US stocks extend losses as downside risks compound

All of the Dow’s 30 components finished lower paced by a 5.9 per cent drop in Nike, a 4.2 per cent slide in Microsoft and a 4.1 per cent slide in Johnson & Johnson. Goldman Sachs slid 2.3 per cent, JPMorgan lost 2.2 per cent.

The yield on the US 10-year Treasury note slid 5 basis points to 2.74 per cent; the yield has now retreated 29 basis points in the last month.

Shortly before 11am local time President Donald Trump tweeted anew his disappointment with the central bank, the catalyst for a wave of selling on a traditionally quiet trading day. Trading was 41 per cent above the 30-day average, Bloomberg reported.

“The only problem our economy has is the Fed. They don’t have a feel for the Market, they don’t understand necessary Trade Wars or Strong Dollars or even Democrat Shutdowns over Borders. The Fed is like a powerful golfer who can’t score because he has no touch – he can’t putt!”

The one bright spot, perhaps, is that trading will be closed tomorrow for Christmas Day in the US.

“Financial markets are ending 2018 in a deepening funk regarding the prospects from the global and US economies in 2019, concerns compounded by an intensified sense of White House chaos and instability,” NAB head of FX strategy Ray Attrill said in a note yesterday.

Mr Mnuchin’s tweet that he called the chief executives of the major US banks and they assured him that “they have ample liquidity” for lending to consumers and businesses and for maintaining market operations clearly missed the mark; the strength of US banks had not previously been in question.

Separately Mr Munchin tweeted that while President Trump “totally” disagrees with Fed policy, the president said he didn’t believe he had the right to fire Mr Powell, who he earlier appointed as chairman of the Fed. Mr Trump has been hammering away at both the Fed and Mr Powell in particular in recent months, intensifying the spotlight on whether the US central bank has made or is heading towards a policy mistake as well as whether the bank can maintain its independence.

“We should take seriously the possibility that we’re looking at an economic team as clueless as their boss – and that they’ll respond to real problems by firing off off-point tweets from various golf courses,” Nobel prize economist Paul Krugman wrote in a tweet. Mr Krugman, who writes for The New York Times, has been a consistent critic of the Trump administration.

Also denting overall sentiment was the partial US federal government shutdown, triggered over the weekend when Congress rejected Mr Trump’s demand for a short-term funding bill to include $US5 billion for helping to cover the cost of building a wall along the US-Mexico border as he promised during his presidential campaign. The immediate impact is seen as limited.

And there was Mr Trump’s decision to move forward by two months the end of James Mattis’ term as defence secretary to January 1, after the release of a withering resignation letter. Mr Mattis quit in the wake of Mr Trump’s unexpected decision last week to pull all US troops out of Syria and reportedly halve the US troop presence in Afghanistan.

Mr Trump’s chief of staff John Kelly also will leave shortly after what has been a reportedly increasing number of clashes with Mr Trump.

Volatility spikes Bloomberg

“From a geopolitical standpoint, the risk now is that the US might become more vulnerable at the same time as its forces are withdrawing from hostile theatres of war, as key members of the administration coming from the military have left,” wrote Brunello Rosa, at Rosa & Roubini Associates.

“As we warned in our review of the US mid-term election results, Trump’s loss of the House of Representatives would have meant a re-focusing of his attention on foreign policy, considering the limited ability the executive branch has to dictate the agenda on domestic and economic issues independent of Congress, as proven by the government shutdown (which we also thought would become likely after the Democratic victory in the House).

“From a financial market perspective, as we have observed in Turkey, India, and Argentina, when the independence of a central bank comes under attack (a fortiori if we talk about the most influential central bank in the world, the US Federal Reserve), serious market volatility tends to ensue,” Mr Rosa said.

“Hopefully Trump will refrain from continuing to put pressure on the Fed and its chairman, otherwise 2019 could get off to a very troublesome start.”

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