Trump may have broken the Wall Street

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Last April, when President Donald Trump, the presentation of the Federal Reserve's chairman, the stocks and the dollar remembered because the investors were worried that even spoke crossed a red line about such a step. You can't even joke about it, the Wall Street intellectual – the independence of the central bank is simply too important.

Powell himself said that according to the law it was not permitted, and a choir of the Wall Street analysts cirted through the holiness of the independence of the Federal Reserve.

Cut to July: Trump swings in front of the legislator with a draft from Powell's letter of termination, and Wall Street drives.

Shares stay near record highs. The dollar and bond markets soaked up briefly, but after Trump refused to refuse, which he prepared for the fire powell.

This seems to point out two options:

The problem is, there is only one way to find out, and that includes crossing the red line, the Trump approaches.

Icymi: On Tuesday evening, the President informed the legislators in a meeting that he would also spark Powell, possibly on Wednesday, on Wednesday, because of a costly renovation at the Federal Reserve headquarters, a source that was informed about the president's comments that spoke to my CNN colleagues.

Trump even pointed to a document that he claimed that it was a letter of termination for Powell, a person who was in the room, said CNN.

Then Trump publicly said on Wednesday that the dismissal of Powell “is extremely unlikely … unless he had to go to fraud”. (Coincidentally, Trump's Omb leader Powell has accused the congress because of the renovation that Trump believes on Tuesday that he is a shooting offense.)

Simply put: The USA has never been so close to seeing what happens when the president moves to take off the Fed's chair. Everyone in Wall Street and throughout the Corporate America should freak out.

It was only last Friday that George Saravelos, Global Head of FX strategy at Deutsche Bank, wrote that “the obvious states” that investors would interpret Powell's discharge as a “direct affront for independence”, which is widely considered important for the management of inflation.

“The empirical and academic evidence of the effects of a loss of the independence of the central bank are quite clear,” wrote Saravelos. “In extreme cases, both the currency and the bond market can collapse if the inflation expectations are higher, the real returns decrease and a broader risk premiums in the back of institutional erosion increase.”

Of course nothing like * *Waves the hands wild* All of this has ever happened. And the empirical evidence can show that markets, like everything else, can be conditioned to chaos that all old rules no longer apply.

“The markets seem to get used to a pattern that is the most noteworthy in the area of the tariffs in which the administration threatens to be quite radical, just to choose it only if the initial market reacts negatively,” said Jonathan DOH, professor of management at the Villanova School of Business, in an e -mail. “In every successive round, the answers were increasingly steamed.”

This is the much-twisted Taco trade-the idea that “Trump always” chickens “-which has proven to be profitable this year. If there is a sold -out Trump, investors buy the DIP, wait until Trump changes his opinion or switches back the insulting policy and then drives the rally. (Investors are increasingly skipping the entire part of panic and assuming that nothing that Trump says is real until a diluted version actually happened.)

To be clear, although the stock markets were brought to the armpits when reporting on Powells were brought to the armpits, the news provoked a certain movement on the currency and bond markets. Wednesday morning, before Trump's rejection, gold, classic safe Haven and long -term bond yields rose, the dollar increased by almost $ 1.

These reactions are pretty much what they would expect, said Steve Sosnick, chief strategist at Interactive Brokers, although he found that “the bond vigilants should theoretically react more energetically”. (“Bond Vigilantes” are investors who use their purchasing power to signal their disapproval of a policy – they were a big reason why Trump decided to pause some tariffs for 90 days in April.)

But the relatively steamed reaction of Stocks could reflect a disturbing dynamic on the street.

First, retailers can signal that they are more happy about the prospect of lower interest rates (number 1 that Trump wants from Fed) when they are obtained from the protection of the central bank from the political struggle.

Equity investors, he said, could “be in love with the idea of lower interest rates that they don't care whether they come due to state interference”.

This is a pretty wild idea!

When I asked Sosnick whether the Fed's independence on the market may not be as valuable as the market participants, he said:

“I will say that the independence of the central bank is critical and I think that I am not alone with this belief,” he added. “But maybe not either.”

Kocher is more concerned about how the Trump administration perceives the reaction of the market.

“We have to ask ourselves whether the previous report was a test balloon to see how markets could react if Powell was actually fired,” said Sosnick. “To be honest, the relatively steamed reactions of shares and the 10-year bond have increased the president's willingness to take measures, since the initial reaction was hardly catastrophic.”