US Stocks Hit Record, Bonds Fall on US Fed Chair: Markets Wrap

U.S. stocks surged to all-time highs and the dollar rebounded as Treasuries fell on reports that President Donald Trump is meeting with former Federal Reserve Governor Kevin Warsh to discuss the role of Fed chair. The S&P 500 Index, Nasdaq Composite Index and Russell 2000 Index all moved into record territory, with the S&P 500 benchmark on track for its eighth straight quarterly gain. Financial shares helped spearhead the gains as the KBW Bank Index leaped to the highest since March. But despite the market enthusiasm, some investors predicted that Warsh’s nomination would hurt stocks. “I don’t think a Warsh nomination would bring confidence to the markets and would expect equities to sell off if he was announced,” Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC, wrote in a note to clients Friday. “Normally, the FRB staff assumes the chair knows the ins and outs of monetary economics at least as well as they do. Warsh would not be afforded that assumption. That is a big problem.” Prior to the Warsh news, the dollar and government bonds fell as the PCE core deflator, a key gauge of inflation, rose less than economists expectations, deepening concern about the stickiness U.S. consumer prices and what it could mean for the Federal Reserve’s expected interest rate hike this year. Personal spending also cooled.

“Inflation data today was weak, but Janet Yellen was pretty adamant when she spoke that they’re going to remain on course, and even though the numbers missed expectations today the headline number is still the same level, so it’s not a big downtick,” Michael O’Rourke, chief market strategist at JonesTrading Institutional Services LLC, said by phone. “It’s not optimal to keep policy on course, but it’s not enough to knock policy off course.” European shares headed for their best month of the year. European government bonds rebounded. Emerging-market assets rallied, with stocks rising and most currencies strengthening against the greenback.

Data out of Europe underscored the region’s economic recovery. German unemployment fell to a record low in September, providing encouragement for the European Central Bank as it contemplates reducing asset purchases in coming months. Euro-zone inflation undershot estimates, though not by much. The U.K.’s benchmark stock index was buoyed by data showing that British consumers are in better shape than previously thought. Terminal subscribers can read more in our Markets Live blog.

What to watch out for prior to the weekend:

Chinese markets will be shut next week for a holiday. South Korea’s markets will be closed next week as well.
Here are the main moves in markets:

Stocks

The S&P 500 was up 0.3 percent to 2,517.18 as of 1:11 p.m. in New York. The index has gained 3.7 percent this quarter The Nasdaq Composite surged 0.7 percent, adding to a 6.3 percent increase for the quarter, while the Russell 2000 rose 0.3 percent bringing its quarterly rise to 4.6 percent. The Stoxx Europe 600 Index jumped 0.5 percent, hitting the highest since June. The MSCI All-Country World Index bounced 0.4 percent.

Currencies

The Bloomberg Dollar Spot Index reversed an earlier decline and added less than 0.1 percent. The euro rose 0.1 percent to $1.1803. The British pound declined 0.4 percent to $1.3393. The MSCI Emerging Markets Currency Index gained 0.3 percent, the first advance in a week and the largest rise in three weeks.

Bonds

The yield on 10-year Treasuries added one basis point to 2.3157 percent. Germany’s 10-year yield declined two basis points to 0.462 percent. Britain’s 10-year yield decreased one basis point to 1.365 percent.

Commodities

West Texas Intermediate crude rose less than 0.1 percent to $51.59 a barrel. Gold retreated 0.3 percent to $1,283.29 an ounce. Copper fell 1 percent to $2.952 a pound.