US stock exchanges were closed on Monday for the Labor Day holiday. But stock index futures were open and fell sharply in this morning’s early European trade. The sell-off was linked to a jump in bond yields and a corresponding fall in US Treasuries. This weakness was widespread, with bonds sharply lower across Europe and the UK as well.
The moves may be setting the tone for what could be a tricky September. Investors are increasingly concerned about President Trump’s interference with the running of the US Federal Reserve. He has made repeated attacks on the Chair, Jerome Powell, and has ‘fired’ Governor Lisa Cook following alleged charges of mortgage fraud.
A court hearing that aimed to block Mr Trump from firing Fed Governor Lisa Cook ended Friday without a ruling. Mr Trump’s nominee for Fed Governor, Stephen Miran, is scheduled to appear before the Senate Banking Committee on 4th September. Mr Miran is set to replace Adriana Kugler who resigned last month. On top of this, Mr Trump sacked the head of the Bureau of Labor Statistics, accusing her of fiddling the jobs numbers to make him ‘look bad’.
Another political story weighing on sentiment was the federal appeals court ruling on Friday. In a 7-4 decision, the US Court of Appeals for the Federal Circuit declared that most of President Trump’s global tariffs are illegal. The court argued that only Congress has the authority to implement broad-based levies. Mr Trump rejected the ruling as “Highly Partisan” and vowed to appeal to the US Supreme Court.
Overlaying these political and legal developments is the seasonal backdrop. September is historically a weak month for equities, with the S&P 500 averaging a 4.2% decline over the last five years and falling more than 2% on average over the last decade. This combination of tariff uncertainty, Fed concerns, and seasonal weakness left markets on edge as the month began.
The S&P 500 has pulled back around 100 points (1.5%) from the all-time high hit last week. This takes it back to levels seen just before the rally which followed Jerome Powell’s ‘dovish’ speech at Jackson Hole just over a week ago. This could be insignificant in the big scheme of things, or it could herald the start of a larger downside move.
Source: TN Trader
The latest Non-Farm Payroll report is due this Friday and follows on from the unexpectedly large decline in jobs numbers from early August. Another poor number would make a September rate cut a near certainty. But how will markets respond to a strong payroll number?
That would work for President Trump, in one respect. But it would make life even more difficult for the Fed, and its embattled Chair, Jerome Powell.
