

Economic and market news

What happened overnight

In the US, President Donald Trump has attempted to remove Federal Reserve Governor Lisa Cook, citing alleged improprieties in mortgage applications from 2021. Cook, however, denies the claims and argues Trump lacks the legal authority to dismiss her. Legal experts note her actions predate her appointment, raising doubts about the validity of "for cause" removal. This unprecedented move could test the Fed's independence and Cook's removal would allow Trump to reshape the Fed board further, potentially influencing future monetary policy. Markets responded with shifts in Treasury yields, reflecting potential policy changes and uncertainty over the Fed's future direction. See our FI and FX section below for more details.

What happened yesterday

In Germany, the IFO index rose more than expected in August to 89.0 (cons: 88.8) from 88.6 in July like the PMIs last week. The rise was due to higher expectations for the economic outlook while the current situation disappointed with a decline. The assessment of the current economic situation fell to 86.4 from 86.5 falling short of an expected rise to 86.7. In contrast, expectations rose more than expected to 91.6 (cons: 90.5) from 90.7. Hence, the economic situation remains very weak while expectations are improving significantly. The divergence between the current situation and expectations aligns with our view of the economy, as we expect the German economy to remain close to stagnation for the rest of the year. However, growth is expected tick up markedly next year as fiscal easing starts to influence the economy.

In the US, President Trump announced plans to pursue deals like the recent Intel agreement, where the government acquired a 10% stake in the chipmaker for USD 8.9bn. The deal, funded by grants from the CHIPS Act and the Secure Enclave program, aims to bolster domestic chip production and create jobs. Trump praised the move for boosting Intel's stock price and strengthening the US economy.

In France, Prime Minister François Bayrou faces a confidence vote on 8 September that could bring down his minority government. With major opposition parties pledging to vote against him, the government's future looks uncertain. Bayrou's austerity-focused budget plans have sparked criticism, market jitters and calls for protests, reminiscent of the 2018 Yellow Vest movement.

In geopolitics, tensions between the US and South Korea surfaced as President Trump criticised Seoul ahead of a high-stakes summit with President Lee Jae Myung. With South Korea's economy heavily reliant on US trade and security guarantees, Lee faces the challenge of balancing these ties while avoiding friction with China. Key topics at the summit include defence spending, trade, and North Korea.

In tech, Elon Musk's xAI filed a lawsuit against Apple and OpenAI, accusing them of monopolistic practices that suppress competition in the AI market. The suit claims Apple's exclusive integration of ChatGPT disadvantages rivals like xAI by limiting app visibility in the App Store. Musk, who is seeking billions in damages, also continues to challenge OpenAI's shift to a for-profit model in a separate case. The dispute underscores broader tensions over AI market dominance and platform control.

Equities: Equities were lower yesterday. US retreated after the strong run on Friday. More surprisingly was that the equity rally in the US session failed to spill over to European and Nordic markets. Instead, Stoxx 600 was -0.4% lower with a defensive bias in its sector performance. In a way, it makes sense to see US equities outperforming Europe as rate cuts will lower financial costs, that is especially true for small caps that are the most sensitive to changes to the interest rate. US equities were also underperforming Europe last week and so, the rebound on Friday was just as much a correction after trading down equities on hawkish Fed expectations than the news itself. Yet, with all of this in mind, on top of stronger European PMIs than expected last week, it is surprising to see such a weak equity performance yesterday. For the US, it was not a risk-off session. Instead, declines were most notable in the defensive space, with consumer stapels and health care selling off the most. For big tech, Fed guidance came just in time. Lower yields is typically a driver for these names, which proved to be the case again yesterday with Nvidia, Tesla and Alphabet all up 1-2%. Emerging markets and especially China worth a mention. Shenzhen index is rising 0.7% this morning and has been on fire lately; onshore stocks are up over 10% the last two weeks. This is strange, as economic data and stimulus measures have been disappointing lately. Tech and chip producers hold some of the explanation, but it could also be markets running ahead on stimulus expectations.

FI and FX: The broad USD started the week on a firm footing and US yields rose during Monday's session as market euphoria over imminent Fed cuts slightly faded. France widened against Germany with the French PM Bayrou calling for a confidence vote on 8 September. Overnight, President Donald Trump announced that he will seek to remove Fed Governor Lisa Cook, alleged by the Trump administration of mortgage fraud. The dollar weakened and US front-end rates dropped initially but recovered as markets are likely anticipating that Cook can win her legal challenge and be reinstated. The highlight in Scandi markets today will be the Riksbank minutes from last week's decision.