Stocks surge and gold dips following Trump's relaxation on Federal Reserve chair's policy pressure
Stock markets cheer up as global trade tensions diminish and Fed leader's dismissal seems unlikely.
The FTSE 100 climbed 1.3% to 8,436.04 by 11am on Wednesday, extending its winning streak to eight consecutive sessions. US stocks also gained favor, bolstered by President Trump's statements about not firing Jerome Powell, the Federal Reserve's chairman.
On Monday, investors rushed to dump US assets due to Trump's criticism of the country's central bank, sparking fears about the central bank's independence and pushing gold to a new record high. However, Trump's latest backtrack has caused gold to plummet around 5%, while the S&P 500, Nasdaq, and Dow Jones gained roughly 2.5, 2.7, and 2.6%, respectively, the next day.
Specialty chemicals producer Croda International led the FTSE 100 with a 10.5% surge, followed by banks and mining giants like Antofagasta (6.8%), Anglo American (6.7%), and Asia-focused Standard Chartered (5.9%).
The market was also buoyed by US Treasury Secretary Scott Bessent's remarks that a trade war with China was "unsustainable." According to Bessent, a former hedge fund manager, he anticipates a "de-escalation" in the trade war between the US and China.
Markets rejoiced at the possibility of decreased trade hostility and apparently calmer Fed guidelines. However, market volatility is expected to persist as trade negotiations unfold.
Historically, easing US-China trade tensions have led to equity rallies, cyclical stock buying, and a growth in technological stocks. Similarly, Donald Trump's antagonism towards the Fed chair has caused market turmoil and increased calls for rate cuts. The combined effects in the past resulted in global equity inflows, emerging market outperformance, and a revival of risk appetite.
In 2019, the S&P 500 gained 18% in Q1 and the MSCI EM Index surpassed the S&P 500 by 6% early in the year. High-yield bond spreads tightened by 150bps, and EM outperformance persisted due to a combination of trade optimism and Fed dovishness. However, the market's response to current geopolitical and monetary policies may differ from these 2018-2019 patterns.
- Investors started considering purchasing more technology stocks with the easing of US-China trade tensions.
- The uplift in trade relations between the US and China previously led to growth in cyclical stocks and equity rallies.
- The announcement of Jerome Powell's job security by President Trump influenced the investing world, especially in stocks such as the S&P 500, Nasdaq, and Dow Jones.
- The upcoming financial news revolving around trade negotiations may result in continued market volatility, especially in the business sector.
- The FTSE 100's surge of 1.3% was accompanied by gains in other sectors, including banks, mining, and technology stocks.
- A possible decline in trade hostility and seemingly stable Fed guidelines have sparked interest in mortgages and other investment opportunities, such as general-news, signalling a potential revival of risk appetite.
