Skip to footer

Summers won't be Fed chair. Get ready for the market rally.

Larry Summers, the presumed frontrunner to replace Ben Bernanke as Federal Reserve chairman, has withdrawn his name from consideration. So far, the financial markets seem thrilled – Dow futures jumped more than 160 points on the news Monday. 

|
Jasen Alden/Pool/Reuters/File
Larry Summers speaks during a financial and economic event at the London School of Economics (LSE) in London in this past March. Summers has withdrawn his name from consideration for Federal Reserve chairman, and financial markets are jumping at the news.

U.S. stock futures surged and interest rates fell after Larry Summers withdrew his name from consideration for Federal Reserve Chairman.

Investors largely believed he was the frontrunner for the job and that the former Treasury Secretary would embark on a more hawkish course regarding the removal of Fed stimulus than the other candidates believed to be in contention.

Markets across Asia and Europe rallied on the news and Dow futures jumped more than 160 points in Monday morning pre-market trading. The 10-year Treasury note yield fell to 2.82 percent. The dollar fell against the yen and the euro.

"The market was really anticipating Summers," said Dave Lutz, a trader with Stifel Nicolaus in Baltimore. "Rates are gonna get hit as they perceive either Kohn or Yellen as more dovish."

Pimco's Bill Gross tweeted this shortly after the news: "Summers's exit makes Monday a huge day for curve/risk on trades. Treasury 5/30 curve may steepen by 10. Stocks should do very well."

Behind Summers, surveys show Federal Reserve Vice Chair Janet Yellen and former vice chair Donald Kohn as the frontrunners. With Summers out, it's now more important than ever for the market to get a sense where these two stand on the Fed's current quantitative easing plan that has kept rates artificially low for years, boosting risk assets.

And they'd better figure it out soon as this Wednesday, current Fed Chair Ben Bernanke is expected to announce a tapering of the central bank's third round of monthly bond purchases since the financial crisis. The velocity of this tapering and whether it continues at a regular pace for the next year could be much different under Yellen, investors seem to be betting right now.

"I viewed the market uncertainty of what a Summers appointment represented as a 3.25 percent move in the 10-year versus 2.85 percent with Yellen, who the market will now price as the frontrunner," said Paul Richards, head of FX distribution for UBS. "Tapering was in the price, Summers not. So the Fed now proceeds to taper Wednesday and the market handles that well as relief sets in on the Bernanke replacement argument."

The 10-year yield hit a two-year high above 3 percent last week after strong economic data and also as Summers moved firmly into the front runner spot for the Fed nomination.

"This is very bullish of bonds and stocks and very bearish of the dollar," said Dennis Gartman of The Gartman Letter. "Yellen is THE front runner."

You've read  of  free articles. Subscribe to continue.
Real news can be honest, hopeful, credible, constructive.
What is the Monitor difference? Tackling the tough headlines – with humanity. Listening to sources – with respect. Seeing the story that others are missing by reporting what so often gets overlooked: the values that connect us. That’s Monitor reporting – news that changes how you see the world.
editor@csmonitor.com
Subscribe
Mark Sappenfield
Editor

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.

Subscribe to insightful journalism

QR Code to Summers won't be Fed chair. Get ready for the market rally.
Read this article in
https://www.csmonitor.com/Business/Latest-News-Wires/2013/0916/Summers-won-t-be-Fed-chair.-Get-ready-for-the-market-rally.
QR Code to Subscription page
Start your subscription today
https://www.csmonitor.com/subscribe