A relatively modest market reaction to new threats on Federal Reserve independence this week owes much to the torrent of additional information hitting investors, with inflation and corporate earnings updates coming down the pike on Tuesday.
A frenetic news overload since the start of the year has failed to shake Wall Street stocks from record highs, while overseas attention on Iran tensions saw crude oil prices hit their highest in almost two months and Japan's yen and bonds slid anew on snap election speculation there.
Monday's focus on the potential criminal indictment of Fed Chair Jerome Powell knocked the dollar and saw gold hit new records - but the greenback found its feet overnight and gold fell back again.
Three reasons are generally cited for the limited market reaction to what Powell himself described as "pretexts" for undermining Fed independence.
The first was the scale of pushback from both Powell and former Fed chiefs, echoed by some Republicans in the U.S. Senate and finance leaders around the world. A second is that markets have been braced for this battle already and want to see how the many moving parts interact before staking new positions. And a third is the sheer difficulty in separating the issue from a welter of other major economic and political developments so far in January.
With U.S. GDP growth running north of 4% into the end of last year, Tuesday's consumer price update for December will show whether that level of heat is being reflected in prices. Core CPI inflation is expected to pick up a notch to 2.7% from November's peculiarly soft reading and still well above the Fed's target.
While two further rate cuts are still baked into futures markets for 2026, the next cut is not fully priced now until late July - perhaps emboldened by the Fed's bristling at political interference, at least for as long as Powell remains in the chair until May.
U.S. Treasury yields were calm amid the Fed row on Monday as the week's heavy debt sale schedule got underway, but yields across the curve are edging higher into the CPI release. Two-year yields hit their highest in almost a month and 10-year yields are stalking their highest since September.
Aggravating the picture was the renewed rise in oil prices, with U.S. crude at the highest since early November on Iran supply disruption concerns amid U.S. military threats due to Tehran's crackdown on a wave of anti-government protests.
President Donald Trump said on Monday that any country doing business with Iran will be subjected to a tariff rate of 25% in the United States. Iran exports much of its oil to China.
Having recovered early losses on Monday, U.S. stock index futures are a touch lower again into today's open.
The fourth-quarter earnings season also kicks off later, with reports from JPMorgan and Bank of New York Mellon expected to start a bumper quarter for banks' fee income amid a pick-up in deal-making activity late last year. Trump's plans for a credit card rate cap, however, knocked financial stocks on Monday.
In high-flying tech, Alphabet briefly hit $4 trillion in market valuation on Monday, as the Google parent's sharpened artificial intelligence focus allayed doubts about its strategy and thrust it back to the forefront of the high-stakes race.
Alphabet said the next-generation of Apple's AI models will be based on Google's Gemini under a multi-year deal.
Overseas, Japan's markets returned from Monday's holiday to dwell on the prospect of a snap election there as soon as next month. The yen plunged to its weakest since July 2024 after reports Prime Minister Sanae Takaichi has told her party's executive of her intention to dissolve parliament's lower house when its new session starts on January 23.
Japan's 20-year government bond yield climbed to record highs, with the 10-year yield at its highest since 1999. Yen weakness, however, helped lift the Nikkei stock index more than 3%.
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