A lawyer representing Federal Reserve Governor Lisa Cook announced plans to file a lawsuit against U.S. President Donald Trump after Trump stated he would dismiss her from her position. This statement has raised concerns among investors regarding the independence of the U.S. central bank, a critical institution in maintaining economic stability.
Following Trump's comments, interest-rate sensitive two-year Treasury yields fell to their lowest point in nearly four months. The yield curve also steepened as traders began to speculate about the possibility of more dovish appointments to the Federal Reserve under Trump's administration. Despite this, the U.S. dollar rebounded from its previous session's decline, rising by 0.36% to reach 147.93 Japanese yen. Conversely, the euro experienced a drop of 0.48%, trading at $1.1586.
The three major U.S. stock indexes showed slight gains, with investors closely monitoring Nvidia's second-quarter earnings report, scheduled to be released after the market closes. This report is seen as a significant indicator of the AI optimism that has driven market growth over the past couple of years. Jake Dollarhide, CEO of Longbow Asset Management, emphasized that the market's attention is keenly focused on Nvidia, as investors are eager to see if the company's results will meet Wall Street's high expectations.
Despite a generally positive outlook, there are emerging signs of caution within the technology sector. Investors are reflecting on the potential implications of Nvidia's performance on the broader market, particularly given the heightened interest in AI technology and its economic impact.
Meanwhile, European stocks showed a slight rebound from the previous day's downturn, as investors continued to monitor political risks in France. Concerns about the stability of French Prime Minister Francois Bayrou's government sparked a selloff in French assets earlier this week, prompting market watchers to remain vigilant.
Market analysts interpreted comments made by Fed Chair Jerome Powell at the annual Jackson Hole symposium as a signal that interest rate cuts could be forthcoming. According to the CME Group's FedWatch Tool, traders are currently pricing in an 88% probability of a rate cut in September. However, the trajectory of U.S. interest rates will likely depend on the strength of the labor market and ongoing trends in inflation.
The two-year U.S. Treasury yield, which generally reflects interest rate expectations, was last recorded at 3.654%, a decrease of around two basis points. In contrast, the benchmark 10-year note yield rose to 4.289% from 4.256%. The yield curve between the two-year and 10-year notes widened to 63.3 basis points, marking the steepest level since April 22.
In the commodities market, U.S. crude oil prices increased by 0.79%, reaching $63.74 per barrel, while Brent crude rose by 0.62%, trading at $67.64 per barrel.
Reporting by Caroline Valetkevitch in New York; with additional contributions from Yoruk Bahceli, Ankur Banerjee, and Dhara Ranasinghe. Editing by Mark Heinrich, Mark Potter, and Richard Chang.
