U.S. Futures Fall, Safe-Havens Surge as Fed Chair Powell Under Investigation

By Dow Jones Newswires Staff

U.S. futures fell sharply and investors turned to precious metals as markets reacted with concern after U.S. prosecutors launched a criminal investigation into Federal Reserve Chair Jerome Powell regarding his testimony last year over the central bank's building renovations. That put pressure on the dollar and sent long-term U.S. treasury yields higher. Meanwhile, gold and silver rose sharply as the Powell probe and an intensifying crackdown on protests in Iran spurred a flight to safe-havens. Investors look ahead to December's U.S. inflation print Tuesday, while several U.S. banks are set to report earnings Wednesday. The U.S. Supreme Court is expected to issue its next set of rulings Wednesday, with a decision on President Trump's tariff regime still outstanding.

• U.S. futures fell across the country's three major indexes. The S&P 500 was down 0.7%, while the Dow Jones Industrial Average slipped 0.6% premarket after both indexes closed at new records Friday. Futures for the tech-heavy Nasdaq were down 1.1% after closing at its fifth highest close Friday.

• Asian indexes gained, though markets in Japan were closed for Coming of Age day. Hong Kong's Hang Seng gained 1.4%--led by a 10% gain for Alibaba Health Information Technology--while technology stocks drove China's benchmark Shanghai Composite up 1.1%.

• European indexes largely fell back from a suite of record closes Friday as banks and automakers dropped. The German DAX traded flat after a record close Friday as losses for banks and automakers canceled out gains for defense companies. London's FTSE 100 slipped 0.2% from its own record close--despite sharp gains for precious metal miners--as Barclays fell 4.1%. Banks also dragged on France's CAC 40, which fell 0.4%, with Societe Generale slipping 2%. The Spanish IBEX 35 and Italian FTSE MIB dropped 0.85% and 0.4%, respectively, as losses for banks dragged on the indexes. The Dutch AEX index was one bright spot, climbing 0.1% as BE Semiconductor gained 6.75%.

• The dollar fell against a basket of currencies. The news from the Federal Reserve is a stern reminder of the risks to Fed independence, especially as Powell "made it unusually clear" that the purpose of this was to influence monetary policy, Commerzbank's Thu Lan Nguyen said in a note. The DXY dollar index dropped 0.3% to 98.832.

• Short-dated U.S. Treasury yields fell while longer-dated yields rose. Fed Chair Powell said in a video statement the investigation is a pretext for President Trump's efforts to pressure the Fed to lower interest rates and undermine its independence. This increases concerns over longer-term inflation risks as it could mean interest rates are reduced in future despite inflationary pressure, putting even greater focus on Tuesday's U.S. inflation data. The two-year Treasury yield fell 1.2 basis points to 3.527%, while the 10-year Treasury yield rose 1.2 basis points to 4.182%, according to Tradeweb.

• Eurozone government bond yields rose in opening trade ahead of substantial supply this week and tracking an increase in longer-dated Treasury yields. Auctions from the Netherlands, Austria, Italy, Germany and Spain are scheduled this week but some syndicated deals are likely as well. The 10-year Bund yield rose 1.2 basis points to 2.835%, while the 10-year French OAT yield climbed 1.9 basis points to 3.543%.

• Oil prices slipped despite increased supply risks due to escalating protests in Iran and uncertainties over Venezuelan crude exports. Brent crude fell 0.3% to $63.15 a barrel, while WTI was down 0.4% to $58.86 a barrel. "Iran is the fourth-largest OPEC member, producing around 3.2 million barrels a day of crude oil," ING analysts said. "This leaves a fair amount of supply risk hanging over the market." According to U.S. officials, President Trump is scheduled to be briefed Tuesday on options to respond to the protests in Iran, including sanctions, cyber weapons, and military strikes. Investors were also closely monitoring supply risks in Russia amid Ukraine's attacks against energy infrastructure in the region and prospects of tougher U.S. sanctions.

• Gold prices climbed 2%, breaking through $4,600 a troy ounce. In early trading, gold futures in New York rose 2.1% to $4,593.40 an ounce after reaching a high of $4,612.70 earlier in the session. Silver surged 6.1% to $84.18 an ounce, while platinum was up 1.2% to $2,278.30.

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