The mortgage fraud allegations are unlikely to be the real reason Cook is in the firing line. She has been outspoken about the inflationary impact of tariffs, warning last June that "Trump-style tariffs" would complicate the Fed's job by pushing up prices and forcing policymakers to keep interest rates higher for longer. That is precisely the message Trump does not want to hear. Cook said she will not step down, but this latest episode of American political drama reignites concerns about the independence of the Fed, and by extension undermines confidence in the US as the global benchmark for transparent and rules-based capital markets.
The dollar halted its Monday rebound, the two-year Treasury yield eased on expectations that Cook will eventually be replaced by someone aligned with Trump's push for rate cuts regardless of the economic backdrop, while the thirty-year yield erased its Jackson Hole decline. The result is a steepening curve, built on the view that near-term rate cuts will translate into higher long-term inflation. Combined with heavy debt issuance, this dynamic is hardly reassuring for risk sentiment. The thirty-year bond is now yielding close to 5%, raising the opportunity cost of investing in riskier assets. Meanwhile, the technology-heavy S&P 500 and Nasdaq remain stretched, with valuations looking historically expensive. The S&P 500 trades at more 3X sales, the highest level on record. But past peaks have not always prevented momentum from building further, and the combination of strong earnings and dovish Fed expectations is, for now, offsetting the political, trade and geopolitical risks.
In Japan, government bond yields fell for a second consecutive session. At Jackson Hole, Bank of Japan (BoJ) Governor Ueda stressed that rising wages were laying the groundwork for further rate increases. Yet this morning's inflation data showed an unexpected easing in the BoJ's preferred metric, giving dollar-yen more room to push above 148 before a significant reversal in favour of the yen becomes likely.
The euro, meanwhile, found support near the 1.16 level on broad dollar weakness but failed to break decisively above its 50-day moving average amid renewed political turbulence in France. Prime Minister François Bayrou has called a confidence vote in his minority government to push through budget cuts. But opposition parties already ruling out support. Hence, the risk of another government collapse is rising. French spreads widened sharply, with the ten-year yield gap versus Bunds hitting the highest in more than a year. The pressure has spilled into equities, weighing on the CAC 40 and on the broader Stoxx 600.
The European index also felt the weight of a 16% plunge in Ørsted. Shares of Denmark's offshore wind champion slumped after reports that one of its nearly completed projects in the US Northeast could be halted by the Trump administration. The episode highlights the political risk facing renewable energy firms with US exposure. Equinor encountered similar difficulties in the past but found a resolution through high-level negotiations. Ørsted may yet secure a reprieve if officials argue that the project's output — enough to power some 350,000 homes — is needed. Still, Ørsted's chart looks far from enticing. Clean energy equities have long since deflated from bubble-like valuations, with Fidelity's Clean Energy ETF staging a 60% rebound from its April lows but still trading well below past peaks. The long-term demand story for renewables remains intact given surging energy needs from AI and technology applications, but nuclear power has also re-emerged as a controversial "clean" alternative. For now, green energy valuations remain depressed, potentially offering long-term opportunity once political headwinds ease.
With Fed uncertainty, French political risks and geopolitical concerns simmering, safe havens are back in demand. The euro-franc, which had enjoyed a solid rebound in August, slipped back below its 200-day moving average and is now testing the 50-day to the downside. Gold is better bid above its own 50-day moving average. US crude, meanwhile, is testing resistance at $65pb as Ukraine peace talks stall. A clear break higher would put crude back into geopolitically stressed territory and could trigger further near-term spikes, though such rallies may open up attractive selling opportunities for longer-term investors positioning for a supply glut in the second half of the year.
