Morning Bid: Trying to contain US market contagion

Reuters

22-04-2025

April 22 (Reuters) - A look at the day ahead in European and global markets from Wayne Cole.
There is an old saying that when the U.S. sneezes, the world catches a cold. But if the malady is a self-inflicted wound, is contagion inevitable? There might be a hint of that in Asian markets today given the Nikkei (.N225), opens new tab is flat even though the S&P 500 (.SPX), opens new tab shed 2.4% on Monday. Usually it would be down 1,000 points. And that's despite a stronger yen.
After all, the money fleeing U.S. assets has to go somewhere, and not just to European defence stocks. Thus, according to LSEG Lipper data, investors bought a net $11 billion in European equity funds and $3.6 billion in Asian equity funds in the week to April 16, while U.S. equity funds saw an outflow of $10.6 billion.
Since then, President Trump has upped the stakes by attacking Fed Chair Powell for not cutting rates as speedily as Trump would like. It's not clear if he has the power to fire the Chair, but just the appearance of threatening the independence of the central bank is another body blow for investor confidence in the full faith and trust of the United States.
That saw the dollar hit another decade low on the Swissy at 0.8842, bringing losses since "tariff day" - calling them reciprocal is an insult to the English language - to more than 8%. The euro has popped above $1.1500 and the dollar is testing the 140.00 yen bulwark. Foreign investors in the U.S. who were unhedged have had a particularly painful April.
Yields on 10-year Treasuries climbed to 4.41%, extending the recent jump in term risk. If Trump would consider forcing Powell out and appointing a loyalist, then the idea of, say, replacing Treasuries with zero coupon perpetual bonds might not seem so unthinkable.
It's also counterproductive for Trump, since now the Fed might be less willing to cut rates for fear of being seen as bowing to political pressure. It was notable that Fed fund futures are down and remain 90% against a rate cut in May.
There are at least five Fed speakers on the diary today and it'll be interesting to see how they handle this thorny political issue. Dodge, maybe.
Also out today are Tesla's (TSLA.O), opens new tab results, so investors will get to see how much bad news is already in the share price.
Key developments that could influence markets on Tuesday:
- ECB members Knot and de Guindos speak, BoE's Breeden
- Fed members speaking include Jefferson, Kugler, Barkin, Kashkari and Harker
- EU consumer confidence, US Richmond Fed survey