Powell nominates European stocks to fall after weakening U.S. stocks

European stock markets and US short-term government bonds fell on Tuesday as traders weighed Jay Powell’s re-election as Fed chairman and a further surge in coronavirus cases across Europe.

The regional Stoxx Europe 600 Index fell 1.6% at one point, and then its decline fell to 0.8%. The benchmark indexes of Germany and France fell 0.7% and 0.3%, respectively, while the FTSE 100 index in London remained stable.

The Standard & Poor’s and Nasdaq Composite Index fell 0.3% and 1.3% respectively at the close of the previous trading day.Technology stocks are considered more sensitive to rising interest rates, and Fed policy is expected to be more hawkish Powell becomes governor of the U.S. central bank Rather than under the leadership of his controversial competitor Lyle Brainard, US President Joe Biden appointed him vice chairman.

“Although it is re-election… Fed Chairman Powell is the basic situation of the market, so the possibility of Brainard, who is considered dovish, holds the position significantly increased. Therefore, Powell’s nomination for re-election as Fed Chairman triggered a hawkish market reaction. ,” Citigroup analysts said.

Fed funds futures-a market that hedges or bets on future interest rate changes-indicate that the Fed is about 75% more likely to raise interest rates from historical lows by June next year, up from about 60% a month ago. Data compiled by CME Group.

This shift is reflected in short-term US government bonds. The yield on the two-year US Treasury bond rose by 0.05 percentage points to 0.64% in European trading on Tuesday, extending Monday’s gains. The debt yield, which is sensitive to expected fluctuations in monetary policy, was around 0.3% in early October.

The longer-term bond yields have been relatively stable, reflecting the expectation that the surge in inflation that prompted global central banks to ease stimulus measures for the epidemic will begin to cool in the medium term. The 10-year U.S. Treasury bond yield has barely changed recently, at 1.63%.

JPMorgan Chase strategists said that overall, “Powell’s re-election reduces uncertainty and should therefore be beneficial to risky assets.”

“Historically, the market has tried to test the new Fed chairman, so we believe this result will be avoided,” Wall Street Bank said in a report to customers. “In addition, Powell’s experience in the second half of 2018, that policy tightening led to a strong sell-off in the market at the end of the year, may lead to a cautious approach to boost next year.”

The futures contract tracking the S&P 500 Index of Wall Street’s blue-chip stocks fell 0.1%, indicating that the US stock market may weaken when the New York market opens. The contract tracking the Nasdaq 100 index fell by about 0.3%.

European stock markets also closed lower on Monday after several countries were forced to re-implement pandemic restrictions due to the surge in the number of coronavirus cases. The new restrictions sparked many protests over the weekend.

Paul Donovan, chief economist at UBS Wealth Management, said that the implementation of new restrictions in parts of Europe “shaked a key market belief to the point that advanced economies would not take this path.” .

Asian markets fell slightly on Tuesday, and the MSCI Asia Pacific Index fell 0.45% in US dollars. Hong Kong’s Hang Seng Index fell 1.2%, dragged down by sectors such as technology stocks and healthcare stocks. China’s Shanghai and Shenzhen 300 Index was flat.

At the same time, in terms of currencies, the euro-dollar exchange rate is close to its lowest level since July 2020-up 0.1% to approximately $1.124.

After the country’s President Recep Tayyip Erdogan (Recep Tayyip Erdogan), the Turkish lira’s exchange rate against the U.S. dollar hit a record low Praise for a 1% rate cut last week He also said that his country is fighting a “war of economic independence.” Turkey cut interest rates to 15% last week, despite the annual inflation rate of 20%.

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