Wall Street drops amid US shutdown tensions Global equities fail to benefit after Fed signals caution on rates
Wall Street is following European equity markets downwards as the positive glow from this week’s Us-china trade negotiations fades and tempers fray in Washington over the ongoing government shutdown.
The S&P 500 index is 0.3 per cent lower at 2,577 in mid-morning New York trade.
The FTSE 100 is up 0.4 per cent after earlier trading down by as much as 0.6 per cent, and the Europe-wide Stoxx 600 is 0.1 per cent firmer after falling 0.7 per cent in early trading.
“The breakdown of talks on the US government shutdown has made investors worry a little,” said Paul Donovan, chief economist at UBS Global Wealth Management. “The emphatic way in which the talks fell apart may raise investor concerns about what the next two years in Washington is likely to look like.”
Tokyo’s Nikkei closed 1.3 per cent lower and China’s CSI 300 index of Shanghai and Shenzhenlisted stocks closed 0.2 per cent down, although Hong Kong’s Hang Seng gained, up 0.2 per cent.
The US dollar is slightly up after a tumble prompted by expectations of a more cautious policy approach from the US Federal Reserve. The publication of the minutes to the Fed’s December meeting eased investors’ fears that further rate hikes were imminent.
Meanwhile China’s renminbi touched a five- month high as analysts tipped Beijing to ratchet up easing and stimulus measures in the wake of official data out on Thursday that pointed to weaker inflation in December.
Capital Economics economist Julian Evans-pritchard said slower inflation gave Beijing “plenty of room” to loosen monetary policy, adding: “If anything, cooling factory gate inflation will strengthen the case for the central bank to do more to ease financial pressure on industrial firms including by cutting benchmark lending rates”.
The stock market moves came despite China’s ministry of commerce releasing a statement characterising trade negotiations with the US that concluded on Wednesday as “extensive, deep and meticulous”, suggesting investor optimism for a resolution to the two countries’ trade war was waning.
Forex and fixed income
The dollar index, which tracks the US currency against a basket of international peers, reversed early losses to trade 0.2 per cent up on the day.
That followed a rough Wednesday session that saw the index tumble to its lowest level in three months on expectations the Fed would take its time on further rate rises and partisan bickering in Washington over the ongoing government shutdown.
The dollar’s weakness saw China’s currency strengthen to its firmest level against the dollar in more than 150 days.
The onshore renminbi, which trades within two per cent in either direction of a midpoint set each day by the People’s Bank of China, gained as much as 0.5 per cent to Rmb6.7845 per dollar, its strongest level since August 2018. The offshore rate strengthened by as much as 0.4 per cent to Rmb6.7851.
Sterling is 0.3 per cent lower at $1.2752 as the UK Parliament debates the government’s EU departure plans.
Sovereign bond markets were little moved with yields, which move inversely to prices, on 10year US Treasuries down 1 basis point at 2.71 per cent. The 10-year German Bund yield is down 2bp at 0.20 per cent.