Global financial markets were rocked on Monday as U.S. stock futures fell sharply and investors stampeded into traditional safe havens. The sell-off was triggered by news that U.S. prosecutors have launched a criminal investigation into Federal Reserve Chair Jerome Powell. The probe concerns his testimony last year regarding the central bank's building renovations.
Market Reaction: A Flight to Safety
The immediate reaction was a sharp decline in U.S. equity futures and a rally in precious metals. Futures for the S&P 500 index dropped 0.7%, while the Dow Jones Industrial Average slipped 0.6% in premarket trading. This followed a record close for both indexes just last Friday. The tech-heavy Nasdaq was hit hardest, with futures down 1.1%.
In a classic risk-off move, investors sought shelter in gold and silver. Gold futures surged 2.1% to $4,593.40 a troy ounce, briefly breaking through the $4,600 level. Silver skyrocketed an astonishing 6.1% to $84.18 an ounce. The dollar also weakened, with the DXY dollar index falling 0.3% to 98.832.
Chair Powell responded to the investigation in a video statement, calling it a "pretext for President Trump's efforts to pressure the Fed to lower interest rates and undermine its independence." This statement amplified market anxieties about political interference in monetary policy.
Global Ripples and Bond Market Jitters
The shockwaves were felt across global markets and in the bond arena. While Asian markets like Hong Kong's Hang Seng and China's Shanghai Composite posted gains, European indexes largely retreated from their recent highs.
In the bond market, the yield curve steepened as short and long-term rates moved in opposite directions. The two-year U.S. Treasury yield fell 1.2 basis points to 3.527%, while the 10-year yield rose 1.2 basis points to 4.182%. Analysts noted that the investigation raises fears that interest rates could be cut for political reasons despite inflationary pressures, putting even greater focus on the upcoming U.S. Consumer Price Index (CPI) data for December.
Eurozone government bond yields also climbed in early trading, tracking the move in longer-dated U.S. Treasuries.
Broader Geopolitical Tensions Add to Uncertainty
The market's nervousness was compounded by escalating geopolitical risks. Intensifying protests in Iran and uncertainty over Venezuelan crude exports created a risk premium for oil, though prices still slipped slightly. Brent crude fell 0.3% to $63.15 a barrel.
U.S. officials stated that President Trump is scheduled to be briefed on Tuesday on potential responses to the Iran situation, which could include sanctions or other measures. Supply risks in Russia, due to attacks on energy infrastructure, were also on investors' radars.
Looking ahead, the market's focus now shifts sharply to the release of December's U.S. inflation data on Tuesday. Furthermore, the earnings season kicks off with several major U.S. banks reporting on Wednesday. The U.S. Supreme Court is also expected to issue rulings, including a potential decision on President Trump's tariff regime.
The confluence of the Powell investigation, geopolitical unrest, and key economic data has created a perfect storm of uncertainty, driving a clear bifurcation in market assets between risk and safety.
