Dow Suffers Record-Breaking Christmas Eve Losses

Jacquelyn Martin | AP

On Tuesday, Trump reiterated his view that the Federal Reserve is raising interest rates too fast, but called the independent agency's rate hikes a "form of safety" for an economy doing well.

The S&P 500 index was on pace for its biggest percentage decline in December since the Great Depression.

Stephen Innes, head of APAC trading at OANDA, said Trump's spat with the Fed and Mnuchin's call with the banks had "markets running for cover".

"The outsized moves are not reflective of the current US economic landscape, but that seems to matter little so far as fear mongering continues to permeate every pocket of global capital markets", Stephen Innes of OANDA, a currency trading platform, said in a market commentary. Trump has largely laid the blame for economic headwinds on the Fed, openly criticizing its chairman, Jerome Powell, whom he appointed.

Yesterday, President Trump encouraged American investors to buy stocks.

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This capped off a string of days in which the President first pleaded with and then complained bitterly about the Fed and its decision to raise interest rates.

Mnuchin on Christmas Eve made calls with the heads of the six largest United States banks. The current government shutdown is likely to persist a little more, but we may not see be enough of a catalyst to take stocks another major leg lower. At its session low, the S&P came two points shy of a bear market, measured by a drop of over 20% from a closing high.

Multiple reports last Friday even said Trump had discussed the possibility of firing Powell, a claim which was later denied by U.S. Treasury Secretary Steven Mnuchin.

Asian stocks were mixed yesterday after a weekend call by Treasury Secretary Steven Mnuchin to top USA banking executives aimed at stemming the market panic which resulted in Wall Street experiencing its worst week in a decade.

In Asian markets, Japan's Nikkei swung between gains and losses Wednesday before closing up almost 1%.

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"The concern now in the market is actually that Treasury's out of touch with what's going on", he said.

This is good news, but what makes it so harrowing is that there have been no reported liquidity issues with the banks, and so coming out and saying "all is well" when there's no public reason to think things are not well is weird.

Representative Maxine Waters, the top Democrat on the House of Representatives Financial Services Committee, said in a statement that Trump and Mnuchin's actions "have been erratic and are creating uncertainty and instability in the markets". However, the market had recovered by late morning only to go down again after Trump tweeted: "The only problem our economy has is the Fed".

At the same time in Washington, Mnuchin aides have been scrambling to find economic data to help their boss calm Trump down, but Trump was said to be unhappy with what Mnuchin was telling him, this source said.

Throughout the holiday period, Trump has railed against the Federal Reserve, tweeting at one point that it was the "only problem our economy has". These rules assess US policy interest rates in terms of economic fundamentals, namely the deviation of USA inflation from its 2% target and the Congressional Budget Office (CBO) measure of the output gap.

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But it may be lawful for Trump to remove Powell from the chairman role, Binder said.

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