In the early trading session on Monday in London/Singapore, global markets turned cautious due to a combination of “risk aversion and policy uncertainty”: the dollar weakened, US stock futures fell, and gold surged to a record high. The trigger came from the escalating conflict between US President Trump and Federal Reserve Chairman Powell—Powell stated that the Justice Department subpoenas and criminal threats were "not about the renovation issue itself," but aimed to pressure the Federal Reserve and influence interest rate decisions.
Market's Initial Response: Dollar Declines, Futures Weaken, VIX Rises
US stock index futures noticeably weakened before the opening, with both S&P 500 and Nasdaq futures declining by more than 0.6%. The VIX volatility index, considered a fear gauge, recorded its largest rise since November. Meanwhile, gold, as a tool for hedging against turbulence and inflation, was bought heavily, with spot/futures prices at one point reaching record levels of around $4,600 per ounce.
There were also subtle changes in the interest rate market: federal funds rate futures slightly increased bets on a rate cut within the year (adding about a few basis points to rate cut expectations), suggesting concern that “policy independence controversy” could disrupt future paths.
"Trump vs. Powell" Moves to Legal Battleground, Independence Concerns Rise
According to Reuters, Powell revealed that last week the Justice Department served a subpoena to the Federal Reserve over his testimony last year to the Senate Banking Committee on cost overruns in the Fed's headquarters renovation; a “grand jury subpoena” was issued as a threat of criminal charges related to the testimony. The renovation project was mentioned as having a scale of about $2.5 billion. Powell emphasized that the real focus was not on the renovation or congressional oversight, but on the government applying continuous pressure for rate cuts and influencing Fed decisions.
Trump told NBC that he was “unaware,” but continued to criticize Powell's performance at the Fed and on the construction project. The tug-of-war over rates and personnel has made “whether the Fed can remain free from political interference” a renewed part of market pricing.
Financial Stocks Lead Decline: 10% Credit Card Rate Cap Proposal Hits Banking Sector
In this context, banks and consumer finance stocks became the first pressured sectors. Trump also proposed a one-year credit card interest rate cap of 10% starting January 20, which the market quickly interpreted as a direct impact on the industry's profit model: in pre-market trading, Citigroup, JPMorgan, and Bank of America dropped by about 2.5% to 4%, American Express fell nearly 5%, and consumer finance/credit card-related companies like Synchrony and Capital One fell more than 10% at one point.
The European market was also affected. Reuters reported that Trump's statement on the 10% cap led European bank stocks to weaken, with the pan-European STOXX 600 index slightly retreating from near record highs.
