By Gregor Stuart Hunter
SINGAPORE, Jan 30 (Reuters) – Stocks slumped and the dollar and bond yields shot up on Friday after U.S. President Donald Trump said he has firmed up his choice to lead the Federal Reserve, with reports zeroing in on Kevin Warsh as the likely pick.
While Warsh, a former Fed governor, is seen as an advocate of lower interest rates, he is also considered to be one of the less radical choices among the various names that have been raised and is perhaps more cautious on heavy monetary stimulus than others.
MSCI’s broadest index of Asia-Pacific shares outside Japan tumbled as much as 1.4%, extending the previous day’s declines, with the biggest one-day slump of the past month.
S&P 500 e-mini futures slid 0.7%, Nasdaq e-mini futures were off 0.9% and precious metals plunged, after Reuters reported that Warsh visited the White House for a meeting with Trump on Thursday, citing a source familiar with the matter.
Bloomberg News also reported that the Trump administration was preparing to nominate Warsh as the next Fed chair.
Warsh “is on record as saying he prefers lower rates,” said Damien Boey, a portfolio strategist at Wilson Asset Management in Sydney. “But the trade-off that he makes with lower rates is that he wants the Fed to have a smaller balance sheet.”
“The markets are reacting as if thinking: ‘What would the world look like with a smaller Fed balance sheet?'”
On prediction market site Polymarket, the implied probability of contracts betting that Trump will nominate Warsh to lead the central bank surged to 94% from 35% earlier in the day.
The U.S. dollar index, which measures the greenback’s strength against a basket of six currencies, was last up 0.4% at 96.574, reversing some recent weakness.
“We’ve definitely seen some dollar buying straight away on the back of it,” said Tim Kelleher, head of institutional FX sales at Commonwealth Bank in Auckland. “He’s known to the markets and will probably calm things down slightly.”
Asian stocks were led lower by declines in China, with a gauge of Chinese companies with listings in Hong Kong off 2.2%. MSCI’s broadest gauge of equities outside of Japan remains on track for its best monthly performance in more than three years. In Tokyo, the Nikkei 225 slipped 0.1%.
Stocks in Jakarta rallied 1.2% after the head of Indonesia’s stock exchange resigned after taking responsibility for a selloff triggered by a warning of a potential downgrade from MSCI. It was the country’s biggest stock rout since the 1998 Asian Financial Crisis.
Meanwhile, South Korean stocks eked out a 0.1% gain, capping a 24% advance this month, representing their best performance since December 1998.
The yield on the U.S. 10-year Treasury bond was last up 4.6 basis points at 4.271%. Fed funds futures are pricing an implied 84.6% probability that the U.S. central bank will hold steady on rates at its next two-day meeting on March 18, compared with a 87.5% chance a day earlier, according to the CME Group’s FedWatch tool.
A faltering rebound for precious metals fell short after a choppy session on Thursday. Gold fell as much as 5.2% to $5,114.88, while silver plunged 7.5% to lows of $107.37. Platinum and palladium both tanked 8%.
Brent crude was last down 1.5% at $69.62 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. Bitcoin was last down 2.0% at $82,709.51 and Ether tumbled 2.7% to $2,740.32.
(Reporting by Gregor Stuart Hunter; Editing by Thomas Derpinghaus and Sam Holmes)
Comments