And just like that, the shutdown is over! Congress approved another short-term funding bill to reopen the U.S. government, leading to a surge in bond yields and equity indices.
Wall Street wasn’t exactly in a sour mood prior to this development, though, as risk-taking from the earlier trading sessions continued. Most market participants didn’t really expect the shutdown to have a material drag on economic performance after all.
- Canadian wholesale sales up 0.7% vs. 1.0% forecast, 1.6% previous
Risk appetite extended its stay
Positive vibes were already in place from earlier in the day on hopes for a German coalition deal and a U.S. funding bill. True enough, folks in Capitol Hill reached a compromise to pass another temporary funding measure that allowed the government to reopen.
Senate approved the bill by a vote of 81-18 and the House immediately followed with a vote of 266-150. This should be enough to keep things running until February 8 when Congress is set to revisit the budget and immigration policy.
You see, these two issues have been at the front and center of debates between Republican and Democrat lawmakers, particularly when it comes to legal protections for young immigrants under DACA. Trump noted:
“I am pleased that Democrats in Congress have come to their senses. We will make a long term deal on immigration if and only if it’s good for the country.”
The end of the shutdown was welcomed by record gains in bond yields and equities.
- Dow 30 index is up 142.88 points to 26,214.60 (+0.55%)
- S&P 500 index is up 22.67 points to 2,832.97 (+0.81%)
- Nasdaq is up 71.65 points to 7,408.03 (+0.98%)
- 10-year bond yield hit 2.672%, its highest level since 2014
- 2-year bond yield hit 2.082%, its highest level since 2008
IMF updated global forecasts
Another factor that supported risk-taking for the most part of the U.S. session was the upgrade in growth forecasts by the IMF.
In particular, the agency expects the global economy to expand by 3.9% this year versus their earlier 3.8% forecast. They also upgraded their 2019 estimate from 3.7% to 3.9%.
Among the main factors for the global growth upgrade was the U.S. tax reform package, which the IMF projects to lead to 2.7% growth in the country this year versus the earlier 2.3% forecast back in October. It also expects stronger growth from China at 6.6% from their prior 6.5% estimate.
However, the IMF also warned that a financial market correction could dampen growth. It also predicted that U.S. growth could slow by 2022 as the impact of the tax cuts fade.
Major Market Mover(s):
The Greenback caught a bid against some of its peers even before Congress shook on its stopgap funding measure and the gains picked up later on in the day.
EUR/USD slid from 1.2250 to a low of 1.2223, USD/JPY ticked up from 110.72 to a high of 111.23, USD/CHF is up to a high of .9640, and AUD/USD dipped to the .8000 mark before resuming its climb.
The comdoll gang held on to their gains for the rest of the session as risk-taking kicked into high gear upon seeing the IMF growth upgrades. After all, stronger growth prospects could translate to higher demand for commodity products.
NZD/USD advanced to .7334, USD/CAD edged down from 1.2462 to a low of 1.2435, AUD/JPY is up to 88.95, CAD/JPY rallied to a high of 89.12, and NZD/JPY is up to 81.35.
Watch Out For:
- BOJ monetary policy statement (no change in interest rates eyed)
- 4:30 am GMT: Japanese all industries activity index (0.9% expected, 0.3% previous)
- 6:30 am GMT: BOJ press conference