Breakfast Bites - Fed's independence threatened again
Yield curve spikes; China breaks out; Intel may not be one & done.
Rise and shine everyone
President Trump’s move to oust Fed Governor Lisa Cook dominated headlines. Governor Cook has refused to step down and her legal team is preparing to fight what they call an illegal attempt. If successful, Trump would tilt the Fed board to a four-person majority well ahead of Cook’s 2038 term end.
Markets reacted with caution as investors worry about the Fed’s independence again. The USD weakened, while the Treasury curve steepened. The 2s-10s spread widened to 58.5bps, the steepest since mid-July.
Equities continue to pull back, with Futures rather flat this morning.
Trump’s comments also underscored a much broader push on industrial and trade policy. After confirming the government’s 10% Intel stake, the White House NEC stressed that the investment is non-voting and tied to the extraordinary size of CHIPS Act spending. Still, Trump himself was quick to frame it differently, suggesting that Intel may not be a one-off case. He openly floated the idea of seeking similar stakes in other US companies, saying he wants “as much as I can” in return for taxpayer subsidies. That raises the prospect of a new era where strategic industries, particularly semiconductors, could see Washington take a direct financial interest. This all goes back to the “in the interest of national security” argument.
UK markets reopened with gilt yields back in focus. The 30-year jumped over 8bps to levels last seen in April, with fiscal concerns resurfacing ahead of the Autumn Budget. Yields are now comparable to the 2022 mini-budget crisis under Liz Truss.
In Europe, the CAC40 slid nearly 2% after Finance Minister Lombard warned of a potential IMF intervention if Prime Minister Bayrou’s minority government loses a September 8 confidence vote on budget cuts. The OAT-Bund 10-year spread widened as fiscal stress bled into bonds.
Retailer Earnings
While Nvidia is the main focus in earnings this week, we still have a few specialty retailers also reporting. Expectations here look fairly solid, though not unanimous across the group.
Specialty hardlines are expected to deliver steady beats, with names like DKS, WSM, BBY and ULTA set up well. Dollar stores and off-price retailers including FIVE, DG, OLLI and BURL are also positioned to beat and raise as consumers continue to shift toward value.
The bigger overhang remains in mall-based apparel, where tariffs are creating pressure on margins. GAP and ANF are expected to show in-line revenues but softer EPS.
Walmart’s results highlight the broader backdrop, with tariff-driven cost pressures building into the second half of the year. The company flagged ongoing stress on lower-income households, alongside wealthier consumers trading down for bargains. Substitution effects are becoming more pronounced, and WMT is actively testing price elasticity in tariff-impacted categories. Taken together, the sector is navigating a more complex inflation environment, where value retailers are positioned to benefit but mall-based apparel continues to lag.
Chart of the Day - China is breaking out
The Shanghai Composite is breaking out from a long monthly downtrend, fueled by government policy support and strong momentum in tech and AI. This comes despite renewed trade tensions, with Trump warning of 200% tariffs on China if the US fails to secure rare earth magnets and threatening steep tariffs on pharmaceuticals to slash drug prices by as much as 1,400–1,500%.
Calendars
(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)
