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Markets steady as Yellen poised to get Fed nod

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PAN PYLAS | October 9, 2013 12:19 PM EST | AP


LONDON — LONDON (AP) — Markets were steady on Wednesday ahead of the expected nomination of Janet Yellen to be the next chairman of the Federal Reserve, though concerns over a possible U.S. default lingered.

Yellen, currently Ben Bernanke's number 2, is thought to be a safe pair of hands and considered a supporter of the Fed's monetary stimulus. President Barack Obama is expected to make the nomination official later Wednesday. Yellen will have to face Congressional hearings before she can take up the post when Bernanke's term ends at the end of January.

Investors have viewed the expected appointment through the prism of the Fed's monetary stimulus. One of the big debates in financial markets this year has centered on when the Fed will start reducing — or "tapering" — its stimulus. Currently, it is buying $85 billion a month of financial assets in an effort to shore up the U.S. economic recovery. The money has found its way into markets, supporting stocks.

"Yellen is a well-known dove in terms of her stance on monetary policy and has been a strong supporter of Bernanke's accommodative policies," said Neil MacKinnon, global macro strategist at VTB Capital.

In Europe, the FTSE 100 index of leading British shares fell 0.4 percent by the close to end at 6,337.91 while Germany's DAX shed 0.5 percent to 8,516.69. The CAC-40 in France was down 0.2 percent at 4,127.05.

In the U.S., the Dow Jones industrial average was up 0.1 percent at 14,785.57 while the broader S&P 500 index was down the same rate at 1,653.35.

One reason why Fed policymakers did not begin tapering at their last policy meeting last month is thought to have been concern over whether the different arms of the U.S. government could agree on a budget and the raising of the debt ceiling. Minutes to the meeting, due to be released later Wednesday, will provide clearer guidance on their surprise decision not to taper.

Any concerns appear to have been well-founded, given that the partial shutdown of the U.S. government has entered its ninth day and the debt ceiling deadline of Oct. 17 nears. A failure to increase the so-called debt ceiling would raise the possibility of a U.S. debt default, which has the potential to seriously roil global markets.

"With negotiations, or a lack for that matter, expected to continue for a week or so yet, I don't think it will be long before risk aversion returns and markets are once again grinding lower," said Craig Erlam, market analyst at Alpari.

Despite those concerns, the dollar has garnered some support following a disappointing run in recent trading sessions. The euro was down 0.5 percent at $1.3509 while the dollar rose 0.4 percent to 97.25 yen.

"While the market is starting to digest the prospect of more policy accommodation from the Fed, there is simultaneously plenty of anticipation that as the U.S. debt ceiling deadline nears that the dollar will prove itself to be a store of value," said Jane Foley, an analyst at Rabobank International.

Earlier in Asia, the mood was fairly solid amid the Yellen speculation. Japan's Nikkei rose 1 percent to close at 14,037.84 but Hong Kong's Hang Seng index fell 0.6 percent to 23,033.97. South Korea's Kospi was closed for a holiday.