Yields Rise on Powell Nomination; Stocks Pare Gain: Markets Wrap

(Bloomberg) -- Treasury yields rose following news that President Joe Biden picked Jerome Powell for a second term at the head of the Federal Reserve. A slump in tech shares cut into broader stock gains.

The two- and five-year Treasury yields climbed to session highs following auctions. The U.S. swaps market is now pricing in a full 25 basis point rate hike into the June Fed meeting, with a second increase seen for next November. The dollar climbed, while gold slumped more than 2% and oil gained. 

The S&P 500 edged higher as energy and financial shares rallied. The Nasdaq 100 slumped, with stay-at-home darlings from Zoom Video Communications to Peloton sinking. Zoom reports results after the close. 

Biden had been considering between Powell and Lael Brainard, who he nominated to move up to Vice Chair. The Powell choice comes amid growing concern the U.S. central bank may fall behind the curve in combating sticky inflation. Consumer-price growth is surging at the fastest pace in decades and expectations for price growth are at the highest since 2013.

“The whole point is it doesn’t change anything -- the same issues are on his plate now, which is are they going to be right that the pop in inflation is going to be transitory and if not, what do they do about it?” David Donabedian, chief investment officer of CIBC Private Wealth Management, said by phone. “The choice about Powell’s renomination is all about continuity.”

Tech stocks erased gains amid speculation the earlier kneejerk push higher was unwarranted, fueled by short-covering, as higher yields are seen as damping prospects for tech stocks.

“That news triggered a rush to cover,” said Michael Zigmont, head of trading and research at Harvest Volatility Management. “Now they’re done and we’re coming back.”

Shares got a lift overnight from a flurry of potential deals. Vonage Holdings Corp. jumped more than 20% as Ericsson agreed to buy it. Telecom Italia SpA jumped more than 30% in Europe after KKR & Co. bid for it. 

“We’re kicking off a busier-than-you-may-think Thanksgiving week in rebound mode,” said Chris Larkin, managing director of trading at E*Trade Financial. “And while the short trading week historically is considered sleepier than others, keep in mind that over the past 15 years the U.S. stock market has tended to gain more ground the month after Thanksgiving than the month before it. So coupled with a busy economic calendar and more retail earnings, traders may have good reason to stay tuned in to the market this week.”

U.S. stocks are trading near record levels, outpacing the rest of the world, as investors see few alternatives amid rising inflation and a persistent pandemic that undermines global recovery. Concerns about high valuations and the potential for the economy to run too hot on the back of loose monetary and fiscal policies have interrupted, but not stopped the rally. 

Oil kept gains on speculation that OPEC and its allies may adjust plans to raise production if the U.S. releases crude reserves in coordination with other nations. Delegates said that even the modest output increase they have penciled in may now be re-evaluated when the group meets next week. 

For more market analysis, read our MLIV blog.

Here are some key events this week:

• Eurozone, U.S. PMI data Tuesday
• Reserve Bank of New Zealand rate decision Wednesday
• U.S. FOMC minutes, consumer income, wholesale inventories, new home sales, GDP, initial jobless claims, U.S. durable goods, University of Michigan consumer sentiment. All Wednesday
• Bank of Korea policy decision Thursday
• U.S. Thanksgiving Day: U.S. equity, bond markets closed Thursday
• Bank of England Governor Andrew Bailey speaks with Mohamed El Erian at a Cambridge Union event. Thursday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.4% as of 1:13 p.m. New York time
• The Nasdaq 100 fell 0.3%
• The Dow Jones Industrial Average rose 0.6%
• The MSCI World index fell 0.2%

Currencies

• The Bloomberg Dollar Spot Index rose 0.4%
• The euro fell 0.4% to $1.1243
• The British pound fell 0.5% to $1.3388
• The Japanese yen fell 0.8% to 114.88 per dollar

Bonds

• The yield on 10-year Treasuries advanced seven basis points to 1.61%
• Germany’s 10-year yield advanced four basis points to -0.30%
• Britain’s 10-year yield advanced five basis points to 0.93%

Commodities

• West Texas Intermediate crude rose 0.7% to $76.45 a barrel
• Gold futures fell 2.4% to $1,809.60 an ounce

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