"Last week was one of some drama, not that one would have guessed looking at where markets ended up. Global equities were little changed, up 0.2% in local currency terms and down 0.5% in sterling terms. The US underperformed with a decline of 1.1% in sterling terms while the UK and emerging markets fared best with gains of 0.6-0.7%. Bonds were also broadly unchanged with UK gilts down 0.2% and US Treasuries flat."
"Warsh is seen as having rather more orthodox views and being a bit less of a Trump yes-man than some of the other candidates. He has been an inflation hawk in the past but now apparently believes the coming boost to productivity from AI will keep inflation down and supports lower rates. However, he also favours cutting the size of the Fed's balance sheet, which might imply restarting quantitative tightening which has only recently been halted by the Fed."
"In short, it is unclear exactly how his views will play out in practice. But as far as the markets are concerned, the important point is that someone with some credibility has been appointed, easing fears on this front. The market fractionally reduced its expectation for US rate cuts but is still pricing in two more 0.25% reductions by year-end."
Global equities were broadly unchanged last week, up 0.2% in local currencies and down 0.5% in sterling, with the US underperforming and the UK and emerging markets posting the strongest gains. Bonds were largely flat, with UK gilts down 0.2% and US Treasuries unchanged. Gold surged briefly but ended the week unchanged in sterling. Kevin Warsh was selected to succeed Jay Powell as Fed Chair and is viewed as more orthodox, previously hawkish on inflation but now expecting AI-driven productivity to help contain inflation while supporting lower rates and balance-sheet reduction. Markets reacted by trimming rate-cut expectations to two 25bp cuts by year-end after the Fed held rates at 3.5–3.75%.
Read at London Business News | Londonlovesbusiness.com
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