Rita Nazareth
The Australian sharemarket is expected to open in the green after Wall Street hit a record high overnight, even as caution prevailed after the Trump administration escalated its attack on the Federal Reserve, raising concern about central bank independence.
While the S&P 500 erased its decline and hit a new record, unease over interference in monetary policy kept a lid on the market. Capital One Financial Corp., American Express Co. and JPMorgan Chase & Co. sank as President Donald Trump called on credit card companies to cap rates at 10 per cent for a year.
Futures are pointing to a 0.3 per cent rise in the S&P/ASX200 on Tuesday, after energy and consumer stocks helped to lift the bourse 0.5 per cent higher on Monday.
Overnight, the S&P 500 edged up to around 6,980. The KBW Bank Index lost 1.4 per cent. Most megacaps rose. Alphabet Inc.’s Google confirmed that it has entered a multiyear deal with Apple Inc. to power the iPhone maker’s artificial intelligence technology.
Longer-dated Treasuries underperformed. The dollar fell against most of its major peers, with the Australian dollar fetching US67.14¢ at 7.33am. Gold hit fresh highs.
The Fed’s perceived independence from government whims is a bedrock assumption of markets, and any change to that perception could weigh on sentiment. While independence risks will likely be a key theme in 2026, Krishna Guha at Evercore says there are two ways to interpret US markets stabilising.
“The first is this does not matter to markets,” he said. “The second is it matters a lot, but partly for this reason investors think this move is going nowhere and the administration will look for a de-escalation off ramp. We are firmly in the second camp.”
The defining feature of this market is how little investors seem to care about an increasingly noisy backdrop including geopolitics, policy risk, and macro uncertainty, according to Mark Hackett at Nationwide.
“The bull market still has legs, and it’s entirely possible that we see further gains irrespective of what happens with internal and external policy, said Giuseppe Sette at Reflexivity.
The yield on 10-year Treasuries advanced two basis points to 4.18 per cent. A dollar gauge slid 0.2 per cent.
Federal Reserve chair Jerome Powell said the central bank had been served grand jury subpoenas from the Justice Department threatening a criminal indictment. In a forceful written and video statement released Sunday, Powell said the action was related to his June congressional testimony on ongoing renovations of the Fed’s headquarters.
In an interview with NBC News on Sunday, Trump denied having any knowledge of the investigation into the central bank.
The strength of the evidence in favour of greater central bank autonomy lowering inflation has often been overstated, and even complete independence offers no guarantee of low inflation in future, according to Jennifer McKeown at Capital Economics.
“But sustained political intrusion into monetary policy would come at a cost, even if markets are willing to overlook it in the short term.”
The Trump administration’s latest attack on the Fed’s independence poses a threat to the US stock market, at least in the short term, according to JP Morgan Securities’ trading desk.
“While macro and corporate fundamentals support a tactically bullish stance the risk to Fed independence creates an overhang and thus we are cautious in the very near-term,” Andrew Tyler, head of global market intelligence, said. “The risk around Fed independence is likely to push the US toward near-term underperformance.”
“Are the subpoenas and threat of criminal prosecution simply a ploy to manipulate the Fed? I can’t say, but I can say that I hope not,” said Mark Malek at Siebert Financial. “The Fed must remain independent in order for the central bank to remain effective and – and this is important – or the integrity of the US dollar and the all-important Treasury markets to remain the world’s benchmarks.”
For now, the price action in bonds is consistent with Fed credibility concerns, with the yield curve steepening. That being said, the moves were within the prevailing range, according to Ian Lyngen at BMO Capital Markets.
“After shrugging off last week’s geopolitical surprises, US markets face domestic political headlines as trading kicks off this week,” said Chris Larkin at E*Trade from Morgan Stanley. “Barring additional surprises, the markets will likely turn their attention to earnings and inflation data.”
Bloomberg
