Wall St at records as Paris simmers, yuan at 2024 low

A look at the day ahead in U.S. and global markets

By Mike Dolan, Editor-At-Large, Financial Industry and Financial Markets

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Wall Street stocks are grinding out new records as U.S. growth continues to outperform, interest rate cut optimism has been rekindled at the margins and investors raise eyebrows at overseas turbulence in French politics and Chinese trade.

U.S. equity indexes seem to be basking in a post-election, year-end glow that's seen volatility gauges subside to their lowest levels since July - with the VIX 'fear index' now some six points below its historical averages.

Although U.S. manufacturing remains in the doldrums, the latest survey from ISM showed the contraction moderating, in marked contrast to equivalent European surveys released earlier.

As the factory gloom lifts, overall growth estimates are back on the rise, with the Atlanta Federal Reserve's 'GDPNow' model putting the annualised expansion in the current quarter at almost 3.2% - faster than the 2.8% recorded for the third quarter.  

French member of parliament Marine Le Pen, president of the French far-right National Rally (RN) party parliamentary group, talks to journalists during a debate on the 2025 Social Security Financing bill in Paris, France, Dec. 2, 2024. REUTERS/Sarah Meyssonnier

Even though Treasury yields perked up a bit on Tuesday, long-dated borrowing costs have plunged by more than 25 basis points over the past fortnight, perhaps in part as a backwash from rising overseas growth worries due to fears of a looming global trade war.

Through the noise, Fed comments overnight seemed to encourage hopes for another rate cut this month, nudging futures pricing up to show almost a 75% chance of another move.

"As of today, I am leaning toward continuing the work we have started in returning monetary policy to a more neutral setting," Fed Governor Christopher Waller said. "Cutting again will only mean that we aren't pressing on the brake pedal quite as hard."

Fed Chair Jerome Powell is set to add his voice to the debate with public remarks in New York on Wednesday, just as the week's big labor market updates stream in, starting with today's October job openings report.

But market attention in Europe was squarely on France, as it looks likely the standing government could fall this week as it faces a 'no-confidence' vote as soon as Wednesday due to an ongoing parliamentary impasse over the annual budget.

French government bonds are underperforming, with the 10-year yield spread over German equivalents on Monday touching the widest since the height of the euro crisis 12 years ago.

But while the debt is underperforming surging German bunds and other euro peers, French government borrowing rates have actually been tumbling nonetheless - with 10-year nominal yields down almost 25bps over the past month and off almost half a percentage from mid-year peaks.

That defuses the sense of crisis on the financial side at least, even if wider spreads are irksome to the relative funding costs of French banks.

French stocks and the euro caught a break on Tuesday, both bouncing back a touch, and the French/German debt spread compressed a bit too.