US government shuts down, USD and Wall Street on the back foot

Summary:

• US government has been shut down at midnight on Friday due to an impasse over a border wall

• Donald Trump has reportedly mulled over firing Jerome Powell

• Wall Street plunged on Friday as NASDAQ entered a bear market

US government shuts down

The last trading day before Christmas is bringing a wide sell-off of the US dollar being burdened by the third government shutdown this year. However, this time a deadlock could turn out to be harder to resolve. The obstacle is a Trump’s idea to fund a border wall with Mexico (roughly $5 billion). Democrats object it and voted against an extended budget on Friday. The shutdown means that more than 400k federal “essential” employees will work without pay until the dispute is ultimately resolved. Donald Trump added during the weekend that “you can’t have border security without a wall”. Taking into account that Democrats are clearly objecting the idea to set aside some funds in order to build the famous wall, one may suspect that the partial shutdown could last even for weeks being a challenge for some ordinary people and could weigh on spending during this and the following quarter. Donald Trump is not going to back down on his controversial idea, hence it would be hard to see the issue being resolved before the year end. As the political outlook in the US has clouded the greenback is being offered this morning across the board. Antipodean currencies are performing the best against the buck rising more than 0.2% at the time of writing. The British pound is also higher almost 0.2%.

Technically the AUDUSD hit the crucial support on Friday. Therefore, bulls could be willing to take the price higher toward the first technical obstacle situated nearby 0.7160. Source: xStation5

NASDAQ enters bear market

The Friday’s trading on Wall Street proved to be really bloody with the NASDAQ (US100) tumbling 3% and marking its worst week since the financial crisis. From its peak reached in August the tech stocks index fell 22%. It means that it has entered a bear market (a pullback exceeding 20% is perceived as a bear market). Note that during the several past months the NASDAQ shed almost $3 trillion in its market value while as much as $1 trillion came from the FAANG (Facebook, Apple, Amazon, Netflix and Alphabet). Underperformance of global stocks is a by-product of many factors such as the US-China trade war, concerns over global economic slowdown, higher interest rates in the US, and the most recently rising turmoil in US politics as well as tensions between Trump and Powell. Asian indices have been mixed so far with the Hang Seng (CHNComp) falling 0.6% and the Australian S&P/ASX200 (AUS200) climbing 0.5%. The Japanese NIKKEI is closed today. It is worth noting that some interesting news came from China. Namely, the China’s finance ministry has announced it will remove its export tariff on iron ore (and 93 other products) from January 1, 2019. In addition, it will levy temporary tariffs on more than 700 items. Finally, import tariffs on goods produced in Macau and Hong Kong will be removed altogether. However, the SP500 futures are pointing to a green opening. Nevertheless, due to Christma Eve many stock exchanges will be closed earlier today therefore liquidity will be much thinner than usual.

The NASDAQ (US100) officially entered the bear market therefore any pullbacks to the upside could be treated as temporary. Another target for bears might be found nearby 5780 points. Source: xStation5

Trump wants to fire Powell?

On Saturday Reuters reported, citing two source familiar with situation, that US President Donald Trump has privately discussed the possibility of firing Federal Reserve Chairman Jerome Powell. These sources added that they do not expect Trump to dismiss Powell though. Some explanations came in several hours later when US Treasury Secretary Steven Mnuchin tweeted that Trump had told him than never suggested dismissing the Fed chief. Trump was to say “I totally disagree with Fed policy. I think the increasing of interest rates and the shrinking of the Fed portfolio is an absolute terrible thing to do at this time especially in light of my major trade negotiations which are ongoing, but I never suggested firing Chairman Jay Powell, nor do I believe I have the right to do so.” Despite the Trump’s statement on tha matter there is no doubt that there are some tensions between Trump and Powell which could weigh on market sentiment.

In the other news:

• UAE’s oil minister said that OPEC+ could mull deeper productions cuts if 1.2 mbpd is not enough, oil prices are trading approximately 0.5% higher this morning

• China’s National Development and Reform Commission said that it would boost support for the economy in 2019, focusing especially on the advanced manufacturing sector and private firms facing difficulties