Fed shock, tariff threats, France in crisis
Global markets are under renewed stress as political and policy shocks converge across the US and Europe. President Donald Trump’s move to dismiss Federal Reserve Governor Lisa Cook has triggered a potential constitutional clash over central bank independence, while his latest tariff threats against countries with digital taxes have reignited fears of a broader trade war. Meanwhile, Europe faces its own turmoil as France’s government risks collapse, pressuring French bonds and equity sentiment. Together, these developments are reshaping investor expectations across currencies, bonds, and equities.
United States: Trump moves to fire Fed Governor Cook
President Trump escalated his standoff with the Federal Reserve by announcing the dismissal of Fed Governor Lisa Cook on allegations of falsifying mortgage documents. Cook, who was appointed in 2022 and whose term extends to 2038, has rejected the move, arguing the president has no legal authority to remove her. The standoff sets up a historic legal fight that could test the limits of presidential power over the central bank.
Markets reacted swiftly: the dollar initially weakened by as much as 0.3% while gold gained 0.6%, reflecting investor unease over Fed independence. Though both retraced as Cook vowed not to resign, the episode underlines mounting pressure on the institution. A successful removal would allow Trump to tilt the seven-member board in his favor, potentially shifting policy more dovishly. Analysts warn that undermining Fed independence risks damaging US credit credibility, with S&P already noting potential pressure on the country’s AA+ rating.
The broader market impact was clear: US Treasury yields steepened as longer-dated bonds sold off, and global risk appetite dimmed amid uncertainty about the trajectory of US monetary policy.
Trade & technology: Tariffs and export curbs back in focus
Alongside the Fed controversy, Trump reignited trade tensions by threatening fresh tariffs and export restrictions in response to foreign digital services taxes targeting US technology firms. The president accused such levies of discriminating against American giants like Amazon, Alphabet, and Meta while leaving Chinese competitors untouched.
The proposed measures could target both imports and exports, with advanced semiconductors — including AI-related chips — explicitly mentioned. This comes only weeks after Trump raised tariffs on furniture and other imports. The European Union has signaled it will not alter its own digital regulations, leaving the dispute unresolved and raising the risk of escalation.
Markets are particularly sensitive to semiconductor-related curbs, with chip stocks already under scrutiny ahead of Nvidia’s earnings release later this week.
Europe: France faces political breakdown
In Europe, political risk is reasserting itself through Paris. Prime Minister Francois Bayrou has called a confidence vote for September 8 that could topple the government if opposition parties unite. With the far-right National Rally, France Unbowed, and the Greens all pledging to vote against the government, the likelihood of collapse is high.
The political instability has already rattled French assets. Ten-year OAT yields jumped nine basis points to 3.51%, widening the spread over German bunds to 75 basis points — the highest since April. This marks France as one of the most vulnerable sovereigns in the eurozone, with borrowing costs now among the bloc’s highest outside of Italy.
The pressure comes as President Macron struggles both domestically and internationally, with his coalition fractured and fiscal challenges mounting. The political risk premium is adding to eurozone uncertainty just as investors look for stability amid trade tensions with Washington.
Market wrap: Currencies, bonds, equities, commodities
Currencies: The Bloomberg Dollar Spot Index pared earlier losses, finishing down just 0.1%. The euro strengthened to $1.1638, while the yen held near ¥147.8. Sterling was little changed.
Bonds: US 10-year Treasury yields climbed to 4.30%, reflecting steepening pressure. French yields spiked on political concerns, while Japanese and Australian bonds saw modest moves.
Equities: US and European futures edged lower, with the Nasdaq 100 down 0.1% amid tariff and Fed-related uncertainty. Asian equities fell broadly, led by Japan’s Topix (-0.9%).
Commodities: Gold held gains at $3,375 per ounce as investors sought safety. Oil weakened, with WTI down 0.6% to $64.43 a barrel.
Crypto: Bitcoin rose 0.7% to $110,355, while Ether climbed 2.1% to $4,445, highlighting continued digital asset demand amid fiat currency risks.
Markets now face an unusual combination of risks: direct political intervention in US monetary policy, escalating trade threats on advanced technology, and a looming French government collapse. The result is heightened volatility across asset classes. Traders are watching for clarity on whether Fed independence will be defended in court, whether tariff measures materialize, and whether France avoids yet another political reset.
With Nvidia earnings and US PCE inflation data due later this week, the current environment suggests investors should brace for further swings in risk sentiment.
Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.
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