A look at the coming day in US and global markets by Mike Dolan
Fears of a U.S. government shutdown and new trade war threats cast another cloud over Wall Street as a final full trading week of the year comes to a close and tarnishes what had been a stellar year for U.S. stocks.
Already hit by what was seen as an “aggressive cut” in interest rates from the Federal Reserve on Wednesday, when the central bank raised both its official interest rate and its inflation projections for 2025, the S&P 500 was back in in the red Thursday night and futures fell nearly 1% before the bell on Friday.
A spending bill backed by Donald Trump failed in the US House of Representatives on Thursday night as dozens of Republicans defied the president-elect, leaving Congress without a clear plan to avoid a rapidly approaching government shutdown and which could affect Christmas travel.
Government funding will expire at midnight Friday. If lawmakers don’t extend that deadline, the U.S. government will enter a partial shutdown that would cut off funding for everything from border enforcement to national parks and cut the salaries of more than 2 million federal workers.
“Congress must get rid of the ridiculous debt ceiling, or extend it until, perhaps, 2029. Without this, we should never reach a deal,” Trump said on social media.
The combination of Fed hawkishness and concerns about government funding sent long-term Treasury yields to their highest level since May, with the 10-year benchmark nearing 4.60%, an increase of almost 50 basis points in just two weeks.
Following the rise in yields, the dollar index hit its highest level in two years on Thursday.
With November inflation readings from the Federal Reserve’s favorite personal consumption spending gauge due on Friday, Treasury yields and the dollar retreated one notch.
But the cost of buying insurance against a possible U.S. sovereign default rose on Friday due to shutdown fears. Credit default swaps on six-month U.S. bills hit a four-week high of 11 basis points, according to S&P Global.
The Japanese yen strengthened somewhat as data showing an acceleration in Japanese core inflation kept alive speculation about an interest rate hike by the Bank of Japan in the new year.
Senior Japanese finance officials also said Friday that the government is “alarmed” by recent currency moves and is ready to intervene if speculative moves are deemed excessive, as the yen resumes its rapid decline.
The warnings came as many central banks in emerging economies, from Brazil to South Korea, intervened in recent days to stop the dollar’s sharp rise.