Stocks rally as Summers withdraws from race to head US Federal Reserve
US stocks and bonds rallied yesterday as investors welcomed the withdrawal of Lawrence Summers from the running to head the Federal Reserve.
The end of Mr Summers' candidacy means that a more gradual approach to monetary tightening is likely.
Further boosting risk assets around the world, and weighing on the US dollar, were signs of progress in Syria following a Russian-brokered deal aimed at averting US military action, all of which helped propel world shares to a five-year high.
Mr Summers' decision came just before the US Federal Reserve meets today and tomorrow to decide when, and by how much, to scale back its asset purchases from the current pace of $85bn (€63bn) a month.
Investors wagered that US monetary policy would stay easier for longer should the other leading candidate for Fed chair, Janet Yellen, get the job.
The Dow Jones industrial average was up 0.92pc while the Standard & Poor's 500 Index was up 0.8pc. European shares rose 0.5pc.
Markets had perceived Mr Summers as less wedded to aggressive policies such as quantitative easing and more likely to scale stimulus back quickly than Ms Yellen, who is second in command at the Fed.
"His passing as a contender for the top role has left in its wake a significant risk-on rally," said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co in New York.
It was even possible a first Fed interest-rate rise could be pushed out to 2016, rather than 2015 as currently expected, added Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ.
"Yellen looks like the clear front-runner and seems to be the public's popular choice," he said. "The Fed will shoot to lower the unemployment rate to the full employment level, and this means the new target could be more 5.5pc, not 6.5pc."