U.S. stock futures surged Sunday night as investors bet whoever the next chairman turns out to be will likely have a more accommodative stance to monetary policy than Mr. Summers would have implemented if he were named Fed chair.
Dow futures recently rose 160 points and S&P 500 futures jumped 18 points, moves that set the market up for a significantly higher open come Monday morning.
Pimco’s Bill Gross said on Twitter that the move by Mr. Summers would be interpreted positively by investors.
Mr. Summers, a former Treasury secretary who has been one of the president’s top economic advisers, withdrew in a phone call with President Barack Obama Sunday morning. In a subsequent letter to Mr. Obama, he wrote: “I have reluctantly concluded that any possible confirmation process for me would be acrimonious and would not serve the interest of the Federal Reserve, the Administration or, ultimately, the interests of the nation’s ongoing economic recovery.”
Market participants say the move on Sunday caught them off guard.
“Very surprising,” David Lutz, a managing director at Stifel, Nicolaus & Co. in Baltimore, told MoneyBeat. He added: “80% of the Street expected Summers as soon as this week. Risk-on in the U.S. markets.”
Now the attention turns to other people that will be considered for the position.
One leading candidate is Janet Yellen, the Fed’s current vice chairwoman, who has garnered substantial support among Democrats in Congress and among economists. But the public lobbying on her behalf appears to have annoyed the president and may lead him to look elsewhere.
Mr. Obama has said he interviewed Donald Kohn, a former Fed vice chairman who is currently a senior fellow at the Brookings Institution. Administration insiders say Timothy Geithner, the former Treasury secretary, also is a possibility, though he has said he doesn’t want the job.
But based on the latest developments, Andrew Brenner, global head of international fixed income at National Alliance Securities, said he’d expect Mr. Geithner to garner stronger consideration from the administration.
“I think Geithner will get a call from the president,” he told MoneyBeat.
–David Wessel contributed to this post.