3 minutes ago Larry Summers' withdrawal from consideration as the next chief of the Federal Reserve has caused both risk assets and safe haven Treasurys to rally, while the US dollar weakens.
Markets are pricing in that Fed vice chair Janet Yellen will now take the helm after Ben Bernanke's term expires in January. Ms Yellen is widely considered to be more dovish than Mr Summers; the prospect of further quantitative easing is a boon for both equities and Treasurys, but negative for the US currency.
US equity futures have climbed more than 1 per cent and Treasury futures in 5yr, 10yr and 30yr maturities have each climbed a point after Mr Summers sent a letter to President Obama announcing he had "reluctantly concluded that any possible confirmation process ... would be acrimonious and would not serve the interests of the Federal Reserve, the Administration, or ultimately, the interests of the nation's ongoing economic recovery."
The US dollar index, which measures the US currency against a basket of its major peers, has weakened 0.42 per cent to 81.109, a three-week low.
Analyst reactions to the news are rolling in:
Millan Mulraine, strategist at TD Securities, said Ms Yellen is now the front-runner but this could also bring back into focus the"dark-horse" candidates including ex-Vice Chairs Donald Kohn and Roger Ferguson.
This news should be positive for the markets, with both risk assets and Treasuries likely to get a modest lift ... The rise in Yellen's odds will also be supportive to Treasuries, reducing the perceived uncertainty that a Summers nomination would have created.
Adrian Miller, chief fixed-income strategist at GMP Securities, called the withdrawal "a big deal" and said Ms Yellen is the only clear alternative:
Summers himself realized the confirmation process would only serve to drain Obama's much needed political capital that he'll need to secure his Obamacare program and perhaps the debt ceiling debate.
So this clears up Yellen for the nomination as other possible candidates were only alternative by name and not truly alternates.
Steven Englander, global head of G10 FX strategy at CitiFX, said the news will add to downward pressure on 10yr Treasury yields and may be worth another 10-15bps on the downside. As for FX:
hard to see it as anything but USD negative for now. Main buying opportunities probably high current account deficit EM, AUD,and JPY. Discussion of waning Summers odds had been in market last week so we would see impact on JPY in 0.5-1.0% range.
<http://www.ft.com/intl/fastft>
On Sep 15, 2013, at 6:28 PM, "Carl G. Estabrook" <galliher at illinois.edu> wrote:
> This may make even more difference than getting Chuck Hagel in as Defense Secretary...
>
> On Sep 15, 2013, at 5:23 PM, Robert Naiman <naiman at justforeignpolicy.org> wrote:
>
>> The world is definitely improving. I get to claim victory on a MoveOn
>> petition three weeks in a row.
>>
>> ---------- Forwarded message ----------
>> From: POLITICO Breaking News <breakingnews at politico.com>
>> Date: Sun, Sep 15, 2013 at 3:55 PM
>> Subject: POLITICO Breaking News
>> To: naiman at justforeignpolicy.org
>>
>>
>> President Barack Obama announced that Lawrence Summers has withdrawn his
>> name from consideration as the next chairman of Federal Reserve.
>>
>> Here is the full statement: "Earlier today, I spoke with Larry Summers and
>> accepted his decision to withdraw his name from consideration for Chairman
>> of the Federal Reserve. Larry was a critical member of my team as we faced
>> down the worst economic crisis since the Great Depression, and it was in no
>> small part because of his expertise, wisdom, and leadership that we
>> wrestled the economy back to growth and made the kind of progress we are
>> seeing today. I will always be grateful to Larry for his tireless work and
>> service on behalf of his country, and I look forward to continuing to seek
>> his guidance and counsel in the future."
>>
>> For more information... http://www.politico.com
>>
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>>
>> --
>> Robert Naiman
>> Policy Director
>> Just Foreign Policy
>> www.justforeignpolicy.org
>> naiman at justforeignpolicy.org
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