Wall Street stocks dropped on Monday as traders reacted to the news that Joe Biden had nominated Jay Powell as chair of the Federal Reserve for a second term, with Lael Brainard selected as nominee for vice-chair.
The US’s blue-chip S&P 500 equity index gave up earlier gains when Powell’s renomination was first announced, ending the day 0.3 per cent lower in the New York. The technology-heavy Nasdaq Composite index also tailed late in the trading day, closing 1.3 per cent lower.
Tech stocks are considered particularly sensitive to rising interest rates, with Powell’s renomination expected to result in a more hawkish tilt to the US central bank’s policy than had Brainard been chosen as candidate for Fed chair.
In government debt markets, the yield on the two-year Treasury note, which is sensitive to interest rate expectations, rose to its highest level since March 2020, last up 0.09 percentage points to 0.59 per cent, “speaking to the hawkish implications of the nomination for 2022 in particular”, noted BMO strategists on Monday morning.
The yield on the benchmark 10-year Treasury note rose about 0.08 percentage points to 1.62 per cent. Bond yields move inversely to their prices.
Anthony Collard, head of investments for the UK and Ireland at JPMorgan Private Bank, said the prospect of a second term for Powell was “a positive, on balance”.
“His navigation of the crisis [while] maintaining growth proves to us he has done a commendable job,” Collard said.
Equity markets were subdued across the Atlantic. European stocks had edged up during their afternoon session but later fell. Several countries in the bloc were last week forced to reimpose pandemic restrictions.
Europe’s Stoxx 600 share index closed 0.1 per cent lower on Monday, having fallen 0.3 per cent during the previous trading day.
Protests broke out in Austria, Italy and Belgium among other European countries over the weekend, after governments stepped up coronavirus restrictions in response to higher numbers of infections.
London’s FTSE 100 share index closed 0.4 per cent higher.
Elsewhere, Asian stock markets were mixed. Hong Kong’s Hang Seng index fell 0.4 per cent while China’s CSI 300 index rose 0.5 per cent. Emerging market equities more broadly were down on Monday following selling pressure last week as investors increasingly shifted their attention towards developed economies where interest rates were expected to rise over the coming year.
A broad FTSE barometer of EM stocks dipped 0.9 per cent in US dollar terms, having fallen 1.4 per cent over the course of last week.
In currencies, the US dollar index — measuring the greenback against six other currencies — moved up 0.5 per cent. The euro weakened about 0.5 per cent against the US currency to $1.124, its lowest level since summer last year as traders bet the bloc’s central bank would stick to ultra-low borrowing costs even as US and UK policymakers were expected to raise rates.
The Turkish lira hit roughly TL11.4 to the US dollar on Monday, its weakest-ever level. Last week the country’s central bank cut interest rates by 1 percentage point to 15 per cent. The currency has fallen more than 30 per cent this year as rates have been slashed from 19 per cent at the start of September, against a backdrop of high inflation.
Brent crude, the oil benchmark, rose to a high of $80.07, settling 1 per cent higher for the day at $79.70 a barrel.
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