US stocks slip as Biden ‘signs off’ on more hawkish stance from Fed

Wall Street stocks dropped on Monday as traders interpreted Joe Biden’s renomination of Jay Powell as chair of the Federal Reserve as a sign that the US president approves of a hawkish pivot by the central bank to fend off soaring inflation.

The US’s blue-chip S&P 500 equity index had risen on the announcement of Powell’s renomination but gave up those gains to close the day 0.3 per cent lower in New York. The technology-heavy Nasdaq Composite index also tailed late in the trading day, closing 1.3 per cent lower.

Tech stocks are considered to be particularly sensitive to rising interest rates and Powell’s renomination is expected to result in a more hawkish tilt to Fed policy than if the other contender for the job, Lael Brainard, had been chosen.

Powell’s renomination came amid a renewed sense of urgency over soaring inflation in the US among America’s top policymakers and politicians. The Fed chair said on Monday that the central bank would use its tools to “prevent higher inflation from becoming entrenched”.

Speaking before Powell, Biden said the strength of the post-pandemic economic recovery in the US meant that it was possible to “attack inflation from a position of strength, not weakness”.

Brainard, who was nominated as vice-chair of the Fed alongside Powell on Monday, also opened her remarks by saying that “getting inflation down at a time when people are focused on their jobs and how far their pay cheques will go” would be central to her role if she is confirmed by the Senate.

Later on Monday the US Treasury secretary Janet Yellen told the business news channel CNBC that “over the longer run, the Fed needs to play an important role to make sure that [inflation]doesn’t become endemic”.

“I know that he can be counted on to do that,” she said of Powell.

Investors said the renewed focus on inflation from the Biden administration and his top picks to lead the Fed helped to reinforce a recent move at the central bank toward a more aggressive stance on inflation.

On Friday vice-chair Richard Clarida opened the door to a quicker retreat from the Fed’s bond-buying programme, after minutes from the last Federal Open Market Committee meeting indicated that the central bank would be prepared to implement a faster “taper” if economic conditions changed.

The yield on the two-year Treasury note, which is sensitive to interest rate expectations, rose to its highest level since March 2020 on Monday, was last up 0.08 percentage points to 0.58 per cent. Strategists at BMO said the moves spoke “to the hawkish implications of the nomination for 2022 in particular”.

The yield on the benchmark 10-year Treasury note rose about 0.08 percentage points to 1.62 per cent. Bond yields move inversely to their prices.

Later on Monday, the BMO strategists said the sharp move in Treasury yields — alongside weak appetite for new debt from investors at auctions of new Treasury securities — was “a knee jerk downtrade to reflect Powell’s renomination and implied Biden sign off on the Fed’s hawkish pivot”.

Equity markets were subdued across the Atlantic. European stocks had edged up during their afternoon session but later fell. Several countries in the bloc were last week forced to reimpose pandemic restrictions.

Europe’s Stoxx 600 share index closed 0.1 per cent lower on Monday, having fallen 0.3 per cent during the previous trading day.

Protests broke out in Austria, Italy and Belgium among other European countries over the weekend, after governments stepped up coronavirus restrictions in response to higher numbers of infections.

London’s FTSE 100 share index closed 0.4 per cent higher.

Elsewhere, Asian stock markets were mixed. Hong Kong’s Hang Seng index fell 0.4 per cent while China’s CSI 300 index rose 0.5 per cent. Emerging market equities more broadly were down on Monday following selling pressure last week as investors increasingly shifted their attention towards developed economies where interest rates were expected to rise over the coming year.

A broad FTSE barometer of EM stocks dipped 0.9 per cent in US dollar terms, having fallen 1.4 per cent over the course of last week.

Brent crude, the oil benchmark, rose to a high of $80.07, settling 1 per cent higher for the day at $79.70 a barrel.

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