The Federal Reserve leadership change causes market turbulence, Tech Stocks come under pressure, and Crypto remains calm.

Key Highlights

The Federal Reserve Chair candidate has been finalized, long-term government bond yields hit a new high since September, AI leader Broadcom’s quarterly report exceeded expectations but plummeted after hours, and Bitcoin and Ethereum prices remain stable—this trading day has seen volatile global markets with risk sentiment clearly cooling down.

Fed Leadership Change: Warsh Selected, Market’s Rate Cut Expectations Fall Short

Trump announced that former Fed Governor Kevin Warsh will be the top choice to succeed Powell as Fed Chair, defeating the also-popular candidate Hassett. Wall Street initially favored this choice, believing Warsh would better preserve the Fed’s independence compared to Hassett.

However, Trump’s subsequent remarks shattered market expectations. He explicitly stated that the next Fed Chair should consult him on interest rate decisions and expressed a desire to lower rates to 1% or even lower within a year. This directly challenged the Fed’s independence and sparked market concerns.

Treasury Market Reacts: The yield on the 2-year US Treasury fell to 3.52%, while the 10-year and 30-year yields rose to 4.18% and 4.84%, respectively—the latter reaching the highest level since September. Markets began to worry about inflation prospects and the Fed’s independence.

Powell’s term ends in May next year. He has repeatedly rejected Trump’s calls for significant rate cuts, prompting public criticism from the President. This leadership change hints that the rate cut cycle may be difficult to sustain, dampening expectations for easing monetary policy.

Rising Bond Yields Trigger Chain Reactions

Long-term bond prices continued to decline, with the 30-year yield rising about 5 basis points this week to reach 4.86%. Short-term bonds declined supported by expectations of further rate cuts next year, but long-term yields reflect persistent inflation concerns.

Chicago Fed President Goolsbee and Kansas Fed President Schemm publicly stated on Friday that inflation worries are the main reasons they oppose rate cuts and support maintaining current policies. This contrasts with market expectations of two 25-bps rate cuts before the end of 2026, further pressuring bond prices.

Stock Markets Drop Across the Board: AI Spending Concerns as a Killer

Amid rising bond yields and doubts about Fed independence, global stock markets declined.

US Stocks: Dow down 0.51%, S&P 500 down 1.07%, Nasdaq down 1.69%, the largest decline. Concerns over huge AI company expenditures and investment returns intensified, putting tech stocks under significant pressure.

European Stocks: Germany DAX 30 down 0.45%, France CAC 40 down 0.21%, UK FTSE 100 down 0.56%, moving in tandem with US markets.

Commodities and Forex: Gold Fluctuates, US Dollar Slightly Strengthens

Gold: Up 0.47%, at $4,299.2 per ounce, supported by safe-haven demand but unable to break through key resistance.

Crude Oil: WTI down 0.67%, at $57.5 per barrel, weighed down by recession fears.

Forex: US Dollar Index up 0.06% at 98.39, USD/JPY up 0.17%, EUR/USD roughly flat with a 0.01% increase. The dollar remains resilient amid Fed uncertainty.

Cryptocurrency: Bitcoin and Ethereum Remain Steady

Bitcoin: Slightly down 0.05% in 24 hours, currently at $87.96K, showing resilience. Despite stock market declines, Bitcoin has not followed suit sharply, indicating institutional support.

Ethereum: Up 0.03% in 24 hours, at $2.96K, performing steadily. Mainstream cryptos are relatively independent and not fully driven by traditional market risks.

Stock Spotlight: Broadcom Surges Then Plummets, Oracle Bonds Cool Off

Broadcom Surges then Crashes: Q4 net profit up 97% YoY to $8.5 billion, adjusted EPS of $1.95, beating expectations of $1.86; revenue up 28% YoY to $18 billion, surpassing $17.5 billion forecast. AI chip sales reached $11.07 billion, up 22% YoY. CEO Hock Tan expects AI chip sales to double in Q1 to $8.2 billion. After-hours, shares initially rose over 3%, but then plunged over 11% amid broader market weakness, marking today’s biggest loss. This reflects market skepticism about AI investment returns.

Oracle Bonds Under Pressure: After quarterly earnings, Oracle bond prices continued to decline. Investors who bought $18 billion of high-grade bonds in September have realized losses of about $1.35 billion. The 5.2% coupon bond maturing in 2035 saw its 5-year CDS spread widen to 1.71 percentage points—above comparable US Treasuries—with a yield rising to 5.9%, similar to junk bonds.

Bloomberg earlier reported that Oracle’s completion of data centers involving OpenAI may be delayed from 2027 to 2028 due to labor and raw material shortages. Oracle denied the report, but investor confidence has been shaken.

Wall Street’s Optimism Masks Market Anxiety

Goldman Sachs reaffirmed its target of 7,600 for the S&P 500 next year, implying about 10% upside from current levels. The firm expects earnings per share for S&P 500 companies to grow 12% next year, with AI productivity gains contributing roughly 0.4 percentage points.

However, these optimistic forecasts seem weak amid current market anxiety. Concerns over inflation, Fed independence, and AI investment returns have overshadowed growth expectations.

Hong Kong Market Trends: Hang Seng Index Futures Fall in Night Trading

Hang Seng Index futures close at 25,735 points, down 248 points from yesterday’s close of 25,976, with a discount of 242 points. Volume: 18,072 contracts. China Enterprises Index futures close at 8,998, down 81 points from yesterday’s close.

Trader’s Observations

This volatile trading day reflects a market at a critical turning point:

1. Fed Independence Under Question — Trump’s explicit statements to influence rate decisions undermine long-term easing expectations, pushing up long-term yields.

2. Doubts Over AI Investment Returns — Despite strong earnings from leading firms, market doubts about expenditure and profit matching have led to significant tech stock declines.

3. Sticky Inflation Emerges — Resurfacing inflation concerns from Fed officials challenge the market’s hope for rapid rate cuts.

4. Cryptocurrencies Remain Resilient — Bitcoin and Ethereum’s steady performance suggests some funds are seeking alternative assets amid traditional financial volatility.

For traders, the coming weeks’ Fed policy signals and corporate earnings data will be key. The market has shifted from optimism to caution, with the next direction depending on inflation data and economic resilience.

Today’s Key Economic Data Releases

• China November retail sales YoY
• China November industrial added value YoY
• Eurozone October industrial output MoM
• Canada November CPI MoM
• US December NY Fed Manufacturing Index
• Fed Governor Milan’s speech
• US December NAHB Housing Market Index
• Fed Williams on economic outlook