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• FTSE 100 leads in Europe as precious metal and defence names outperform
• DoJ case again Powell resumes Fed independence debate 
• Trump’s midterm concerns drive raft of policy announcements

European markets have kicked off on a somewhat downbeat tone as traders weigh up a raft of dramatic headlines coming out of the US. The FTSE 100 appears to be faring best, benefitting from strong gains in the precious metals space and defence stocks. Notably, the weekend newswires told of a potential military deployment into Greenland from the likes of Germany and the UK in a bid to deter Trump’s overtures for the island. While Trump’s apparent willingness to take aim at land owned by a fellow Nato member does highlight the need for Europe to ramp up defence spending, Rachel Reeves might be back with a cap in her hand if the government is to fill the £28bn of defence costs forecast by the MoD for the coming four years alone. For UK stock pickers, the prospect of a new aggressive upward trajectory for European defence spending means the likes of BAE Systems remains a firm favourite.

The independence of the Fed has come into question once again, with Powell finally reaching breaking point after the DoJ opened criminal proceedings against the governor around comments made at the Senate regarding the Fed’s building renovations. Powell claimed that this “unprecedented” move was essentially a bid to stifle the Fed’s ability to "set interest rates based on evidence and economic conditions.” Instead, Trump seeks to build an environment where “monetary policy will be directed by political pressure or intimidation." The ability to construct a Federal Reserve that serves the President rather than the stability of the US economy means that markets will start to price additional near-term rate cuts and higher long-term risks. That steepening of the US yield curve serves to further benefit precious metals, with the prospect of additional Fed easing alongside rising debt and inflationary concerns have helped push both gold and silver into record highs today.

Donald Trump appears to be employing highly unorthodox policies across the board, seemingly casting aside the status quo to shape an economy and world according his desires. With the President warning that he will be impeached if they do not succeed in the November midterms, we can expect plenty of curveballs as he proves to the electorate that he is making their situation better. The latest jobs report signalled an ongoing struggle for many seeking jobs, which in part could be a reflection of the substitution of labour for AI, which will likely remain a theme in the years ahead. Nonetheless, Trump has sought to improve conditions for those buying homes, pushing for $200bn of MBS purchases from Fannie Mae and Freddie Mac. This comes in the wake of the announcement that Trump wants to ban large institutional investors from buying single-family homes. Meanwhile, with the President announcing that he would place a one-year cap that would limit credit card interest rates to 10%, we have seen fresh signs that the President wants to prioritise the individual over US businesses this year. For US stocks this serves as yet another reminder that investing in equities under Trump will be a bumpy road given the constant shifts in the corporate landscape. With Trump seeking to force US oil & gas firms back into the so-called “uninvestible” Venezuela, Trump’s Presidency looks to be dominated by efforts to push countries, businesses, and the Fed to take decisions that align with his goals over their own.

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