- US futures fell on Tuesday after bond yields spiked the previous day when Jerome Powell was nominated for a second term as Fed chair.
- Bond yields cooled slightly, but remained well above last week’s lows, with investors thinking Powell may take a tougher line on inflation.
- Overall, analysts reacted positively to the news, saying Powell has run a steady ship throughout the coronavirus crisis.
US futures fell on Tuesday as bond yields rose sharply after President Joe Biden picked Jerome Powell for a second term as Federal Reserve chair.
Nasdaq 100 futures dropped 0.39% after the index tumbled 1.3% on Monday, as the rise in bond yields helped push tech stocks lower. Higher bond yields make stocks look broadly less attractive.
Stocks in Europe followed US equities lower, with soaring COVID-19 cases also worrying investors. The continent-wide Stoxx 600 index fell 1.04% in early trading.
Biden on Monday nominated Powell to serve for another four years, picking the incumbent chair over Lael Brainard, a Fed official who was also in the running. Brainard was selected as vice chair.
The markets interpreted Biden’s decision as a “hawkish” one, judging that Powell will be keener to stamp down on inflation by tightening monetary policy than Brainard would have been.
This interpretation led to a sharp rise in bond yields, in the expectation that the Fed may start “tapering” its bond purchases more quickly and raise interest rates further over the next two years.
Bond yields, which move inversely to prices, continued to rise on Tuesday, with the key 10-year Treasury note yield up marginally to 1.634%, well above a recent low of 1.418% touched in earlier in November.
The yield on the 2-year Treasury note, which is traditionally the most sensitive to interest rates, rose slightly to 0.634%, its highest level since March 2020.
The dollar index fell 0.15% to 96.40 on Tuesday after hitting 96.60 the previous day, its highest since July of last year.
On top of rising bond yields, Europe’s fourth coronavirus wave is also causing stock-market investors some concern. Countries such as Austria and Germany are reimposing restrictions, with potentially negative consequences for the global economy.
Despite the dip in stocks on Tuesday, analysts reacted positively to Powell’s nomination for a second term.
“The reappointment of Jerome Powell marks the return of the approach pursued by new US presidents since 1980, namely reappointing the incumbent Fed chair in order to provide the continuity that markets crave,” Chris Beauchamp, chief market analyst at trading platform IG, said.
Beauchamp said US investors are likely to lose interest in the decision soon, with markets closed for Thanksgiving on Thursday and with a shorter trading day on Friday.
Elsewhere, oil prices continued to fall, with traders increasingly expecting that countries will release some of their reserves to try to tame high energy prices.