The dollar weakened against all its major peers while Asian stocks climbed with U.S. index and Treasury futures as Lawrence Summers withdrew his bid to become Federal Reserve chairman. Crude oil fell after the U.S. and Russia agreed on a plan to eliminate Syria’s chemical weapons.
The Bloomberg U.S. Dollar Index dropped 0.5 percent at 10:41 a.m. in Hong Kong and the greenback slumped 1 percent against the Australian dollar. Standard & Poor’s 500 Index (SPX) futures jumped 1 percent and the MSCI Asia Pacific Excluding Japan Index gained 1.2 percent with Japanese markets closed. Ten-year Treasury futures rose 0.8 percent and Australian bond yields dropped as much as 15 basis points. West Texas Intermediate crude sank a second day while copper advanced.
Summers, a former Treasury secretary, would tighten Fed policy more than Janet Yellen, who was his main rival to replace Chairman Ben S. Bernanke, according to a Bloomberg Global Poll last week. The Fed will probably trim its monthly bond-buying program by $10 billion to $75 billion this week, a survey of economists showed this month. The U.S. is seeking support from its allies for a deal to confiscate Syria’s chemical arsenal.
“The market prefers Dr. Yellen, she would be the smoothest continuation of existing policy,” Phil Orlando, the New York-based chief equity strategist at Federated Investors Inc., which manages about $380 billion in assets, said by phone. “We know they will probably initiate the taper at the next Federal Open Market Committee and that they will start with about $10 billion. Therefore the passing of the baton is important.”
Asian currencies climbed to a four-week high. The Bloomberg-JPMorgan Asia Dollar Index of the region’s 10 most-used currencies excluding the yen increased 0.2 percent to the highest level since Aug. 19.
The yen gained 0.5 percent and was set for the strongest close this month. The euro appreciated 0.5 percent to $1.3366. The Australian dollar jumped to 93.40 U.S. cents, while the New Zealand currency rose 0.9 percent and headed for the strongest level since May 15.
Futures on 10-year Treasuries rose the most since Aug. 2. Australian government bonds due in a decade climbed, pushing yields down nine basis points, or 0.09 percentage point, to 3.99 percent, while similar-maturity New Zealand bond yields fell two basis points to 4.79 percent.
U.S. President Barack Obama said he accepted Summers’ decision. Summers was one of three candidates mentioned by Obama as possible replacements for Bernanke, whose term as Fed chairman ends on Jan. 31. Yellen, the current Fed vice chairman, was also on the list along with Donald Kohn, a former Fed vice chairman.
Yellen may be viewed by markets as a “shoo-in” for the top job at the Fed after Summers pulled out, National Australia Bank Ltd.’s economics team wrote in a note today. Ten-year Treasuries fell briefly on Sept. 13 after Nikkei reported Summers would be named Fed chairman.
“Markets were priced for the likelihood of a Summers nomination, primarily for the notion that he might raise interest rates sooner than perhaps other candidates, including Janet Yellen,” Tony Crescenzi, a money manager and strategist at Newport Beach, California-based Pacific Investment Management Co., which runs the world’s biggest bond fund, said in an e-mail. “This news should result in outperformance of shorter maturities” before the Fed policy meeting Sept. 17-18.
The S&P/ASX 200 Index (AS51) jumped 0.7 percent in Sydney, after halting a five-day advance to drop 0.4 percent Sept. 13. The Kospi Index rallied 0.7 percent in Seoul and Hong Kong’s Hang Seng index climbed 1.3 percent. Japanese markets were closed for Respect-for-the-Aged Day.
“It’s quite positive for equities,” George Boubouras, Melbourne-based chief investment officer at Equity Trustees Ltd., where he helps oversee about $28 billion, said by phone. “It puts Yellen back on the cards as the favorite. She’s more aligned to retaining accommodative policy and is seen as not being as brash as Summers might have been.”
WTI crude fell 0.7 percent to $107.42 a barrel, while Brent crude futures declined 0.8 percent to $110.82. Contracts due next month on gasoline sank 1 percent.
Kerry may also meet with ministers from Turkey and Saudi Arabia, both backers of the rebel forces seeking to topple Syrian President Bashar al-Assad. The discussions come as the United Nations prepares to release, as early as today, an inspection team’s report on a chemical weapons attack in Syria that the U.S. says killed more than 1,400 people.
The Fed will decide to cut monthly purchases of Treasuries to $35 billion from $45 billion and keep mortgage-bond buying at $40 billion at this week’s meeting, according to a Bloomberg survey of economists.
Fifty-seven percent of those surveyed in a Bloomberg Global Poll said they don’t expect a sudden change in the markets because they already anticipate tapering. Eight percent see a rally and just under a third are looking for declines, based on the Sept. 10 poll of 900 investors, traders and analysts who are Bloomberg subscribers.
Copper for three-month delivery on the London Metal Exchange jumped 0.8 percent, after retreating 1.7 percent last week. Zinc and aluminum gained at least 0.5 percent each.
Futures on corn maturing in December lost 0.7 percent, while contracts on soybeans dropped 1.3 percent and wheat fell 0.2 percent.