Morning Bid: Trump’s Treasury pick boosts bond market as dollar eases

By Lewis (JO:LEWJ) Krauskopf

(Reuters) – A look at the day ahead in Asian markets. 

Donald Trump’s pick to be U.S. Treasury Secretary proved to be a balm for the bond market, while the dollar followed yields lower in a move poised to influence trading in Asia on Tuesday.

The choice of prominent investor Scott Bessent made late on Friday, rippled through markets on Monday, after days of speculation over who Trump would choose to be essentially the highest-ranking U.S. economic official. 

Treasury yields, which move opposite to prices, fell sharply, with the benchmark 10-year yield touching its lowest level in more than two weeks. Treasury yields had been rising at a torrid pace, partially due to concerns that Trump’s presidency would dramatically widen the federal deficit.

But Bessent was seen as someone who might moderate any negative impact of Trump’s fiscal policies. Some strategists said his nomination was a relief as he understands markets and his appointment could reduce the severity of potential tariffs, which are favored by Trump.

The dollar index, which has surged since early October, pulled back sharply on the day. A weaker dollar could offer some relief to emerging market countries that have borrowed heavily in the U.S. currency, amid concerns about a rising dollar under Trump.  

The removal of uncertainty over the Treasury secretary position combined with lower bond yields boosted equities. MSCI’s gauge of stocks across the globe was up about 0.4%, while the U.S benchmark S&P 500 closed up 0.3%. 

    The spotlight was on U.S. small-cap stocks, with the Russell 2000 hitting a record intraday high for the first time in three years.

Some investors say small caps could be in the sweet spot, as Trump’s push for lower taxes and reduced regulations favors smaller companies, while the Fed’s lowering of interest rates also stands to help smaller companies that tend to rely more on debt financing.

Not everything was rosy in equities, as Chinese shares fell amid concerns about a trade war hurt risk appetite. The Shanghai Composite Index touched its lowest in about a month.

Elsewhere, signs of a ceasefire deal between Israel and militant group Hezbollah in Lebanon prompted a pullback in oil prices and gold, with the Treasury secretary news also dulling the precious metal’s allure.

With the Thanksgiving holiday in the U.S. coming on Thursday, trading was expected to thin out, even as central bank decisions in New Zealand and South Korea and inflation data in the U.S. were set to provide some excitement later in the week.

Here are key developments that could provide more direction to markets on Tuesday:

– Singapore manufacturing output (Oct)

– Hong Kong export/import data (Oct)

– Fed meeting minutes