📊 Markets after Powell's nomination

💲 Powell's nomination triggered big moves on USD, gold and stocks

• Biden nominates Powell for Fed chair

• More hawkish pick than Brainard

• Potential for quicker policy normalization

• US dollar ralied, gold dropped

• Pick-up in real yields pressured tech shares

White House announced on Monday that US President Joe Biden nominated Jerome Powell for the second term as Fed chair. The announcement triggered some rapid moves across FX, commodity and equity markets as it has potential monetary policy implications. Take a look at our quick analysis of what it means for markets.

Biden choses Powell over Brainard

US President Joe Biden decided to nominate current Fed chair Jerome Powell for the second term at the helm of the US central bank. Nomination will now need to be approved by the US Senate. Some more progressive senators said they will oppose Powell's nomination but it is highly unlikely for Congress to disagree with White House on Fed chair nomination. The other candidate for Fed chair post - Lael Brainard - was nominated to replace Richard Clarida as Fed vice chair. As Powell will lead the Federal Reserve for another 4 years, continuation of policy normalization looks to be the base case scenario. However, there are questions about the pace of tightening.

Hawkish pick

While Jerome Powell is seen as a dove, Lael Brainard is even more dovish. Having said that, it looks more probable for the pace of QE tapering to be accelerated under Powell and for rate lift-off to occur earlier than under Brainard. Inflation is running hot in the United States and the labour market continues to tighten. Those factors support quicker normalization and with nomination uncertainty out of the way, Powell may be more prone to take more decisive actions. Markets even began to expect the announcement of a quicker taper pace as soon as in December. Rate hike odds also jumped and now interest rate derivatives markets expect the first Fed rate hike to come in June 2022 with potential for a total of 3 rate hikes throughout 2022.

Yields jumped across the curve following the announcement of Powell's nomination. The biggest increases can be spotted in the middle part of the curve (current curve - green line, pre-announcement curve - yellow line). Source: Bloomberg

Market reaction

As Powell's nomination was seen as a more hawkish alternative than Brainard's nomination, one should not be surprised by the reaction of markets. US dollar gained along with US yields. This had an impact on commodity markets, especially precious metals with the gold price dropping back to psychological $1,800 handle. Meanwhile, higher real yields exerted pressure on tech shares and Nasdaq-100 index (US100). S&P 500 (US500) and Dow Jones (US30) were more resilient as they were buoyed by rallying shares of US banks.

Powell is considered to be a more hawkish pick than Brainard and the USD market reacted accordingly. USDJPY rallied and reached 115.00 handle for the first time since early-2017. The pair is trading in an upward channel and has resumed advance after a brief pullback this morning. Source: xStation5

US100 dropped in the aftermath of Powell's nomination. Tech shares were pressured by pick-up in real yields. US100 pulled back and tested the lower limit of the local market geometry near 16,345 pts. Source: xStation5

Gold pulled back from the $1,870 area and plunged to $1,800 area. Gold and other precious metals, just like tech shares, are being pressured by rising real yields and prospect of quicker policy normalization. Source: xStation5