(Bloomberg) — Traders shunned risk as European stocks and US equity futures fell, pressured by political turmoil in France and US President Donald Trump’s bid to oust Federal Reserve Governor Lisa Cook.
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Europe’s Stoxx 600 retreated 0.7% after French Prime Minister Francois Bayrou called a confidence vote that could bring down his government as soon as next month. France’s CAC 40 index tumbled 2%, the most in three weeks. The yield premium on French 10-year bonds over German peers widened three basis points to 78 basis points, the most since April.
In the US, S&P 500 futures slipped 0.1% as Trump’s threatened action against Cook raised fresh concerns over the central bank’s independence. Longer-dated Treasuries declined, steepening the yield curve, as the 10-year yield advanced two basis points to 4.30%. Gold rose 0.4%. The dollar dropped as much as 0.3% before paring the loss.
Risk appetite took a further knock after Trump renewed his trade brinkmanship, threatening fresh tariffs and export restrictions on advanced technology and semiconductors in retaliation against digital services taxes abroad.
Stocks and bonds were already under pressure after optimism that followed Fed Chair Jerome Powell’s address at Jackson Hole faded on Monday. Doubts about the pace of easing are lingering ahead of an inflation report later this week, expected to highlight sticky price pressures.
While question marks over the Fed’s independence are worrisome, “markets are really focused on the expected September rate cut rather than Cook,” said Andrea Tueni, head of sales trading at Saxo Banque France. As for France, “the next big step would be the yield on French 10-year bonds topping those of Italy. I see this as a blatant comeback of the risk premium on French assets.”
For the Fed, swaps imply about an 80% chance of a quarter-point rate cut next month, with at least one more expected by year-end.
Forcing out Cook would give Trump an opportunity to secure a four-person majority on the Fed’s seven-member Board of Governors. Her term was not set to expire until 2038. Trump said he had “sufficient cause” to fire Cook, the first Black woman to serve on the Fed Board in Washington, based on allegations that she made false statements on one or more mortgage loans.
It wasn’t immediately clear whether Cook intended to challenge the dismissal in the courts. If she challenges the firing, Cook could immediately seek an injunction reinstating her while litigation moves forward. The Fed declined to comment.
What Bloomberg strategists say:
“Risk sentiment will falter further thanks to a barrage of Trump headlines hitting markets that were already shaky. Now, the Fed’s credibility is under the spotlight after Trump sought to remove Lisa Cook. That move signals a wider shakeup may be possible if policymakers fall out of step with the White House. The long end and the US dollar will suffer as Fed independence — long seen as sacrosanct — comes under increasing strain.”
The Stoxx Europe 600 fell 0.7% as of 9:32 a.m. London time S&P 500 futures fell 0.1% Nasdaq 100 futures fell 0.1% Futures on the Dow Jones Industrial Average fell 0.2% The MSCI Asia Pacific Index fell 1% The MSCI Emerging Markets Index fell 0.8% Currencies
The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.1617 The Japanese yen rose 0.2% to 147.54 per dollar The offshore yuan was little changed at 7.1628 per dollar The British pound was little changed at $1.3468 Cryptocurrencies
Bitcoin rose 0.5% to $110,070.36 Ether rose 1.4% to $4,413.19 Bonds
The yield on 10-year Treasuries advanced two basis points to 4.30% Germany’s 10-year yield declined three basis points to 2.73% Britain’s 10-year yield advanced five basis points to 4.74% Commodities
Brent crude fell 0.7% to $68.30 a barrel Spot gold rose 0.4% to $3,378.69 an ounce This story was produced with the assistance of Bloomberg Automation.
-With assistance from Anand Krishnamoorthy and James Hirai.
