US stocks surged to all-time highs and the dollar rebounded as Treasury yields rose on reports that President Donald Trump is meeting with former Federal Reserve Governor Kevin Warsh to discuss the role of Fed chair. The S&P 500 Index, Nasdaq Composite Index and Russell 2000 Index all moved into record territory, and the S&P 500 benchmark remained on track for its eighth straight quarterly gain. Treasury yields added to their biggest weekly jump since Trump’s election in November. Despite the market enthusiasm, some investors predicted that Warsh’s nomination would hurt stocks..
“I don’t think a Warsh nomination would bring confidence to the markets and would expect equities to sell off if he was announced, Neil Dutta, head of US economics at Renaissance Macro Research LLC, wrote in a note to clients on Friday. Normally, the FRB staff assumes the chair knows the ins and outs of monetary economics at least as well as they do.”
“Warsh would not be afforded that assumption. That is a big problem.” Prior to the Warsh news, the dollar and government bonds fell as the PCE core deflater, a key gauge of inflation, rose less than economists expectations, deepening concern about the stickiness US consumer prices and what it could mean for the Federal Reserve’s expected interest rate hike this year. Personal spending also cooled.
“Inflation data today was weak, but Janet Yellen was pretty adamant when she spoke that they’re going to remain on course, and even though the numbers missed expectations today the headline number is still the same level, so it’s not a big down tick,” Michael O’Rourke, chief market strategist at JonesTrading Institutional Services LLC, said by phone.
“It’s not optimal to keep policy on course, but it’s not enough to knock policy off course.”
European shares headed for their best month of the year. European government bonds rebounded. Emerging-market assets rallied, with stocks rising and most currencies strengthening against the greenback. Data out of Europe underscored the region’s economic recovery. German unemployment fell to a record low in September, providing encouragement for the European Central Bank as it contemplates reducing asset purchases in coming months. Euro-zone inflation undershot estimates, though not by much. The UK’s benchmark stock index was buoyed by data showing that British consumers are in better shape than previously thought. — Bloomberg.