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(Seoul=Yonhap Infomax) International Economics Department = On the 10th (Eastern Time), all three major US stock indices closed higher in the New York financial markets.
Investor sentiment was buoyed by expectations that the record-long, 41-day US federal government shutdown is nearing an end.
The market anticipates that a shutdown resolution will see federal employees return to work, revive travel activity, and boost consumer spending.
Nvidia surged 5.79%, bringing its market capitalization back near the $5 trillion mark, while Broadcom, TSMC, and ASML each gained around 3%.
All mega-cap tech firms with market values above $1 trillion also advanced.
US Treasury prices declined, led by weakness in shorter maturities, resulting in a flatter yield curve (bear flattening).
Growing optimism over a shutdown resolution fostered a risk-on environment.
With rate cut bets receding, the probability of a rate hold at next month’s FOMC, as reflected in futures markets, rose to the mid-30% range.
The US dollar strengthened for the first time in four sessions.
The greenback was supported by a weaker yen and easing economic concerns as shutdown resolution hopes mounted, though gains were modest.
The yen weakened against the dollar amid concerns over Japan’s aggressive fiscal policy stance.
New York oil prices rose for a second consecutive session.
Equity Markets
All three major US stock indices ended higher in New York trading.
Expectations that the US federal government shutdown is entering a resolution phase fueled buying interest.
The market expects that, once the shutdown ends, federal employees will return to work, travel activity will rebound, and consumer spending will recover.
On the 10th (Eastern Time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed up 381.53 points (0.81%) at 47,368.63.
The S&P 500 index jumped 103.63 points (1.54%) to 6,832.43, while the Nasdaq Composite soared 522.64 points (2.27%) to finish at 23,527.17.
Expectations for a shutdown resolution intensified after eight moderate Democratic senators shifted to support the Republican interim budget bill.
The US Senate is expected to hold a full session as early as today to finalize the interim budget. The bill must also pass the Republican-controlled House, where approval is likely. If moderate Senate Democrats back the interim budget, the shutdown will be lifted.
The agreement would reopen government operations through January and partially reverse mass layoffs of federal employees enacted under the Trump administration. It also includes future protections for federal workers.
Once the shutdown ends, federal employees will return to work, and delayed economic indicators will be released as normal. This will allow the Federal Reserve (Fed) to make its December rate decision in a more certain environment.
Shutdown resolution also raised hopes for improved consumption. The recent air travel chaos, caused by unpaid air traffic controllers calling in sick, has been a major risk ahead of the year-end holiday shopping season. However, if the shutdown ends this week, travel demand and consumption are expected to remain largely unaffected.
Tim Holland, Chief Investment Officer at Orion, said, "November has been a challenging month for risk assets. Last week's concerns were justified, but at least the government reopening worry has been resolved."
By sector, technology and communication services surged over 2%, while consumer discretionary and materials gained more than 1%.
The Philadelphia Semiconductor Index, heavily weighted toward AI and semiconductor stocks, jumped 3%.
Nvidia soared 5.79%, bringing its market cap back near $5 trillion, while Broadcom, TSMC, and ASML each rose around 3%.
All mega-cap tech firms with market values above $1 trillion advanced. Alphabet Class A shares jumped 4%, while Broadcom, Amazon, Microsoft, and Meta each gained around 2%.
Palantir, previously a major target of AI bubble concerns, rebounded 8.81%.
According to CME FedWatch Tool, the probability of a Fed rate hold in December, as priced in federal funds futures, stood at 35.9%.
The CBOE Volatility Index (VIX) fell 1.48 points (7.76%) to 17.60.
Bond Markets
US Treasury prices fell, led by relative weakness in short-term maturities, flattening the yield curve (bear flattening).
As the record-long, 41-day US federal government shutdown appeared set to end, risk appetite increased. With rate cut bets receding, the probability of a rate hold at next month’s FOMC, as reflected in futures markets, rose to the mid-30% range.
According to Yonhap Infomax’s overseas rates screen (screen no. 6532), as of 15:00 (Eastern Time) on the 10th, the 10-year Treasury yield was up 1.80bp from the previous session at 4.1110%.
The 2-year yield, sensitive to monetary policy, rose 3.40bp to 3.5910% over the same period.
The 30-year yield, the longest maturity, increased 0.20bp to 4.7020%.
The 10-year/2-year yield spread narrowed from 53.60bp to 52.00bp.
Bond yields and prices move inversely.
US Treasury yields, which had been rising amid risk-on sentiment, retreated as New York trading intensified. Large-scale buying in long-term Treasury futures weighed on the back end of the yield curve.
The global benchmark 10-year yield briefly fell to 4.0960% before rebounding. The 30-year yield dipped below 4.70% but quickly recovered.
Short-term yields initially faced downward pressure following a strong 3-year note auction in the afternoon, but later rebounded.
According to the US Treasury, the $58 billion 3-year note auction produced a yield of 3.579%, 0.3bp higher than last month’s 3.576% auction.
The bid-to-cover ratio rose to 2.85 from 2.66 previously, marking the highest since August 2023 and exceeding the six-month average of 2.59.
The auction yield was 1.0bp below the when-issued yield, indicating stronger-than-expected demand.
Late on the 9th (Sunday), the Senate passed a procedural vote on the budget bill to end the shutdown, after some moderate Democratic senators shifted to support the measure.
The Senate is expected to hold a full session as early as today to finalize the budget. If the Republican-controlled House also passes the bill, the shutdown will end.
Tom Di Galoma, Managing Director of Rates and Trading at Mischler Financial, said, "Selling emerged on expectations that things will normalize somewhat once the shutdown ends. Activity will resume and some data will start coming in, but one dealer’s report suggested October data may not be released due to the backlog, so new data may only be processed from November."
Alberto Musalem, President of the Federal Reserve Bank of St. Louis, said in an interview, "It is very important to act cautiously. I believe there is limited room for further cuts unless monetary policy becomes excessively accommodative."
He added that monetary policy is now closer to neutral than to mild tightening, and emphasized the need to "fight inflation." Musalem, known for his hawkish stance, holds a voting seat on the FOMC this year.
The New York bond market will be closed the following day for Veterans Day. The US Treasury will auction $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 15:44 (Eastern Time) in New York, the federal funds futures market priced in a 63.9% chance of a 25bp Fed rate cut in December, down from 66.9% previously.
Foreign Exchange Markets
The US dollar strengthened for the first time in four sessions.
The greenback was supported by a weaker yen and easing economic concerns as shutdown resolution hopes mounted, though gains were modest.
The yen weakened against the dollar amid concerns over Japan’s aggressive fiscal policy stance.
According to Yonhap Infomax (screen no. 6411), as of 16:00 (Eastern Time) on the 10th in New York, the dollar-yen rate stood at 154.030 yen, up 0.600 yen (0.391%) from the previous New York close of 153.430 yen.
Japanese Prime Minister Sanae Takaichi told parliament, "We will maintain sustainable public finances to secure market confidence," but added, "If investment does not increase, the economy will not grow."
This signaled a prioritization of economic stimulus over fiscal discipline.
Teppei Ino, Chief Analyst at Mitsubishi UFJ, said, "Until a specific budget size is revealed, concerns over Prime Minister Takaichi’s aggressive fiscal stance will persist, making the yen vulnerable to selling pressure."
Junya Tanase, Chief FX Strategist at JPMorgan Chase, noted, "The yen’s reaction to the Takaichi administration has been larger than initially expected."
The dollar index rose 0.018 points (0.018%) to 99.569.
The dollar remained broadly supported in New York trading as shutdown resolution hopes eased economic concerns.
The US Senate held a procedural vote the previous night on a bipartisan budget agreement, passing it 60-40.
The shutdown is likely to end later this week following a Senate vote. The House, where Republicans hold a majority, is expected to pass the bill without major issues.
Fiona Cincotta, Senior Analyst at City Index, said, "A government reopening will not only improve investor sentiment, but also allow the release of delayed indicators, providing a clearer picture of the labor market and US economic outlook."
Carl Shamota, Chief Market Strategist at Corpay, said, "Ahead of the Veterans Day holiday (bond market closure), trading volumes are thin and most participants are avoiding large directional positions amid uncertainty over US fundamentals."
The dollar index climbed as high as 99.732 during the session.
The euro-dollar rate edged down 0.00005 (0.004%) to 1.15639.
The Australian dollar rose 0.0041 (0.631%) to 0.6538 against the greenback.
Reserve Bank of Australia Deputy Governor Andrew Hauser said, "Australia’s financial conditions are now closer to neutral than to either stimulus or restraint." The market interpreted his remarks as hawkish, supporting the Australian dollar.
The offshore dollar-yuan (CNH) rate fell 0.0034 (0.048%) to 7.1213 yuan.
The pound-dollar rate rose 0.00179 (0.136%) to 1.31813.
UK Chancellor of the Exchequer Rachel Reeves again hinted at possible tax hikes, saying, "We could keep the Labour Party’s pledge not to raise taxes, but that would require a significant cut in capital spending."
Oil Markets
New York oil prices rose for a second consecutive session, as risk appetite improved across financial markets on hopes that the US federal government shutdown, now over 40 days long, will finally end.
On the 10th (Eastern Time) at the New York Mercantile Exchange, December West Texas Intermediate (WTI) crude settled up $0.38 (0.64%) at $60.13 per barrel. This is the first close above $60 since the 4th.
Late on the 9th (Sunday), the Senate passed a procedural vote on the budget bill to end the shutdown, after some moderate Democratic senators shifted to support the measure.
The Senate is expected to hold a full session as early as today to finalize the budget. If the Republican-controlled House also passes the bill, the shutdown will end.
However, amid oversupply concerns, WTI briefly reversed lower, falling nearly 0.6%, before recovering the $60 level near the close.
Independent energy analyst Tim Evans said, "The US has tightened direct sanctions on Russian oil producers Rosneft and Lukoil, but it remains unclear how effectively these measures will limit Russian oil exports."
On the day, Lukoil reportedly notified Iraq’s oil ministry that it could not continue normal operations at the West Qurna 2 oil field due to force majeure.
kphong@yna.co.kr
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Note: New York bond market prices are based on 15:00 local time and may differ from closing prices. For official New York bond closing prices, refer to the '[US Treasury Yield Electronic Closing Prices]' article released at 07:30 AM.
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