The White House intervenes in the Federal Reserve amid escalating trade frictions, putting pressure on emerging market assets

According to the Zhitong Finance APP, U.S. President Trump is pressuring the Federal Reserve and reigniting global trade tensions, leading to increased market risk aversion. During the Asian trading session, emerging market stocks and currencies collectively faced pressure. The Morgan Stanley Capital International Emerging Markets Equity Index fell by 0.9%, halting its previous upward momentum towards a three-year high; the MSCI Emerging Market Currency Index also declined by 0.3%, with the South Korean won being a major drag.

The Trump administration announced new tariffs on the semiconductor and advanced technology sectors, implemented export restrictions, and dismissed Federal Reserve Governor Lisa Cook, exacerbating policy uncertainty. Sébastien Barbe, a strategist at Crédit Agricole, pointed out that the market had already begun to correct optimistic expectations following the Jackson Hole global central bank conference, and the White House's intervention in the Federal Reserve further suppressed risk appetite.

It is worth mentioning that President Trump's dismissal of Federal Reserve Governor Lisa Cook has escalated the power struggle between the presidency and the Federal Reserve.

In a letter posted on Truth Social, Trump claimed that Cook was dismissed for "deceptive and possibly criminal behavior" in mortgage applications, stating that there was "ample reason" for her removal. The first Black woman appointed to the board by the Biden administration has explicitly refused to resign, and her legal team has indicated they will take legal action to block this "illegal action," emphasizing that the president does not have the unilateral authority to fire a board member.

The incident quickly shook the market. During Tuesday's trading session, the U.S. dollar index fell by 0.3%, gold prices rose by 0.6%, and long-term U.S. Treasury yields climbed, reflecting investors' concerns about increasing inflation pressures. If Trump successfully replaces Cook, his nominated policymakers may push for a more aggressive rate-cutting path. Charles Schwab strategist Kathy Jones noted that even if the Federal Reserve's policy does not shift immediately, the risk premium on long-term bonds still needs to be adjusted upward.

In terms of emerging market assets, leading tech stocks like Alibaba and Tencent fell; the South Korean won faced pressure due to a 15% tariff on goods from the U.S. and hundreds of billions of dollars in investment pressures; India saw a significant increase in trade costs due to a 25% additional tariff on oil imported from Russia. Notably, China has dispatched senior trade negotiators to the U.S., indicating that the world's two largest economies are attempting to restart trade dialogue.

It is understood that Li Chenggang, Vice Minister of Commerce of China, will lead a delegation to Washington this week to engage with U.S. officials and business representatives. This move is seen as an important signal in the negotiation process following the ceasefire in the China-U.S. trade war. According to insiders, Li Chenggang is scheduled to arrive in the U.S. on Thursday and Friday, although the itinerary has not yet been officially announced.

This interaction occurs after the Trump administration announced earlier this month a 90-day suspension of new tariffs on Chinese goods, with both sides attempting to resolve several contentious issues during this window, including tariffs related to fentanyl trafficking, China's purchase of sanctioned Russian and Iranian oil, and operational differences for U.S. companies in China Jeremy Chen, a senior analyst at Eurasia Group, pointed out that the Chinese side sending senior officials to the U.S. is "a positive signal of an agreement reached between Trump and Xi Jinping to hold a summit." Trump has previously expressed his willingness to meet with Xi Jinping but emphasized that "it will only take place if progress is made in trade negotiations."

In terms of monetary policy, the Hungarian central bank maintained the benchmark interest rate at 6.5% on Wednesday, tying it with Romania for the highest level in the EU, highlighting the cautious attitude of emerging markets in balancing economic growth and inflation control. Market analysis suggests that with the current political and trade risks overlapping, short-term volatility in emerging market assets may intensify