A look at the day ahead in the US and global markets by Mike Dolan
Fears of a US government shutdown and new threats of a trade war are casting a new cloud over Wall Street as a painful final full trading week of the year draws to a close, dampening a banner year for US stocks.
The S&P 500 was already on the sidelines on Wednesday of what was seen as a “hawk-like cut” in Federal Reserve interest rates, with the central bank lifting both its policy rate and inflation projections for 2025. The S&P 500 was again in the red late Thursday and futures fell almost 1 percent. % before Friday’s bell.
A bill backed by Donald Trump failed in the U.S. House of Representatives on Thursday as dozens of Republicans defied the president-elect, leaving Congress without a clear plan to avert a fast-approaching government shutdown that could disrupt Christmas traffic.
The government funding expires at midnight on Friday. If lawmakers fail to extend that deadline, the U.S. government will begin a partial shutdown that would interrupt funding for everything from border enforcement to national parks and freeze paychecks for more than 2 million federal workers.
“Congress should abolish the ridiculous debt ceiling, or perhaps extend it until 2029. Without this we would never be able to make a deal,” Trump said on social media.
The combination of the Fed’s hawkish stance and concerns about government financing pushed long-term Treasury yields to their highest level since May, with the 10-year benchmark approaching 4.60% – up nearly 50 basis points in just two weeks.
The dollar index follows the rise in interest rates and reached a two-year high on Thursday.
With the inflation figures for the Fed’s favorite indicator for personal consumption in November due to be announced on Friday, yields on government bonds and the dollar fell a notch.
But the cost of buying insurance against a possible U.S. Treasury default rose higher on Friday on fears of a shutdown. Credit default swaps on six-month U.S. notes rose to a four-week high of 11 basis points, according to S&P Global.
The Japanese yen strengthened slightly as data pointing to accelerating Japanese core inflation kept speculation alive about a Bank of Japan rate hike in the new year.
Top Japanese finance officials also said Friday that the government is “alarmed” by recent exchange rate movements and ready to intervene if speculative moves are deemed excessive as the yen resumes its rapid decline.
The warnings came as many central banks of emerging economies, from Brazil to South Korea, intervened in recent days to halt the dollar’s steep rise.
A drop in U.S. crude oil prices below $70 a barrel also provided some comfort to inflation worries.
But Trump’s other sides hit foreign stock markets on Thursday as investors closed out the year analyzing what his new administration will do when it takes office next month.
European shares were on track to post their worst week in three months on Friday after the president-elect warned of trade tariffs on the European Union.
Trump said the EU must buy American oil and gas to make up for its “huge deficit” with the world’s largest economy. “Otherwise it’s all RATES!!!,” he added.
The pan-European STOXX 600 index fell 1.1% to its lowest level in almost a month and was on track for its biggest weekly decline since early September.
And the trade war and interest rate concerns also caused stocks to fall across Asia.
Sterling was another big loser on Friday, falling to its lowest since May against the dollar. Although the Bank of England kept its interest rates steady on Thursday as expected, the 6-3 split among its policymakers showed two more council members were in favor of a cut than thought.
Adding to the pressure, data on Friday showed UK retail sales rose a weaker-than-expected 0.2% in November.
Back on Wall Street, there was better corporate news to digest: FedEx shares rose 8% in after-hours trading after the delivery company announced the long-awaited spinoff of its trucking division as it restructures its operations.
Key developments that should give more direction to US markets later on Friday:
* U.S. Personal Consumption Expenditure (PCE) Inflation Gauge, December, University of Michigan Household Survey
* US Corporate Earnings: Carnival
(Editing by Andrew Heavens)
