WEEKLY MARKET UPDATE (April 19, 2025)
1.) Escalating Trump vs. Fed Conflict:
- President Trump explicitly threatened to fire Fed Chairman Jerome Powell
- Trump believes Powell is "too late" regarding interest rate cuts, possibly for political reasons
- Reports suggest Trump considered replacing Powell with Kevin Warsh, known for his more aggressive views
- This is raising market concerns about the Fed's independence
2.) Market Reaction to Fed Independence Concerns:
- A Stanford professor's survey indicates the dollar may be losing its premium status
- The spread between hedged German bond yields and Treasury yields has decreased
- The dollar has depreciated against the euro during the last weeks of uncertainty
3.) Trade War Developments:
- Negotiations with Japan ended without resolution; Trump wants more military funding and trade balance
- Italian Prime Minister Meloni (politically aligned with Trump) had more positive discussions
- Relations with China appear tense, with Trump highlighting the COVID-19 origin theory
4.) Contrasting Economic Impacts of the Trade War:
- For the U.S.: negative supply shock (potentially higher prices, slower growth)
- For Europe: negative demand shock (lower growth, lower inflation)
- ECB's Lagarde noted that Chinese exports may be redirected to Europe, creating disinflationary pressure
- This divergence suggests ongoing differences in monetary policy
Thank you for reading, and I hope this summary has been helpful.
