LONDON – Global financial markets were on steadier footing on Wednesday, helped by a modest bounce in equities, a record high in copper and as the recent selloff in government bonds – and far lengthier rout in cryptocurrencies – relented.
Overnight news that Donald Trump’s administration had abruptly cancelled interviews with finalists for the Fed chair job firmed up the view that Kevin Hassett – seen as a U.S. interest rate cutter – will replace Jerome Powell next May.
Traders’ response to that potentially dovish influence was a weaker dollar for a ninth straight day, steeper government bond yield curves and a rally in risk assets that lifted everything from shares to metals, and even helped bitcoin clamber back above $92,000.
Europe’s defence stocks and oil prices both climbed 1% after Russia said U.S.-led peace plans for Ukraine did not satisfy its requirements yet, while Zara owner Inditex’s shares leapt 7% after it reported a strong start to winter sales.
“The market is, more than anything else, still being driven by expectations about the new Fed chair and that Hassett might get the job,” Societe Generale’s FX strategist Kit Juckes said,
“The view is that Trump is going to appoint someone that is going to keep rates low no matter what,” Juckes added, given the desire to keep the U.S. economy motoring.
Wednesday’s relative calm also meant beaten-up Japanese bonds (JGBs) were more orderly overnight, though the 10-year JGB yield still hit its highest since June 2008 at 1.885%. Bond yields move inverse to price.
Benchmark 10-year U.S. Treasury yields were just above 4%, 2-year yields dipped to 3.5%, while Germany’s 10-year Bund yield steadied at 2.75% after climbing to its highest since September on Tuesday.
“With the weaker dollar, dollar/yen has been tamed but your eyes continued to be pinned to the Japanese government bond yields,” Saxo Bank strategist John Hardy said.
MORE DOVISH FED OUTLOOK
Bitcoin, which has crashed by almost a third since early October, reclaimed the $92,000 level to hit a two-week high in crypto markets.
Wall Street futures were also pointing to modest gains for the Nasdaq and S&P 500 with focus sharpening on inflation data due on Thursday ahead of next week’s key Fed meeting which is now 90% priced for a rate cut.
“I just can’t see any reason why (equities) won’t be well supported into the FOMC rate cut next week,” said Tony Sycamore, a markets analyst at IG.
“And I think then you start to hit that really nice sweet spot in mid-December when equity markets just rally.”
Investors have been pricing their more dovish Fed outlook, on the view that White House economic adviser Hassett would deliver further rate cuts if he succeeds Powell.
U.S. President Donald Trump said on Tuesday he would announce his Fed chief nominee early next year, and that he has narrowed the list to one person.
That kept the dollar on the back foot, leaving the yen at 155.60 on Wednesday, the euro 0.18% firmer at $1.1642 and sterling 0.5% higher at $1.3280.
In commodities, the 1% rise in oil prices came as markets weighed faltering Russia-Ukraine peace hopes that were they to materialise would likely lead to sanctions changes and ultimately more Russian oil in global markets.
Brent crude futures were at $63 a barrel in London trading, with U.S. crude just above $59 per barrel.
Spot gold was little changed at $4,201 an ounce, while industrial bellwether metal copper jumped 1.7% to a record high of 11,338 a ton.
