BLBG:Dollar Drops as Stocks Advance on Summers; Oil Retreats
The dollar weakened against all its major peers while stocks rose with Treasuries as Lawrence Summers withdrew his bid to become Federal Reserve chairman. Crude oil fell after the U.S. and Russia agreed on a plan to eliminate Syria’s chemical weapons.
The Bloomberg U.S. Dollar Index dropped 0.5 percent at 8:20 a.m. in London as the greenback slumped 1.1 percent against the Australian dollar. The MSCI All-Country World Index increased 0.6 percent to the highest level since June 2008 and Standard & Poor’s 500 Index (SPX) futures jumped 0.9 percent. The yield on 10-year U.S. Treasuries declined seven basis points to 2.82 percent and the rate on German notes fell three basis points. West Texas Intermediate crude sank a second day while copper gained.
Summers, a former Treasury secretary, would tighten Fed policy more than Janet Yellen, who was his main rival to replace Chairman Ben S. Bernanke, according to a Bloomberg Global Poll last week. The Fed will probably trim its monthly bond-buying program by $10 billion to $75 billion this week, a separate survey of economists showed.
“The market prefers Dr. Yellen, she would be the smoothest continuation of existing policy,” Phil Orlando, the New York-based chief equity strategist at Federated Investors Inc. (FII), which manages about $380 billion in assets, said by phone. “We know they will probably initiate the taper at the next Federal Open Market Committee and that they will start with about $10 billion. Therefore the passing of the baton is important.”
Yen Strengthens
The Stoxx Europe 600 Index advanced 0.7 percent to a five-year high, led by raw-materials and technology companies. Equity gauges in Turkey, Russia and Poland increased at least 1 percent. The MSCI Asia Pacific Excluding Japan Index added 1.6 percent with Japanese markets closed.
Asian currencies climbed to a five-week high. The Bloomberg-JPMorgan Asia Dollar Index of the region’s 10 most-used currencies excluding the yen increased 0.3 percent to the highest level since Aug. 12.
The yen gained 0.5 percent and headed for the strongest level this month. The euro appreciated 0.5 percent to $1.3366 and Turkey’s lira increased 1.7 percent. New Zealand’s currency rose 0.7 percent to the highest level since May 15.
Treasury 10-year yields dropped to the lowest level in almost two weeks, while rates on similar-maturity German notes fell to 1.94 percent.
Pimco Outlook
U.S. President Barack Obama said he accepted Summers’ decision. Summers was one of three candidates mentioned by Obama as possible replacements for Bernanke, whose term as Fed chairman ends on Jan. 31. Yellen, the current Fed vice chairman, was also on the list along with Donald Kohn, a former Fed vice chairman.
Yellen may be viewed by markets as a “shoo-in” for the top job at the Fed after Summers pulled out, National Australia Bank Ltd.’s economics team wrote in a note today. Ten-year Treasuries fell briefly on Sept. 13 after Nikkei reported Summers would be named Fed chairman.
“Markets were priced for the likelihood of a Summers nomination, primarily for the notion that he might raise interest rates sooner than perhaps other candidates, including Janet Yellen,” Tony Crescenzi, a money manager and strategist at Newport Beach, California-based Pacific Investment Management Co., which runs the world’s biggest bond fund, said in an e-mail. “This news should result in outperformance of shorter maturities” before the Fed policy meeting Sept. 17-18.
Stocks Rally
The S&P/ASX 200 Index (AS51) jumped 0.5 percent in Sydney. The Kospi Index rallied 1 percent in Seoul as foreign investors added to their holdings of South Korean stocks for the 17th consecutive day. Hong Kong’s Hang Seng index rose 1.3 percent. Japanese markets were closed for Respect-for-the-Aged Day.
“It’s quite positive for equities,” George Boubouras, Melbourne-based chief investment officer at Equity Trustees Ltd. (EQT), where he helps oversee about $28 billion, said by phone. “It puts Yellen back on the cards as the favorite. She’s more aligned to retaining accommodative policy and is seen as not being as brash as Summers might have been.”
India’s S&P BSE Sensex Index fell 0.4 percent, erasing an advance of as much as 1.8 percent after inflation unexpectedly accelerated to a six-month high in August.
WTI crude fell 0.5 percent to $107.67 a barrel, while Brent crude declined 0.4 percent to $111.20. Contracts due next month on gasoline sank 0.7 percent.
Syria Plan
U.S. Secretary of State John Kerry will meet with French President Francois Hollande and his counterparts from France and the U.K. as he tries to build support for the Syria plan.
Kerry may also meet with ministers from Turkey and Saudi Arabia, both backers of the rebel forces seeking to topple Syrian President Bashar al-Assad. The discussions come as the United Nations prepares to release, as early as today, an inspection team’s report on a chemical weapons attack in Syria that the U.S. says killed more than 1,400 people.
The Fed will decide to cut monthly purchases of Treasuries to $35 billion from $45 billion and keep mortgage-bond buying at $40 billion at this week’s meeting, according to a Bloomberg survey of economists.
Fifty-seven percent of those surveyed in a Bloomberg Global Poll said they don’t expect a sudden change in the markets because they already anticipate tapering. Eight percent see a rally and just under a third are looking for declines, based on the Sept. 10 poll of 900 investors, traders and analysts who are Bloomberg subscribers.
“From a short-term perspective, markets will be happy that it looks like Yellen is going to be a frontrunner,” Eric Stein, a money manager in Boston at Eaton Vance Management, said in an interview on Bloomberg Television. “There’s going to a continuation of Federal Reserve monetary policy.”
Copper for three-month delivery on the London Metal Exchange rose 0.6 percent, after retreating 1.7 percent last week. Futures on corn maturing in December lost 0.5 percent, while contracts on soybeans dropped 1.4 percent.
To contact the reporters on this story: Pratish Narayanan in Singapore at pnarayanan9@bloomberg.net; Emma O’Brien in Wellington at eobrien6@bloomberg.net
To contact the editor responsible for this story: Michael Patterson at mpatterson10@bloomberg.net
