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(Seoul=Yonhap Infomax) International Economics Department = On the 12th (US Eastern Time), the three major US stock indices ended mixed in New York financial markets.
Investor sentiment toward blue-chip stocks improved as the end of the US federal government shutdown appeared imminent.
Within the tech sector, sentiment was divided between big tech and semiconductor stocks. AMD surged 9% on the back of a strong earnings outlook.
US Treasury prices rose, led by long-dated maturities, flattening the yield curve (bull flattening).
Weaker-than-expected weekly data from employment information provider ADP, reflected with a one-day lag, and a sharp drop in international oil prices lowered breakeven inflation expectations (BEI) in the bond market, pushing up Treasury prices.
Uncertainty surrounding economic indicators to be released after the government shutdown also contributed to the bond rally.
The US dollar edged higher.
The dollar, which had been climbing against the yen, returned to flat territory as falling oil prices eased inflation concerns and US Treasury yields declined.
The yen came under renewed pressure after Japanese Prime Minister Sanae Takaichi pledged to cooperate with the Bank of Japan (BOJ) to strengthen the economy.
New York oil prices plunged more than 4% after OPEC revised its outlook, projecting a slight supply surplus in the global crude market next year, exerting strong downward pressure on prices.
Equity Markets
On the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed up 326.86 points (0.68%) at 48,254.82.
The S&P 500 rose 4.31 points (0.06%) to 6,850.92, while the Nasdaq Composite fell 61.84 points (0.26%) to 23,406.46.
The US government shutdown is effectively expected to end today. The House of Representatives will vote on a temporary budget bill in the afternoon. If passed, President Donald Trump will sign it, and the federal government will resume normal operations.
Expectations that consumer spending will recover following the shutdown are supporting traditional industrial stocks. While tech stocks faced downward pressure, buying was concentrated in financials, healthcare, industrials, and consumer goods. By sector, healthcare rose 1.36% and financials gained 0.9%.
The lowest airline cancellation rate in a week ahead of the shutdown's end further boosted hopes for a consumer rebound. During the shutdown, more air traffic controllers worked without pay, leading to increased job departures.
The strength in banking stocks reflects expectations for rate cuts. With the shutdown ending and key economic indicators set to be released, the Federal Reserve's rate-cut path is expected to become clearer. Goldman Sachs rose 3%, and Morgan Stanley gained more than 2%.
Josh Chastant, public investment portfolio manager at Guidestone Funds, said, "We are currently experiencing the longest shutdown in history," adding that "more economic data releases will certainly be welcomed" given signs of labor market weakness.
Chastant noted, "The strength in major financials reflects optimism about the federal government reopening," and described the session as "a somewhat bifurcated day for the market."
Sentiment within tech stocks was mixed. Among trillion-dollar tech giants, Nvidia, Microsoft, and Broadcom were slightly higher, while Amazon and Alphabet fell more than 1%, and Tesla and Meta dropped over 2%.
Meta's market capitalization hovered precariously around $1.3 trillion as concerns over excessive capital expenditure forecasts continued to weigh on the stock.
Conversely, the Philadelphia Semiconductor Index, heavily weighted toward AI and semiconductor stocks, rebounded sharply by 1.47%. Optimism persisted after AMD issued a strong earnings outlook.
At its analyst day, AMD projected annual sales of about $34 billion this year and said it sees opportunities to drive company-wide compound annual growth rates (CAGR) above 35%. AMD shares jumped 9% on the day.
Meanwhile, the White House said it is highly likely that the October Consumer Price Index (CPI) and nonfarm payrolls report will not be released due to the shutdown.
The White House explained that the prolonged shutdown prevented the completion of some data compilation.
According to the CME FedWatch Tool, the probability of the federal funds rate remaining unchanged in December, as priced in the fed funds futures market, was 34.6%, up from 33.1% at the previous close.
The CBOE Volatility Index (VIX) rose 0.23 points (1.33%) to 17.51.
Bond Markets
According to Yonhap Infomax's overseas rates intraday screen (screen number 6532), as of 15:00 on the 12th (US Eastern Time), the 10-year US Treasury yield was 4.0660%, down 4.50 basis points from the previous session at 15:00 on the 10th. The New York bond market was closed the previous day for Veterans Day.
The 2-year yield, sensitive to monetary policy, fell 2.50 basis points to 3.5660% over the same period.
The 30-year yield, the longest maturity, dropped 4.10 basis points to 4.6610%.
The spread between 10-year and 2-year yields narrowed from 52.00 basis points to 50.00 basis points.
Bond yields and prices move inversely.
US Treasury yields, which had been declining during European trading, extended losses after the New York session opened. The global benchmark 10-year yield briefly fell to 4.0550%, its lowest intraday level since October 29.
ADP reported during the previous day's market holiday that US private employment fell by an average of 11,250 per week in the four weeks ending October 25. This contrasts with the monthly data released last week, which showed ADP's October private payrolls rising by 42,000, the first increase since July.
Stan Shipley, bond strategist at Evercore ISI, said, "The market is focused on the ADP figures released yesterday, and there is an expectation that job growth will be particularly weak in both October and November." He added, "When the official data is released, October could show a decline of about 30,000, and November could also post a negative figure, which would be a very different dynamic from what the market had expected."
West Texas Intermediate (WTI) crude plunged more than 4% on the day, breaking below $60 per barrel. The drop followed OPEC's revised forecast for a slight supply surplus in the global oil market next year.
The 10-year BEI reflected in the bond market fell to the mid-2.28% range during the session, slipping after rebounding to around 2.30% earlier in the week.
The 10-year Treasury auction held in the afternoon saw weak demand, with long-dated yields paring some declines after the results.
According to the US Treasury, the yield on the new $42 billion 10-year note was set at 4.074%, 4.3 basis points lower than the 4.117% at last month's auction.
The bid-to-cover ratio was 2.43, down from 2.48 previously and the lowest since August, also below the six-auction average of 2.47.
The auction yield was 0.6 basis points above the when-issued yield, indicating a higher-than-expected result.
The following day, $25 billion in 30-year bonds will be auctioned.
White House spokesperson Caroline Levitt said in an afternoon briefing that it is highly likely the October CPI and monthly jobs report will not be released due to the shutdown. She added, "With the possibility that the October CPI and jobs report may never be published, Democrats may have caused permanent damage to the federal statistical system."
Oscar Munoz, macro strategist at TD Securities, noted, "Before the December FOMC, we are likely to have a relatively complete picture for September data, but it will be more difficult to assess the crucial October and November data."
According to CME FedWatch, as of 15:49 in New York, the fed funds futures market priced in a 65.4% chance that the Federal Reserve will cut rates by 25 basis points in December.
Foreign Exchange Markets
According to Yonhap Infomax (screen number 6411), as of 16:00 on the 12th (US Eastern Time), the dollar-yen exchange rate stood at 154.748 yen, up 0.622 yen (0.404%) from the previous New York close of 154.126 yen.
Earlier, Japanese Prime Minister Takaichi emphasized at the Council on Economic and Fiscal Policy, "Appropriate monetary policy management is extremely important to achieve both a strong economy and stable inflation," adding, "We will continue to cooperate for economic development."
BOJ Governor Kazuo Ueda also attended the meeting, with the prime minister calling for cooperation in front of the BOJ chief.
The dollar-yen rate rose as high as 155.044 yen during the New York morning session following Takaichi's remarks, breaking above the 155-yen level for the first time in nine months since February.
Eric Theoret, FX strategist at Scotiabank, said, "We expect a rate hike at the December BOJ meeting, but there are growing concerns that the decision could be delayed to January next year."
The dollar index (DXY), which measures the greenback against six major currencies, rose 0.034 points (0.034%) to 99.487 from the previous session.
The dollar climbed as high as 99.709 during the session, supported by yen and pound weakness.
The direction of the dollar shifted after OPEC's monthly report.
OPEC estimated a daily supply surplus of 20,000 barrels next year, a reversal from last month's forecast of a 50,000-barrel daily shortfall.
On supply surplus concerns, December WTI crude on the New York Mercantile Exchange closed down 4.2%.
The dollar index fell as low as 99.418 during the session, tracking the decline in US Treasury yields.
The US House of Representatives will vote on the Republican temporary budget bill passed by the Senate at 19:00 (09:00 KST). Once approved and signed by President Donald Trump, the federal government shutdown will end.
Bart Melek, head of commodity strategy at TD Securities, said, "The US government is reopening, and the market expects economic data releases," adding, "These indicators are likely to show that the US economy is weakening."
The pound-dollar exchange rate fell 0.00311 dollars (0.236%) to 1.31303 dollars from the previous session.
Calls for the resignation of UK Prime Minister Keir Starmer are mounting.
There are moves within the ruling Labour Party to replace the party leader after the budget announcement on the 26th. In the UK's parliamentary system, this effectively means a change of prime minister.
Political instability pushed the pound-dollar rate as low as 1.30830 during the session, before recovering in the afternoon as the dollar weakened.
Kathleen Brooks, director at XTB Research, said, "UK bond yields rose slightly against the backdrop of political turmoil," diagnosing that "political instability is once again threatening the UK."
The offshore dollar-yuan (CNH) rate fell 0.0098 yuan (0.138%) to 7.1122 yuan from the previous session.
Oil Markets
New York oil prices plunged more than 4% after OPEC revised its outlook, projecting a slight supply surplus in the global crude market next year.
On the 12th (US Eastern Time), December WTI crude on the New York Mercantile Exchange settled at $58.49 per barrel, down $2.55 (4.18%) from the previous session. The price broke below the $60 mark, reversing after four sessions.
The day's decline was the steepest since October 10 (-4.24%), with the closing price the lowest since October 21 ($57.82).
In its monthly report, OPEC projected a daily supply surplus of 20,000 barrels in the global oil market next year, due to increased output from OPEC+ and other non-member producers. This is a reversal from last month's forecast of a 50,000-barrel daily shortfall.
OPEC also lowered its 2025 demand forecast for OPEC+ crude by 100,000 barrels per day, reflecting higher output projections for non-OPEC+ producers this year.
John Kilduff, partner at Again Capital, noted that OPEC's outlook came as some sellers struggled to find buyers, saying, "There are unsold (oil) cargoes." He added, "A new price curve is forming at the front end of the market. There is a general sense that the US economy is weak."
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kphong@yna.co.kr
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