Powell’s confirmation boosts US dollar and equity markets
Despite a slightly higher opening, European markets spent most of the day trading in broadly negative territory until the afternoon announcement of Jay Powell’s confirmation as Fed chairman for 4 more years, which contributed to an increase in the afternoon.
This news helped offset the broader negativity that saw the euro slide back to its recent lows, as protests in Europe over new Covid 19 restrictions acted as a larger first drag on sentiment.
The FTSE100 was more resilient than its European peers, with the telecommunications sector helping to support the index after US private equity firm KKR made a € 10.8 billion bid for Telecom Italia, which resulted in helped boost the rest of the industry with Vodafone. and the BT group is trading higher.
BT Group has already been at the forefront of similar speculation in recent months after Altice took a £ 2 billion stake in the company in June, suggesting it could consider making a formal offer after their six-month forbearance commitment. doing so expires in early December.
Royal Mail shares are also higher on expectations they will benefit from this week’s Black Friday and Cyber Monday promotions, as well as the lead-up to Christmas
Marks and Spencer’s shares are also higher according to weekend media reports that private equity giant Apollo missed out on the Morrisons acquisition and set its sights on the retail giant at the retail takeover, now that it owns a 50% stake in Ocado. The problem for Apollo is that they may have left it a bit late, given the recent stock price surge, which has seen stocks rise more than 20% in recent weeks, for hitting two-and-a-half-year highs, and up 82% year-to-date, putting them on track for a potential return to the FTSE100. That said, they’re still well below the levels they were trading at in 2015, when they were above 500p.
The biggest declines were Polymetal and Fresnillo due to a sharp drop in gold prices.
US markets have also benefited from today’s announcement that Jerome Powell will remain Fed chairman for a second term.
While Lael Brainard was seen as a more than competent candidate, President Biden’s choice of continuity over change was welcomed by markets, with stocks and yields both pushing higher at the opening. , the S & P500 and the Nasdaq setting new records in the process. Brainard will fill the post left vacant by Richard Clarida as vice president at the end of his term in January next year.
The first winners were the banks, with JPMorgan Chase, Bank of America and Citigroup in the lead, as higher short-term yields give their short-term funding models a boost. We’ve also seen long-term yields rise, although they haven’t risen as quickly, implying a slightly flatter curve further down.
Tesla shares rose despite a software failure preventing owners from their cars over the weekend, while Rivian Automotive shares continued their recent decline as the shine continues to peel away from the recent boom seen after the IPO.
Nvidia is also registering new gains hitting new records as more investors bet on the prospect that it will be a big winner in the transition to electric vehicles and the metaverse.
We have also seen an increase in the number of companies like Moderna, Novavax and BioNTech following events in Europe and the prospect of an accelerated dose booster program.
The US dollar has received an additional boost since today’s announcement that Jay Powell is expected to be reappointed as chairman of the Federal Reserve for another 4-year term. US 2-year and 5-year yields also edged up on the basis that this continuity at the head of the Fed will mean any recent talk of a faster tap will largely remain on the table. The US dollar index hit its best levels since July 2020.
The euro continued to decline, in the wake of the deteriorating Covid situation in Europe, after German Chancellor Angela Merkel painted a picture of much stricter restrictions in an attempt to bring the virus under control, which is spiraling out of control in some States.
Gold prices fell to their lowest level in more than a week today following the appointment of Powell for a second term as Fed chairman. This continuity is important as it keeps the prospect of an accelerated Fed withdrawal very broadly on the table, pushing short-term rates higher as well as a stronger US dollar.
Crude oil prices have continued to decline amid expectations of falling demand as well as lingering speculation that countries like the United States, China and others may decide on a coordinated release of the SPR.