A look at the day ahead in U.S. and global markets from Mike Dolan
A bizarre 24-hour period in which the world’s 12th-biggest economy briefly introduced martial law left markets pondering geopolitical risks next year while awaiting a casting vote, or at least a steer, on whether the Federal Reserve eases this month.
As the French government faces a confidence vote in parliament on Wednesday, politics of a different sort took hold in South Korea yesterday – jarring local markets and briefly nudging safety trades in U.S. Treasuries and the dollar.
President Yoon Suk Yeol said on Wednesday he would lift the martial law declaration he had imposed to universal shock hours before, backing down in a standoff with parliament, which rejected his move and then set about impeaching him.
The won bounced back from two-year lows as the decree was reversed, recovering most of Tuesday’s 2.5% plunge, but Seoul’s benchmark KOSPI ended 1.4% lower today. The country’s finance officials said all efforts to support markets would be used and currency intervention was likely used.
While Yoon backed down, his move against what he described as “anti-state forces” will unnerve those who fear a shift in geopolitical calculus more broadly as Donald Trump’s new administration takes office in January.
Although Yoon did not cite any specific threat from North Korea, instead focusing on his domestic political opponents, it was the first time martial law had been declared in South Korea since 1980.
In Europe, French Prime Minister Michel Barnier’s inability to secure a compromise on his cost-saving 2025 budget could see the first French government forced out by a no-confidence vote in more than 60 years. The debate starts about 1500 GMT (1000 ET) and is due to last about four hours.
Markets were relatively calm ahead of the vote, with the French-German government debt spread compressing to 82 basis points as nominal yields in both backed up a bit. France’s benchmark CAC40 stock index was slightly higher on the day and the euro was steady against a firm dollar.
Back stateside, the market spotlight turns to Fed Chair Jerome Powell – who’s interviewed by the New York Times later in the day.
In a big week for U.S. labor market updates, Fed policymakers speaking so far this week have been equivocal about their support for another interest rate cut on Dec. 18.
Futures have moved this week to price a more than 70% chance of a quarter-point cut this month and Powell – who will also be pondering his own role under a new Trump administration – may give a clearer picture on what the central bank sees.
