Date: December 21, 2018
U.S. Stocks Fall as Shutdown Woes Add to Fed Angst: Markets Wrap
Volatility gripped financial markets a day after the Federal Reserve sent shock waves across assets, with the rising threat of a government shutdown adding to a litany of concerns buffeting equities. The dollar sank with crude oil. The S&P 500 Index whipsawed throughout the day in heavy trading before closing at a 15-month low as investors debated whether the Fed set up the central bank for a policy error. Shares turned sharply lower after President Donald Trump hardened his demands in the showdown with Congress over funding the government. “I’ve made my position very clear — any measure that funds the government must include border security,” the president said at White House event. The Nasdaq Composite index slumped to the brink of a bear market, finishing almost 20 percent off its August record. The S&P 500 is down more than 10 percent in December, on track for its worst month of the record bull run.
U.K. Current Account Deficit Widens; Business Investment Falls
The U.K. current-account deficit stood at its highest in two years in the third quarter, raising fresh questions about its sustainability as Britain faces the prospect of a chaotic exit from the European Union in less than 100 days. The gap grew for a third straight quarter to 26.5 billion pounds ($33.6 billion), the equivalent of 4.9 percent of gross domestic product. The Office for National Statistics left its estimate of GDP growth at 0.6 percent as consumers made up for another fall in business investment and a negligible contribution from trade. Brexit has put the current account back in the spotlight, with economists questioning the willingness of foreign investors to keep financing the deficit by buying British assets after Britain leaves the EU. The gap widened from 20 billion pounds in the second quarter as the trade deficit hit a two-year high and the shortfall in investment income reached the highest since the second quarter of 2016. Sharp negative revision to trade deficit means net trade contributed just 0.1 percentage point to economic growth in the third quarter, rather than 0.8. The economy grew 1.5 percent from a year earlier. But signs are pointing to a significant economic slowdown, with the Bank of England predicting growth of around 0.2 percent this quarter. Firms cut investment by 1.1 percent (revised from 1.2 percent) between July and September amid mounting Brexit fears. Investment has fallen for three quarters in a row, the longest period since the financial crisis. The budget deficit narrowed to 7.2 billion pounds in November, below forecasts and the lowest for the month since 2004, with revenue and spending including investment both growing just under 4 percent on the year. The shortfall in the first eight months of the fiscal year was down over 29 percent versus the same period in 2017
India Stocks Slide, Joining Global Rout on Macro, Trade Concerns
Indian shares slid as concerns over trade issues and the global economy overwhelmed local benefits from a decline in oil prices and government stimulus measures. Asian stocks completed their worst week since October as renewed U.S.-China tensions and concern about a partial U.S. government shutdown added to negative narratives in the wake of the Federal Reserve proving less dovish than investors had hoped. The Indian National Congress made good on an election promise, waiving some loans owed by farmers in three states it won last week from Prime Minister Narendra Modi’s Bharatiya Janata Party. Modi has thus far held back on launching a federal program to void farm loans, but has hinted at further consumer tax cuts and has pressured the Reserve Bank of India to ease lending restrictions on state-run banks, and to transfer surplus capital to close a yawning budget gap.