Trump and Fed independence remain front and centre

Following US President Donald Trump’s latest Truth Social post on Monday evening – noting that he was firing Federal Reserve (Fed) Governor Lisa Cook over claims there was ‘sufficient reason’ to believe that she had made false statements on one or more mortgage agreements – Fed independence remains at the forefront of things right now.

As I mentioned yesterday, Cook’s robust rejection of these allegations, coupled with her legal counsel's promise of court challenges, sets the stage for what may prove to be a defining constitutional battle. Time will tell whether Trump has the evidence to support these claims.

The nomination of Stephen Miran to succeed the recently departed Fed Governor Adriana Kugler – whose premature resignation conveniently opened another path for presidential influence – suggests a carefully orchestrated campaign. The Senate have yet to confirm Miran, but if they do, and let’s assume that someone of Trump’s choosing replaces Cook, this means there would be a Trump-nominated majority of Fed Governors.

I should not need to say it, but the Fed should be completely independent from the White House. To my knowledge, while history shows that this has not always been the case, previous political interference was typically through public pressure, rather than an attempt to remove sitting Fed Governors. That challenges the institutional structure itself. Trump appears to be doing this specifically to secure a dovish majority on the board at a time when he's pushing for lower rates.

Market snapshot

Markets reacted as expected yesterday, with yields steepening and a notable rally at the long end of the curve. Investors are clearly concerned that if Trump succeeds and impacts policymaking, this could reignite inflationary pressures. The US dollar (USD) was also moderately weaker on the day, although it continues to trade within a narrow range between 97.72 and 98.57 (as per the USD Index).

Meanwhile, in the Equity space, despite political drama, Stocks remained somewhat lacklustre, albeit finishing yesterday’s session on the front foot. The S&P 500 and the Nasdaq 100 rose 0.4% to 6,465 and 23,525, respectively, with the Dow Jones gaining 0.3% to 45,418. The after-hours earnings results from Nvidia Corp. (NVDA) today represent a crucial test for the AI narrative. The stock has gained an eye-popping 35% since Q1 earnings, setting a high bar for continued outperformance. Guidance will be particularly important given concerns over H20 chip restrictions affecting China sales.

Day ahead

Apart from the overnight release of the July Australian CPI inflation data (Consumer Price Index), which came in strongly above consensus (2.3%) at 2.8% and somewhat vindicating the Reserve Bank of Australia’s cautious approach, the upcoming data slate will be thin today.

Macro drivers in focus on Thursday will be the second estimate of US GDP data (Gross Domestic Product) and US weekly unemployment claims for the week ending 23 August, followed by the July PCE price index numbers (Personal Consumption Expenditures) on Friday.

That’s it from me this morning, happy trading!