First Light News: All Eyes on Trump’s Fed Chair Pick

It was an interesting session yesterday, featuring a rather passionate bout of risk-off that faded with equal intensity. Asia-Pac equities largely followed suit overnight amid escalating geopolitical tensions in Iran, anxiety over US President Donald Trump’s imminent Fed Chair pick, and concerns over tech valuations.

The S&P 500 ended the session moderately lower, down 9 points (0.1%) to 6,969, with the Nasdaq 100 shedding 138 points (0.5%) to 25,884, while the Dow managed to eke out a gain, adding 55 points (0.1%) to 49,071. Notably, Microsoft (MSFT) lost around 10% after reporting a slower pace of revenue growth. In comparison, Meta Platforms (META) climbed over 10% on stronger sales growth, and Tesla (TSLA) closed 3.4% in the red amid concerns over the company’s AI investment plans.

Spot Gold to retest US$5,000?

As I am sure you are aware, Spot Gold has surrendered some of its recent upside, down 0.9% yesterday, and is shedding about 4.0%, as I write. Despite the pullback, this remains a buyers’ market with dips likely to continue to be bought, particularly if the yellow metal retests the US$5,000 barrier.

In the FX space, the USD – per the Dollar Index – caught a bid, essentially highlighting the cautious tone across markets right now. Technically, in terms of where I am with the USD Index, I remain bearish on the greenback, with a sell-rallies framework remaining my go-to choice at the moment.

As shown in the charts below, flows on the monthly timeframe reveal the pendulum is swinging towards a more bearish tilt after dipping a toe under major monthly channel support, extended from the low of 72.70. And considering the buck has been under pressure since November last year and recently touched lows not seen since 2022, the daily decision point zone at 97.35-96.82 could be an area sellers show interest in if tested. This base also happens to share chart space with a key daily resistance level of 97.14.

Fed Chair Announcement. Finally!

After months of speculation and debate about the Fed’s future, Trump will announce Fed Chairman Jerome Powell’s successor today. This follows the Fed holding rates unchanged on Wednesday and essentially echoing a wait-and-see stance, with the central bank now ‘attentive to the risks to both sides of its dual mandate’.

As I noted in a previous post, the latest reports suggest the shortlist for the new Fed Chair includes NEC Director Kevin Hassett, Fed Governor Christopher Waller, former Governor Kevin Warsh, and BlackRock executive Rick Rieder. Looking at the Polymarket predictions below, Warsh is a clear frontrunner, surpassing Reider – who was the favourite since late last week.

For some, it is curious that Warsh is now the frontrunner given his hawkish history. So, why is Warsh now seen as the top pick? I believe a few things have driven his ascent. This includes a recent visit to the White House, hints from Trump that his selection will not be ‘too surprising’, Warsh’s recent ‘alignment’ with Trump’s policies – in part because he expects AI to bolster productivity – and his selection offering the markets some credibility.

Time will tell how all of this plays out. Thankfully, though, the wait is over. If Warsh is selected today, I expect a jump in yields and a push north in the USD, with Stocks and Gold potentially getting hit. However, what the future holds is difficult to tell – I just cannot see Trump selecting someone who does not align with his views.

Despite expectations of a new Trump-appointed Fed chair, markets are still only pricing in two Fed rate cuts this year, telling us that analysts are not expecting the new appointment to push rates to levels that Trump is demanding. I recently read that he stated that the US should have the ‘lowest interest rate of any country in the world’. Make of that what you will.

Written by FP Markets Chief Market Analyst Aaron Hill