Lawrence Summers Out, Wall Street Cheers

Wall Street cheers the withdrawal of Lawrence Summers as contender for the US Federal Reserve chairmanship. 

With Summer out, who has been perceived as an obstacle to easy money,  Wall Street celebrates the extension of subsidies and transfer they and their global counterparts have benefiting courtesy of main street.

Proof of the chronic addiction to steroids

From Bloomberg:

U.S. stock and Treasury futures rose, with the Standard & Poor’s 500 contract gaining the most in almost a month, and the dollar fell after Lawrence Summers withdrew from the race to be the next Federal Reserve chairman.

S&P 500 futures gained 1 percent as of 9:46 a.m. in Singapore, heading for the biggest advance since Aug. 22. Ten-year U.S. bond contracts jumped the most in six weeks, climbing 31/32, or $9.69 per $1,000 face amount, to 124 17/32, based on electronic trading on the Chicago Board of Trade. The greenback slumped against all of its Group of 10 currency peers, losing 1 percent against the Australian dollar.

Summers withdrew from contention before a two-day meeting starting tomorrow, at which the central bank is forecast to begin paring unprecedented bond purchases, known as quantitative easing. Summers would tighten policy more than Janet Yellen, who was his main rival to replace Chairman Ben S. Bernanke, according to a Bloomberg Global Poll of investors, analysts and traders last week.

“Investors are saying that QE may not be as aggressively dialed back under Yellen, who is now the front-runner,” Walter “Bucky” Hellwig, who helps manage $17 billion of assets at B&T Wealth Management in Birmingham, Alabama, said in a telephone interview. “QE is still a very important factor in the minds of investors and we can see this in the potential movement of the stock and bond markets.”

ASEAN gains too

From another Bloomberg article;

Thailand’s baht gained toward a three-week high after overseas funds added to holdings of the nation’s assets and Lawrence Summers withdrew in the race for the next Federal Reserve chairman, sending the dollar lower.

Foreign investors bought $342 million more Thai shares than they sold last week, the biggest net purchases since November, stock exchange data show. Summers was perceived as being less in favor of quantitative easing than Janet Yellen, another candidate to replace Ben S. Bernanke when his term ends in January, Mitul Kotecha, the global head of currency strategy in Hong Kong at Credit Agricole SA, wrote in a research note.

This represents a short term reaction

As one would note, rising 10 year US yields commenced in July of 2012. Ben Bernanke’s September QEternity tempered rising yields for only about 3 months. Combined with Abenomics and the ECB’s do whatever it takes and forward guidance, 10 year yields have skyrocketed.

So far this has been ‘Summer premium’ as 10 year yields have been down by about 5 basis points. Unlike the manic stock market, bond market investors appear to be unconvinced.