Nov
U.S. Treasuries saw significant gains after Friday’s announcement of Scott Bessent’s nomination as Treasury Secretary. Bessent will serve under President-elect Donald Trump. The market rally was driven by expectations of Bessent’s influence on economic and trade policies. As a Wall Street veteran, Bessent is expected to temper the administration’s aggressive approach.
Bessent’s Influence on Trade Policies
Bessent’s nomination could moderate the incoming administration’s approach to global trade. Shaun Osborne, Chief FX Strategist at Scotiabank, commented. Osborne noted that Bessent favors a gradual approach to tariffs. This stance is expected to reassure the market.
Bessent’s Economic Vision
Bessent, the head of macro hedge fund Key Square Group, has emphasized a balanced approach to trade restrictions. He has also outlined key priorities, including fulfilling Trump’s tax cut promises, reducing government spending, and maintaining the dollar’s status as the world’s reserve currency.
Bond Market Movements and Oil Impact
The rally in Treasuries led to a decrease in yields across the board, with over 10 basis points shaved off yields from five to 30-year maturities. In early New York trading, the momentum was further fueled by a drop in oil prices. The yield on 10-year Treasuries fell to its lowest level since Nov. 8, dropping 12 basis points to 4.28%.
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Dollar’s Decline Amid Bessent’s Nomination
Following the announcement, the U.S. dollar saw its sharpest decline in over two weeks. The Bloomberg Dollar Spot Index dropped 0.7%. This drop occurred despite a strong run of gains over the past eight weeks. Speculative traders increased their bullish bets on the dollar. However, the outlook for the dollar remains uncertain.
Impact on Federal Reserve Expectations
The market expects Federal Reserve rate cuts in 2025, but these expectations have moderated. Inflation risks in a strong U.S. economy have caused concerns. Swaps now price in around 73 basis points of rate cuts. These cuts are expected by the end of 2024.
Geopolitical Influences on Markets
Geopolitical factors, including signs of easing risk in the Middle East, also contributed to market movements. The possibility of a cease-fire agreement between Israel and Hezbollah led to a decrease in oil prices, further influencing market sentiment.
Future Outlook for the U.S. Dollar
The U.S. dollar experienced a short-term decline, but analysts like Felix Ryan from ANZ Banking Group remain optimistic. Ryan suggests that the dollar’s long-term fundamentals remain strong. The resilience of the U.S. economy supports this outlook, particularly amid weaker global growth. Recent PMI data further strengthens the favorable outlook for the dollar moving forward.
