Stocks edge higher as Trump announces Kevin Warsh as Fed pick
An investor stands in front of an electronic board showing stock information at a brokerage house, in Hangzhou, Zhejiang province, February 25, 2016. REUTERS/China Daily
LONDON, Jan 30 : Global stocks edged higher on Friday, while the dollar rose and gold plunged after U.S. President Donald Trump nominatedKevin Warsh as his pick for the next Federal Reserve Chair.
Warsh, a former Fed governor, is seen as an advocate of lower interest rates, but he is also considered to be one of the less radical choices among the various names that had been raised and is perhaps more cautious on heavy monetary stimulus than others.
The MSCI world index was last 0.16 per cent higher as European shares rose, shrugging off a decline across Asia-Pacific stocks.
The pan-European STOXX 600 was last 0.72 per cent higher, holding onto earlier gains after Trump's announcement, and was on track to end January up more than 3 per cent.
S&P 500 e-mini futures fell 0.3 per cent while Nasdaq e-mini futures were off 0.4 per cent, paring back some earlier declines.
Precious metals had plunged after speculation about Warsh becoming the next Fed chair spread, with the selloff continuing following Trump's announcement. Gold, which tends to benefit when the dollar falls, dropped as much as 5 per cent in one of its biggest one-day selloffs in years.
MARKETS REACT TO TRUMP PICKING WARSH
Now that Trump has made his choice, investors are weighing how Warsh could lead the Fed.
"We will see from here because it's one thing to appoint somebody and it's entirely different to actually be Chairman of the Federal Reserve," Chris Beauchamp, chief market analyst at IG Markets, said.
While Trump wants low interest rates to be the priority, "the U.S. finds itself in a very difficult position right now in terms of inflation remaining stubborn, but economic data, as we should see in payrolls beginning to show signs of weakness with the unemployment rate moving higher," he said.
While Warsh will be seen as "Trump's man" at the central bank, he may aim to distance himself subtly once he officially assumes office, Beauchamp said.
Trump announcing his pick for Fed Chair also does not necessarily mean all uncertainty will be removed, said Sandra Horsfield, economist at Investec:
"We still have the question whether this will actually get through to full confirmation by the Senate anytime soon, given that there is still the stand-off between some of the members of the Senate over Fed independence questions and Powell's subpoena."
Horsfield noted that the broader backdrop still remains volatile, not least on Iran.
Brent crude was last down around 0.6 per cent at $70.31, as oil markets weighed geopolitical risks, after Trump on Thursday signed an executive order declaring a national emergency and establishing a process to impose tariffs on goods from countries that sell or provide oil to Cuba.
Also on Thursday, Trump said he was planning to talk to Iran amid rising tensions.
DOLLAR RETREATS FROM HIGHS
The U.S. dollar index, which measures its strength against a basket of six currencies, was last up 0.21 per cent at 96.38, slightly weaker than before Trump's announcement.
The yield on the U.S. 10-year Treasury bond was last up 1.8 basis points at 4.249 per cent, having traded at a session high of 4.279 per cent earlier on. Fed funds futures are pricing an implied 84.6 per cent probability that the U.S. central bank will hold steady on rates at its next meeting in March, slightly lower than the previous day's 87.5 per cent chance, according to the CME Group's FedWatch tool.
A faltering rebound for precious metals fell short after a choppy session on Thursday. Gold fell around 5 per cent to $5,129.39 an ounce, while silver plunged 11 per cent to $103.
Bitcoin was last down 2.1 per cent at $82,592 and ether tumbled 2.7 per cent to $2,740.
