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Summers’ withdrawal from Fed post buoys world markets

Updated: September 16, 2013 9:38AM

The withdrawal of Lawrence Summers from the race to succeed Ben Bernanke as chairman of the Federal Reserve gave stocks a boost and weighed on the dollar Monday, as investors believe the move will prolong the U.S. central bank’s monetary stimulus.

Summers was perceived in the markets as relatively unenthusiastic about the Fed’s aggressive bond-buying program, which have helped push down interest rates to spur lending and economic growth following the financial and economic crisis five years ago. Summers’ withdrawal followed a growing chorus of criticism about his suitability for the Fed job, including from some members of the Senate committee that would need to back his nomination.

The Fed’s stimulus, which involves buying $85 billion a month in Treasurys and mortgage bonds, is expected to be scaled back soon, possibly as soon as this Wednesday, after the Fed concludes its two-day policy meeting. Summers’ withdrawal means Fed vice chair Janet Yellen is considered a front-runner to replace Bernanke when his term concludes early next year.

“Her appointment would be viewed as more supportive for the continuation of the Fed’s current loose monetary policy stance,” said Lee Hardman, an analyst at Bank of Tokyo-Mitsubishi UFJ.

That view had an impact across financial markets.

In Europe, the FTSE 100 index of leading British shares was up 0.5 percent at 6,619 while Germany’s DAX rose 1.1 percent to 8,599. The CAC-40 in France was 0.7 percent higher at 4,143.

In the U.S., the Dow Jones industrial average was up 0.9 percent at 15,510 while the broader S&P 500 index rose 0.7 percent to 1,700.

In the currency markets, the euro was 0.5 percent higher at $1.3367 while the dollar was down 0.6 percent at 98.70 yen.

Besides monitoring developments over Bernanke’s successor, investors are gearing up for Wednesday’s policy announcement from the Fed. At the moment, the consensus in the markets is that it will reduce its stimulus by between $10 billion and $15 billion a month.

A disappointing survey of manufacturing activity around the New York region had little impact on the markets or on expectations as it was offset by a Fed report that found industrial production across the country rose by 0.4 percent in August, in line with market expectations.

Earlier, in Asia, Hong Kong’s Hang Seng rose 1.5 percent to 23,252.41. South Korea’s Kospi advanced 1 percent to 2,013.37. Australia’s S&P/ASX 200 gained 0.5 percent to 5,248. Benchmarks in Indonesia and the Philippines rose 2.6 percent and 2.8 percent respectively. Those in India and Shanghai fell. Markets in Japan were closed for a public holiday.

In the oil markets, traders were monitoring developments over Syria. The recent diplomatic drive, which has seen the prospect decrease of a U.S.-led attack on the Damascus regime over its alleged use of chemical weapons, has pushed oil prices back down. The benchmark New York rate was down another $1.59 at $106.82 a barrel.

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