The US dollar fell sharply and bond yields declined on Monday following the announcement of hedge fund manager Scott Bessent as the next Treasury Secretary under President-elect Donald Trump. Investors reacted positively to the news, interpreting it as a sign that Trump’s controversial tariff policies may be moderated. The dollar index dropped 0.9%, while US Treasuries experienced one of their strongest rallies this year, reflecting eased market fears over inflationary pressures.
1. Dollar and Bonds React to Treasury Appointment
The dollar index, which measures the greenback against major currencies, recorded its largest one-day drop since August. The euro rose 0.9% against the dollar, its second-best session of the year, as investors re-evaluated Trump’s economic policy outlook.
- Treasury Rally: US 10-year Treasury yields fell by 0.11 percentage points to 4.3%, signalling strong demand for government debt. This reversed previous sell-offs driven by concerns about inflationary policies.
2. Scott Bessent’s Impact on Market Sentiment
Bessent’s appointment has been viewed as a calming influence on fears of aggressive trade tariffs. The hedge fund manager, who has previously criticised sweeping tariffs as “maximalist,” has advocated for gradual implementation to avoid market shocks.
- Analyst Views: Vincent Chaigneau, head of research at Generali Asset Management, noted that Bessent’s appointment suggests Trump may moderate his most inflationary policies.
- Strategic Dollar Use: Hugh Gimber of JPMorgan Asset Management highlighted that the administration may leverage the US dollar as a strategic economic tool under Bessent’s guidance.
3. Global Markets React
News of Bessent’s nomination buoyed global markets, with US, European, and Asian stocks gaining ground:
- US Markets: The S&P 500 rose 0.8% and the Nasdaq Composite gained 1% in early trading.
- European Stocks: The Stoxx Europe 600 edged up 0.1%, while the UK’s FTSE 100 climbed 0.2%.
- Asian Markets: Japan’s Nikkei 225 and South Korea’s Kospi indices both closed up 1.3%, reflecting optimism among major US trading partners.
4. Tariff Concerns Persist
While Bessent’s nomination has eased fears of extreme trade policies, analysts cautioned against overinterpreting the move. The Treasury Secretary is unlikely to control the finer details of trade tariffs, leaving uncertainty about the broader economic strategy.
- Elon Musk’s Criticism: High-profile Trump supporter Elon Musk labelled Bessent a “business-as-usual choice,” suggesting scepticism about whether the new Treasury Secretary will deliver transformative economic policies.
Conclusion: Markets Welcome a Moderate Tone
Scott Bessent’s appointment as Treasury Secretary appears to signal a more measured approach to Trump’s economic agenda, particularly around tariffs. The immediate market reaction reflects investor relief, with the dollar weakening and global equities rising. However, uncertainty remains over how Bessent will navigate Trump’s ambitious fiscal policies, leaving markets cautiously optimistic for now.
Source: (FT.com)
