Market Uncertainty Looms as Year Comes to a Close
As the final full trading week of the year draws to a close, Wall Street is bracing for impact. Fears of a U.S. government shutdown and fresh trade war threats have cast a shadow over the market, dampening what had been a stellar year for U.S. stocks.
Government Shutdown Fears Intensify
A spending bill backed by Donald Trump failed in the U.S. House of Representatives, leaving Congress with no clear plan to avert a fast-approaching government shutdown. If lawmakers fail to extend the deadline, the U.S. government will begin a partial shutdown, disrupting Christmas travel and cutting off paychecks for over 2 million federal workers.
Fed Hawkishness Adds to Market Jitters
The Federal Reserve’s decision to lift its 2025 policy rate and inflation projections has already sideswiped the market. The S&P 500 was in the red again late Thursday, and futures were down almost 1% before Friday’s bell. Long-term Treasury yields have climbed to their highest since May, with the 10-year benchmark nearing 4.60%.
Dollar Strengthens as Yields Climb
The dollar index hit its highest in two years on Thursday, tracking the climb in yields. However, with November inflation readings from the Fed’s favored personal consumption expenditures gauge due out on Friday, Treasury yields and the dollar stepped back a notch.
Global Markets Feel the Pinch
Japan’s yen strengthened somewhat as data showed accelerating core Japanese inflation, keeping speculation of a new year interest rate hike from the Bank of Japan alive. Top Japanese finance officials warned of potential intervention if speculative moves were deemed excessive. Emerging economy central banks from Brazil to South Korea have also intervened in recent days to halt the dollar’s steep rise.
Trade War Concerns Weigh on European Markets
European shares were on course to post their worst week in three months on Friday after Trump warned of trade tariffs on the European Union. The pan-European STOXX 600 index fell 1.1% to its lowest in nearly a month and was on course for its biggest weekly decline since early September.
Sterling Takes a Hit
Sterling fell to its lowest since May against the dollar, despite the Bank of England holding its interest rates steady as expected. Friday data showed British retail sales rose by a weaker-than-expected 0.2% in November.
Corporate News Provides Some Solace
Shares in FedEx jumped 8% in out-of-hours trading after the delivery firm announced the spinoff of its freight trucking division as it restructures its operations.
Key Developments to Watch
Investors will be keeping a close eye on the US November personal consumption expenditure (PCE) inflation gauge and the December University of Michigan household sentiment survey, both due out later on Friday. U.S. corporate earnings from Carnival will also provide more direction to U.S. markets.
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