Introduction
Federal Reserve Chair Jerome Powell’s public accusation against President Trump for threatening criminal prosecution over interest rate policy dominated global financial headlines on January 12, 2026. The confrontation, centered in the United States but reverberating across major economies, highlighted escalating tensions between the White House and the central bank, with key actors including Powell, Trump administration officials, and international counterparts like ECB’s Francois Villeroy de Galhau who voiced support for Powell. This matters profoundly today as it raises questions about central bank autonomy, a cornerstone of modern monetary policy that influences everything from borrowing costs to asset valuations worldwide. Markets reacted with caution: U.S. equities dipped amid volatility, the dollar weakened notably, and gold surged to a record above $4,600 per ounce, underscoring a flight to safety.
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U.S. equities opened lower and traded erratically, reflecting investor unease over potential political interference in monetary policy. The Dow Jones Industrial Average fell 0.56% to around 49,266 points, while the S&P 500 slipped 0.1% to near 6,961, erasing some gains from the prior week’s record highs. Sector leadership shifted defensively; financials underperformed sharply after Trump’s proposal to cap credit card interest rates, dragging shares of JPMorgan Chase, Capital One, and Synchrony Financial lower by over 2% on average, as the sector grappled with margin compression risks. Technology held relatively steady, with the Nasdaq Composite down only marginally at 23,671 from recent peaks, buoyed by broader market breadth but capped by profit-taking in mega-caps. Utilities and materials provided pockets of resilience, up 1.2% and 1.6% respectively in recent sessions, as investors rotated into havens amid policy uncertainty.
European stocks diverged, with miners and chipmakers rallying on commodity strength and global risk-off flows. The Stoxx 600 edged higher by 0.3%, led by basic resources which climbed 2% on surging gold and copper prices, while banking stocks lagged amid ECB policy signals. ECB Governor Villeroy de Galhau’s remarks backing Powell and dismissing 2026 rate hikes as “fanciful” reinforced expectations of steady 2% deposit rates, supporting eurozone bonds but weighing on financials. In the UK, the FTSE 100 gained modestly, propped by commodity exposure, though broader sentiment soured on transatlantic tensions spilling over via dollar weakness.
Asian markets showed resilience, particularly in China and Japan where indices rose over 1%. Shanghai Composite hit a decade high near 4,120, fueled by easing deflation worries after December CPI rose 0.8% year-over-year and unprecedented trading volumes signaling policy optimism. Hong Kong’s Hang Seng added 0.3% to 26,232, with Kuaishou and gold miners like Zhaojin up 3.6% on metals momentum. Japan’s Nikkei steadied despite yen weakness, as speculation around Prime Minister Takaichi’s potential snap elections bolstered fiscal aggressiveness expectations. Overall, equities reflected a bifurcated landscape: North America cautious, Europe mixed, Asia buoyant on local catalysts reinforcing the global safe-haven theme.
Bond yields ticked higher across the curve, signaling reduced rate-cut bets amid Fed independence fears. The U.S. 10-year Treasury yield rose to 4.21%, up 3 basis points intraday, while the 2-year climbed to 3.508%, flattening the curve slightly as short-end sensitivity to policy risks intensified. Market-implied Fed funds futures now price only a 14.9% chance of a January cut, down from prior weeks, with the target range steady at 3.50%-3.75% post-2025’s 75 basis points easing. December nonfarm payrolls added just 50,000 jobs—missing 73,000 estimates—yet unemployment dipped to 4.4%, tempering aggressive easing calls but amplifying political pressure narratives.
Eurozone peripherals saw Bund yields edge up 2 basis points to 2.2%, aligned with ECB’s hold-steady outlook amid Lagarde’s prior emphasis on uncertainty. UK Gilts and Japanese JGBs mirrored the move, with 10-year yields at 4.19% and stable low levels respectively, as global fixed income priced in persistent inflation vigilance over cuts. Rate expectations decoupled from softening data, with cross-asset flows favoring bonds less amid gold’s allure, highlighting policy risk premia embedding across durations.
The U.S. dollar index tumbled 0.8%, hitting multi-week lows near 100, as haven flows and Fed sympathy trades accelerated depreciation. EUR/USD surged above 1.1750, up from 1.1670 lows, driven by ECB-Fed divergence and Villeroy’s dovish tilt. GBP/USD followed suit, gaining 0.5% amid sterling’s commodity sensitivity, while USD/JPY dipped to 157.52 before rebounding to 158 on yen-selloff speculation. Emerging market currencies like the offshore yuan strengthened 0.4% on China’s upbeat data, underscoring EM outperformance versus G10 peers strained by U.S. drama. FX volatility spiked, with the dollar’s weakness amplifying gold’s USD-denominated rally and pressuring commodity exporters.
Commodities epitomized risk-off dynamics, with precious metals leading. Gold smashed records above $4,600/oz, up over 1.3% intraday and 65% year-over-year, propelled by haven demand amid Powell-Trump clash, Venezuela unrest, and Iran protests. Silver mirrored the surge, notching highs as industrial demand intertwined with safety bids. Industrial metals shone too: copper hit $5.98/lb, up 2.05% daily and 38.92% annually, on supply shortfalls and China stimulus hopes despite looming economic clouds.
Oil, conversely, softened under demand worries. Brent settled near $63/bbl, down 0.53%, and WTI around $60, as ample supply from Venezuela/Russia offsets geopolitical premiums, with forecasts eyeing $52 support. Energy lagged equities, with OPEC+ adherence doubts compounding Fed-sensitive growth fears. Broader complex: agricultural soft commodities stable, but base metals’ strength reinforced cyclical rebound bets tempered by policy fog.
Cryptocurrencies traded choppily but resiliently, extending blockchain’s decorrelation from traditional assets. Bitcoin hovered near recent highs, buoyed by risk appetite in Asia, while Ethereum closed at $3,130 on January 12, up 0.23% from $3,120 open amid $3,170 highs. ETH/USD fluctuated between $3,070-$3,170, reflecting 2% weekly gains despite equity wobbles, as DeFi yields attracted flows amid fiat uncertainty. BTC/ETH pair steadied, with crypto’s 24/7 liquidity providing hedges against central bank drama, though volumes dipped on U.S. session caution. Overall, digital assets reinforced gold’s safe-haven role, with market caps swelling 5% weekly on institutional inflows.
Macro data underpinned volatility: U.S. payrolls miss reinforced cooling labor (4.4% unemployment), yet wage growth steadied inflation at bay, clashing with Trump’s rate pressure. China’s CPI rebound to 0.8% eased deflation, boosting commodities and equities. Geopolitics amplified via Venezuela’s Maduro capture and Iran tensions fueled gold, while fiscal talks—Trump’s credit caps, Takaichi elections—intersected policy outlooks. Expectations versus outcomes diverged: softer jobs pointed to cuts, but political noise delayed pricing, yielding higher yields, weaker USD, stronger havens. Risk sentiment soured per VIX uptick to 14.49, with advances outnumbering decliners 1.3:1 on S&P but breadth narrowing. Cross-asset coherence held: equity dips fed bond sells and FX shifts, commodities split (metals up, energy down), crypto steady— all orbiting Fed independence fears amid global divergence.
