Financial institution shares plummet following Trump's warning to dismiss Federal Reserve chairman
In a day marked by fluctuating trends, global shares saw a mixed performance on Wednesday. The potential implications of a potential change at the helm of the Federal Reserve, with reports suggesting US President Donald Trump may soon dismiss Chairman Jerome Powell, cast a shadow over markets worldwide.
The prospect of a President removing the Fed Chair could have significant repercussions for financial markets. The unprecedented move could raise concerns over the independence of the Federal Reserve and the politicization of monetary policy. The Federal Reserve plays a pivotal role in setting US interest rates and guiding economic policy, and any perceived disruption or instability in its leadership could trigger market volatility worldwide.
Investors might fear a shift in monetary policy that could affect inflation control, economic growth, and the value of the US dollar, which in turn impacts global trade and investment flows. This uncertainty could lead to increased turmoil in stock and bond markets, currency fluctuations as traders react to possible changes in US monetary policy, and a decline in investor confidence in US economic management.
The potential change at the Federal Reserve was reflected in the performance of several major US banks. Goldman Sachs shed 0.3% despite posting the largest revenue haul in Wall Street history, and Morgan Stanley shares slid more than 3%. NatWest shed almost 0.6%, Lloyds added 0.2%, and HSBC dropped 0.1%, while Bank of America fell 2.3% in response to the same report.
Rate-sensitive areas of the market such as US regional banking shares fell, and gold rallied due to the same report, as investors sought safe-haven assets in times of uncertainty. The US dollar fell by up to 0.7% against a basket of big currencies after the news.
In Europe, the Iseq index in Dublin fell by more than 1%. Kenmare Resources' share price fell almost 5.8% to €3.58, and Kingspan's share price dropped more than 2.5% to €69.35. AstraZeneca fell 0.6% due to an experimental therapy, anselamimab, failing to meet the main goal of a late-stage study for the treatment of AL amyloidosis. However, Rio Tinto rose 1.2% after reporting its strongest second-quarter iron ore production since 2018.
Elsewhere, the S&P 500 and the Nasdaq Composite both lost 0.3% in response to the same report. Chip-maker Micron fell 3.5% in line with a wider sectoral move, and Nvidia slid by 0.3%.
In the UK, the annual rate of consumer price inflation unexpectedly rose to 3.6% in June, causing shares in Bank of America to fall 2.3%. The UK's FTSE 100 index slipped 0.2%, and AIB's share price dropped by 1.8% to €6.69.
Barclays was fined £42 million by British regulators for failing to properly identify financial crime risks with two clients. The bank's share price remained unchanged at €12.07. Ryanair's share price remained unchanged at €23.55.
Kenmare Resources expects to take an impairment charge of up to $125 million against its mining assets in Mozambique. The Dow Jones Industrial Average fell 0.2% following a report that US President Donald Trump is likely to fire Federal Reserve chairman Jerome Powell soon.
[1] Source: Financial Times, Bloomberg, Reuters, and CNBC.
1) The potential dismissal of Chairman Jerome Powell by US President Donald Trump could create uncertainty in financial markets, as any alteration in monetary policy might impact inflation control, economic growth, and the value of the US dollar, thereby causing market volatility globally.
2) The repercussions of the possible change at the Federal Reserve are not limited to US markets, as the ensuing turmoil in stock and bond markets, currency fluctuations, and declining investor confidence could ripple through global trade and investment flows, as evidenced by the mixed performance of various international indices and individual companies, such as the S&P 500, Goldman Sachs, Micron, Kenmare Resources, and the FTSE 100.
