[New York Market Watch]'Shutdown Relief?' Wall Street Ends Flat as Dollar Falls, Bonds Mixed

(Seoul=Yonhap Infomax) International Economics Department = On the 7th (U.S. Eastern Time), the three major U.S. stock indices closed mixed but largely flat, recovering late in the session on renewed optimism over a potential end to the federal government shutdown and upbeat comments on artificial intelligence (AI) from former President Donald Trump.

Wall Street, which had plunged earlier on concerns over the U.S. economic outlook, rebounded as hopes grew for a resolution to the government shutdown and as Trump expressed confidence in AI. Nvidia, a bellwether AI stock that had dropped as much as 4.88% intraday, managed to reverse losses and close higher.

U.S. Treasury yields were mixed, with short-term yields rising and long-term yields falling, though overall moves were limited. Risk-off sentiment prevailed after data showed U.S. consumer sentiment deteriorated more than expected, but caution ahead of next week’s Treasury auctions offset some of the impact. A sharp rise in Canadian bond yields also weighed on early trading.

The U.S. dollar index fell for a third consecutive session. The greenback came under pressure early on concerns about the U.S. economy, but trimmed losses in the afternoon as expectations for a shutdown resolution grew. The dollar index (DXY), which tracks the greenback against six major currencies, ended in the mid-99 range. The Canadian dollar strengthened sharply after data showed improvement in the country’s labor market.

New York oil prices rose for the first time in four sessions. While concerns over weaker demand due to a prolonged shutdown briefly pushed prices lower, a late-session rebound lifted crude higher.

The Democratic Party proposed a compromise to the Republicans, offering to extend Obamacare (ACA) subsidies for one year. Senate Majority Leader Chuck Schumer called it a “reasonable proposal,” but Senator Steve Daines, a Republican close to party leadership, said in an interview, “We’re not going to do that.” Nevertheless, markets viewed the exchange of proposals as a positive sign for ending the shutdown.

At the White House, President Trump told reporters ahead of a summit with Hungary that he was not worried about an “AI bubble,” saying, “No. I like AI very much.”

The University of Michigan’s preliminary consumer sentiment index for November fell 3.3 points from the previous month to 50.3, marking a fourth consecutive monthly decline and coming in below market expectations (53.2). The reading was the lowest since June 2022 (50.0), which was a record low, with only a 0.3-point difference.

Equity Markets

At the close of trading on the New York Stock Exchange (NYSE), the Dow Jones Industrial Average rose 74.80 points (0.16%) to 46,987.10. The S&P 500 gained 8.48 points (0.13%) to 6,728.80, while the Nasdaq Composite fell 49.46 points (0.21%) to 23,004.54.

Volatility remained high throughout the session. Early selling was concentrated in AI and semiconductor stocks amid concerns that OpenAI was seeking government guarantees for infrastructure investment, raising questions about the company’s cash flow. The Philadelphia Semiconductor Index, heavily weighted toward AI and chip stocks, fell as much as 4.70% intraday. Nvidia dropped as much as 4.88%, and Broadcom as much as 5.15% before both pared losses.

The tech-heavy Nasdaq also slumped, falling as much as 2.13% intraday. Excluding Apple, which held firm, all mega-cap tech stocks with market capitalizations above $1 trillion declined. Weak consumer sentiment data added downward pressure to equities.

The University of Michigan’s preliminary consumer sentiment index for November came in at 50.3, down from 53.6 in October and the lowest since June 2022 (50.0), a historic low.

However, stocks rebounded in the afternoon after news broke that Democrats had proposed a temporary budget compromise to Republicans. The S&P 500 and Dow both turned positive by the close. The Democratic proposal included a one-year extension of ACA subsidies and the creation of a committee to discuss long-term reforms, a shift from their previous stance of seeking a permanent extension.

Although Republicans rejected the proposal, the market interpreted the ongoing negotiations as a positive sign, especially with Democrats having swept the midterm elections and the holiday shopping season approaching, making it difficult for Republicans to prolong the standoff. A White House official said the administration would discuss the issue with Democrats once the government reopens.

By sector, communication services and technology lagged, while consumer staples, real estate, utilities, materials, and energy all rose more than 1%. Blue chips and industrials supported the market as tech stocks came under pressure. Coca-Cola gained more than 2%, and Chevron rose over 1%. Nvidia, which had been down more than 5%, closed slightly higher, while Amazon and Meta also advanced.

According to CME FedWatch Tool, the probability of the Federal Reserve holding rates steady in December rose to 33.4%, up from 30.4% the previous day. The CBOE Volatility Index (VIX) fell 0.42 points (2.15%) to 19.08.

Bond Markets

According to Yonhap Infomax’s overseas rates screen (screen no. 6532), as of 15:00 in New York, the 10-year U.S. Treasury yield was 4.0930%, up 0.10 basis points from the previous day’s 15:00 level. The 2-year yield, sensitive to monetary policy, fell 0.90 basis points to 3.5570%. The 30-year yield rose 1.30 basis points to 4.7000%. The spread between the 10-year and 2-year yields widened slightly from 52.60 basis points to 53.60 basis points. (Bond yields move inversely to prices.)

U.S. Treasury yields opened slightly higher, extending gains after strong Canadian employment data. Canada added 67,000 jobs in October, marking a second consecutive monthly increase and defying market expectations for a 2,500-job decline. The Canadian 10-year yield rose 5.95 basis points to 3.1261%, with most maturities up 5–6 basis points.

The University of Michigan’s consumer sentiment index, released at 10:00 a.m. in New York, disappointed, falling 3.3 points to 50.3, the lowest since June 2022. Joanne Hsu, director of the Michigan survey, noted that “with the federal government shutdown lasting more than a month, consumers are increasingly concerned about the potential negative impact on the economy.” Elizabeth Renter, senior economist at NerdWallet, added that even high-income households may increase precautionary savings due to the shutdown, potentially weakening the consumer spending that has supported the economy.

The 10-year U.S. Treasury yield, a global benchmark, fell to 4.0650% late in the morning before reversing higher in the afternoon as news of a Democratic compromise to end the shutdown emerged. The U.S. Treasury will hold three consecutive days of auctions starting Monday, November 10, due to the Veterans Day holiday on the 11th. The auctions will include $58 billion in 3-year notes on the 10th, $42 billion in 10-year notes on the 12th, and $25 billion in 30-year bonds on the 13th.

According to CME FedWatch, as of 15:54 in New York, the federal funds futures market priced in a 66.4% chance of a 25-basis-point rate cut by the Federal Reserve in December, down from 69.6% the previous day.

Foreign Exchange Markets

According to Yonhap Infomax (screen no. 6411), as of 16:00 in New York, the dollar-yen exchange rate stood at 153.430 yen, up 0.399 yen (0.261%) from the previous New York close of 153.031 yen. The euro-dollar rate rose 0.00168 (0.145%) to 1.15644. The dollar index fell 0.149 points (0.149%) to 99.551.

The dollar remained under pressure in New York trading as safe-haven demand increased amid labor market concerns and falling U.S. Treasury yields. The dollar index fell as low as 99.396 intraday after the University of Michigan’s consumer sentiment index hit a 3.5-year low.

However, the dollar trimmed losses on optimism over a shutdown resolution and Trump’s upbeat AI comments. The Nasdaq Composite rebounded on Trump’s remarks, and the S&P 500 and Dow turned positive after Schumer’s compromise proposal. The dollar index also recovered to 99.628 as risk aversion eased.

David Russell, global strategist at TradeStation, noted, “The longer the government shutdown drags on, the greater the risk to the real economy.”

The pound-dollar rate rose 0.00273 (0.208%) to 1.31634. The UK faces uncertainty ahead of its budget announcement on the 26th. Chancellor Rachel Reeves is pushing for an income tax hike, breaking a Labour Party pledge, but Deputy Leader Lucy Powell insists the party must honor its commitments. Fiscal concerns pushed UK gilt yields higher, but the pound strengthened on dollar weakness. Tom Matheson, manager at Saltus Asset Management, said, “Gilts are increasingly vulnerable due to the UK’s fiscal issues.”

The dollar-Canadian dollar rate fell 0.0087 (0.616%) to 1.4029. Canada’s unemployment rate for October was 6.9%, below the market forecast of 7.1%. Karl Schamotta, chief market strategist at Corpay, said, “The Canadian dollar’s strength and rising bond yields reflect expectations that the Bank of Canada may delay or even forgo rate cuts in its easing cycle.”

The offshore dollar-yuan (CNH) rate edged up 0.0028 (0.039%) to 7.1247.

Oil Markets

On the New York Mercantile Exchange, December West Texas Intermediate (WTI) crude rose $0.32 (0.54%) to $59.75 per barrel, its first gain since the 3rd. WTI was volatile, rising to near $60.50 before falling back to the $59.30 range, but rebounded late in the session.

Earlier, the Federal Aviation Administration (FAA) ordered a 10% phased reduction in flights at 40 major airports through the 14th due to a shortage of air traffic controllers caused by the shutdown. Phil Flynn, senior analyst at Price Futures Group, noted, “A halt in flight operations would significantly reduce diesel demand.”

Weaker U.S. consumer sentiment, at its lowest in 3.5 years, also weighed on oil prices. The University of Michigan’s preliminary consumer sentiment index for November was 50.3, down 3.3 points from the previous month and the lowest since June 2020.

jwchoi@yna.co.kr

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Note: U.S. bond market prices are based on 15:00 local time and may differ from closing prices. Final closing prices for U.S. Treasuries are available in the '[U.S. Treasury Yield Electronic Closing Prices]' article released at 07:30.