Stocks, bonds, and metals all fall together! The market responds with selling in response to rumors of nomination of Powell. Starting to price in "more hawkish next Fed chairman."

According to media reports, US President Donald Trump is preparing to nominate former Federal Reserve Board Governor Kevin Warsh as the next Federal Reserve Chairman on Friday morning local time. Financial markets seem to unanimously believe that this long-standing hawkish candidate will be more hawkish than other candidates and current Chairman Powell, and he is likely to adopt a unique policy combination of "balance sheet reduction + rate cut" that is unfavorable for the liquidity expansion of stock and bond markets, causing the dollar to rise quickly along with US Treasury yields. At almost the same time, the futures of the three major US stock indexes widened their losses, strong oil prices continued to plummet in anticipation of liquidity tightening, and prices of precious metals and industrial metals also fell sharply on Friday. The latest prediction market Polymarket shows that the probability of former Federal Reserve Governor Kevin Warsh being nominated as the new Federal Reserve Chairman has surged to 95%. Earlier that day, US President Trump stated that he plans to officially announce the nomination of the next Federal Reserve Chairman on the morning of the 30th local time (tonight Beijing time). Trump told reporters that the nominee is "highly respected and well-known in the financial world," and said, "This will be a very good choice." He added that the nominee "will not be too surprising" as he comes from the list of candidates. This appointment will end the tension between Trump and Powell that has lasted for years. Trump nominated Powell to be the Federal Reserve Chairman during his first term, but later criticized the Federal Reserve for not cutting rates more quickly. The Federal Reserve maintained its benchmark interest rate this week, stopping the rate cuts as market expected after three consecutive rate cuts last year. After news broke that Trump's administration is preparing to nominate Kevin Warsh as the next Federal Reserve Chairman, the dollar surged against almost all major sovereign currencies, and the yield on the US 10-year Treasury bond rose rapidly. Due to Warsh's long-standing hawkish stance, this expectation quickly pushed up the dollar and bond yields, putting pressure on commodity prices, including metals and oil, and the stock market. According to some media reports, a source familiar with the matter in the White House revealed that Trump has decided on Warsh, but also added that Trump's verbal choice is not final until the formal announcement is made. The market is pricing with real money - Warsh will be a hawkish Federal Reserve Chairman unfriendly to the market "From the trends in the metal and stock bond markets, the market's perception is that if Kevin Warsh becomes the Federal Reserve Chairman, it will be relatively more traditional, not as market-friendly as BlackRock's Rick Rieder - after all, Rieder, the Chief Investment Officer of Global Fixed Income at BlackRock, knows better how to communicate with the market. In this case, we may see fewer rate cuts in the future," said Andrew Tychhester, a senior strategist at Nomura in Sydney. The latest market fluctuations indicate that the uncertainty surrounding the next Federal Reserve leader, lasting for several months, is now close to being settled. Citing sources familiar with the matter in the White House, Warsh, a former Federal Reserve Governor and one of the four candidates for the next Federal Reserve Chairman, visited the White House on Thursday. As shown in the chart above, the probability of Warsh being nominated as the next Federal Reserve Chairman has soared - Rieder from BlackRock, who was a frontrunner recently, has lost momentum. The betting market is also increasingly leaning towards Warsh. Polymarket shows that the probability of him becoming the next Federal Reserve Chairman rose to over 95% during the Asian Friday period, while support for BlackRock Inc. executive Rick Rieder significantly weakened. With Rieder's chances of winning ramping up recently and investors generally perceiving him to be more market-friendly than Warsh, funds betting on a policy shift towards a more dovish stance have been pouring in rate futures ahead of Trump's planned nomination of Warsh. "No matter how he argues in favor of Trump's rate cuts now, Warsh has a long history as a hawk, and the market hasn't forgotten, so the dollar and yields are on the rise," said Sean Carlo, a senior analyst at Sydney-based ITC Markets. "It is not common to see a steepening of the US Treasury yield curve during the Asian session, which indicates that this trend is a defensive stance taken by investors in preparation for Kevin Warsh running a more hawkish and rule-driven Federal Reserve, said Mark Cranfield, a senior strategist at Bloomberg Strategists. Warsh served on the Federal Reserve Board from 2006 to 2011 and has advised the Trump administration on economic policy. If nominated and confirmed, he will succeed Jerome Powell, whose term as Federal Reserve Chairman ends in May. Amid market pressures, a more orthodox style Federal Reserve Chairman signal is emerging, with the market worried about the increasingly unpredictable US policy path, unsustainable large fiscal deficits, and political interference in central bank policy independence. Earlier this week, Trump's comments hinted at his preference for a weaker dollar, but later US Treasury Secretary Scott Bessent stated that the government supports a strong dollar policy. The dollar has been on a steep decline this year under the so-called "debasement trade," with the popular trade betting on its long-term decline in purchasing power. Bloomberg's dollar index fell to its lowest level in almost four years this week. Warsh's potential nomination is seen as a potential hedge against some of these factors. "Warsh has been known for his hawkish tendencies in the past, emphasizing fiscal discipline and taking a more cautious stance on rate cuts," said Moh Siong Sim, a senior forex strategist at OCBC Bank in Singapore. "Nominating Warsh may ease market concerns about the Federal Reserve's monetary policy independence, supporting a stronger dollar and reducing the financial market risk premium under a 'Federal Reserve hawkish' stance." After reports that the Trump administration is preparing to nominate Kevin Warsh as the Federal Reserve Chairman and the strengthening of the dollar, gold prices fell; earlier, gold had recorded its first decline in nearly two weeks. As shown in the chart above, gold prices experienced "extreme fluctuations" - gold prices plummeted at the end of a dramatic month after briefly rising by 1.4% earlier on Friday. Gold prices fell sharply by 4.8% at one point on Friday, after briefly rising by 1.4% earlier in the day, continuing the sharp volatility that interrupted its record-breaking rise the previous trading day. The US dollar index, which measures the dollar against a basket of major currencies, rose by nearly 1%, making precious metals more expensive for most buyers. Potential advocate for rate cuts and balance sheet reduction Warsh has long been known as an "inflation hawk", but in recent months his stance has aligned with that of the returning President. Trump said he would announce his nomination on Friday morning US time. However, analysts from Deutsche Bank believe that if Warsh is elected as the Federal Reserve Chairman, his policy advocacy may present a unique combination of "rate cuts and balance sheet reduction". However, Deutsche Bank analysts believe that the implementation of "rate cuts and balance sheet reduction" is contingent on regulatory reform reducing the reserve requirements of banks, the short-term feasibility of which is questionable. The market needs to closely monitor whether the new Chairman can maintain independence under pressure from Trump to cut rates significantly, and the process of establishing policy credibility. Recently, Warsh stated in an in-depth interview that inflation is the responsibility of the Federal Reserve, not attributable to external factors. His reform plan is not about starting over but advocating for the Federal Reserve to "revive" rather than "revolutionize". In the face of high inflation and high deficits, with long-term US Treasury yields not falling below, Warsh believes that the Federal Reserve can obtain lower rates by reducing its balance sheet. "If we silence the printing press a bit, rates can actually be lower." Christopher Wong, a strategist at OCBC Bank, said that the volatility of gold "confirms the warning that what goes up fast can also go down fast." He emphasized that while the reports of Warsh's nomination were a trigger, the market was already overdue for a significant correction. "It's like the market has been waiting for a reason to unravel those parabolic movements." Despite the retracement, gold has still risen by over 20% so far this year, supported by Trump's disruption of the international financial, economic, and trade order and constant attacks on the independence of the Federal Reserve. Geopolitical tensions in Latin America and the Middle East remain high after Trump threatened military action against Iran and announced tariffs on any country providing oil to Cuba. Concerns over the Strait of Hormuz and the potential impact on global energy flows remain high. The Strait of Hormuz is a narrow passage between Iran and the Arabian Peninsula that is crucial for global energy transportation, with a large number of oil tankers carrying crude oil and liquefied natural gas passing through it every day. Recent reports suggest that Iran issued a warning to maritime vessels on Thursday, stating that they plan to conduct military exercises on Sunday and Monday, including live ammunition firing near the Strait of Hormuz; the report cited two Pakistan security officials.