U.S. futures fell and Asian stocks were mixed Tuesday amid a jump in Treasury yields and the dollar as Jerome Powell’s renomination to head the Federal Reserve fueled bets on a quicker reduction of monetary stimulus.
Nasdaq 100 contracts underperformed after a Wall Street technology selloff hurt U.S. shares. European contracts fell as the region’s Covid flareup saps sentiment. In Asia, a Hong Kong gauge of Chinese tech stocks dropped on speculation over stiffer regulations.
Powell said the Fed would use its tools to support the U.S. economy and labor market and prevent higher inflation from becoming entrenched. Treasuries slid, with markets pricing in a full quarter-point rate hike into the June Fed meeting and seeing a good chance of a second by September and a third by December.
The dollar was around the highest since September 2020, while the yen fell past 115 per dollar for the first time since 2017. Oil retreated ahead of an expected announcement by the U.S. on a coordinated release of reserves. Bullion pared a slump.
President Joe Biden opted for continuity at the Fed, selecting Powell for a second term as chair and elevating Lael Brainard to vice chair. They face the task of containing price pressures while nurturing the pandemic recovery and averting financial-market dislocations. Inflation and bolstering employment were repeatedly mentioned in Biden’s briefing on his selection.
“While investors no longer have to wonder about who will be leading the Federal Reserve for the next few years, the next big dilemma the central bank faces is how to normalize monetary policy without upsetting markets,” Robert Schein, chief investment officer at Blanke Schein Wealth Management, wrote in an email.
Fed Bank of Atlanta President Raphael Bostic said the U.S. central bank may need to speed up removal of monetary stimulus in response to strong employment gains and surging inflation, allowing for an earlier-than-planned increase in interest rates.
Following Powell’s renomination, “the market has unwound hedges against a more ‘dovish’ personnel shift,” Chris Weston, head of research with Pepperstone Financial Pty Ltd., wrote in a note. He flagged the possibility of volatility in December if financial conditions tighten.
Meanwhile, Francois Villeroy de Galhau, a member of the the European Central Bank’s governing council, said the monetary authority is “serious” about ending its emergency bond-buying program in March and may not need to expand regular asset purchases to cover the shortfall.
Elsewhere, iron ore extended a rebound from an 18-month low on bets stronger-than-expected steel output cuts so far this year mean China’s steel mills are primed to lift volumes next month.
Here are some key events this week:
- Eurozone, U.S. PMI data Tuesday
- Reserve Bank of New Zealand rate decision Wednesday
- U.S. FOMC minutes, consumer income, wholesale inventories, new home sales, GDP, initial jobless claims, U.S. durable goods, University of Michigan consumer sentiment. All Wednesday
- Bank of Korea policy decision Thursday
- U.S. Thanksgiving Day: U.S. equity, bond markets closed Thursday
- Bank of England Governor Andrew Bailey speaks with Mohamed El Erian at a Cambridge Union event. Thursday
Some of the main moves in markets:
- S&P 500 futures shed 0.3% as of 7:10 a.m. in London. The S&P 500 fell 0.3%
- Nasdaq 100 futures fell 0.4%. The Nasdaq 100 dropped 1.2%
- Australia’s S&P/ASX 200 Index rose 0.8%
- South Korea’s Kospi index fell 0.5%
- Hong Kong’s Hang Seng Index fell 1.1%
- China’s Shanghai Composite Index rose 0.2%
- Euro Stoxx 50 futures retreated 0.9%
- The Japanese yen was at 115.06 per dollar, down 0.2%
- The offshore yuan was at 6.3864 per dollar
- The Bloomberg Dollar Spot Index rose 0.1%
- The euro was at $1.1239
- The yield on 10-year Treasuries advanced one basis point to 1.63%
- West Texas Intermediate crude fell 1.3% to $75.74 a barrel
- Gold was at $1,805.74 an ounce, up 0.1%