On the same day that Treasury Secretary Mnuchin announced he had spoken to the six CEOs of America’s leading banks, we forecasted that announcements just as those could have a counterproductive effect (see our related coverage) and only a few hours later the Dow closed down 653 points in the worst day of Christmas Eve trading in history.
The two top Democrats, Ms Nancy Pelosi and Mr Chuck Schumer decided therefore to release a joint statement blaming US President Trump for the current state of the economy. Their statement read: "It's Christmas Eve and President Trump is plunging the country into chaos."
Related coverage: Mnuchin Contacts Bank CEOs Over Market Turmoil
"The stock market is tanking and the president is waging a personal war on the Federal Reserve after he just fired the Secretary of Defense."
"Instead of bringing certainty into people’s lives, he's continuing the Trump Shutdown just to please right-wing radio and TV hosts," they claimed.
"Different people from the same White House are saying different things about what the president would accept or not accept to end his Trump Shutdown, making it impossible to know where they stand at any given moment. The president wanted the shutdown, but he seems not to know how to get himself out of it."
Related coverage: Democrat Schumer Says Wall “Trump's Bone To The Hard Right”
Since midnight Friday, both Republicans and Democrats are blaming each other for the budgetary stalemate leading to a partial closure or so-called ‘shutdown’ of government services.
The problem can be reduced to one sticking point: the financing of the planned border wall with Mexico, an election promise made by President Donald Trump during his 2016 election campaign. The Democrats refuse to sign off for a $5 billion financing package for such a wall.
Why are financial markets worried?
Stock markets are not focused on what is happening today, but are looking into the future of 2019.
Knowing that the euphoria businesses experienced right after the Trump election is gone and that the current growth is largely due to a tax reduction of no less than $1,500 billion from the beginning of this year which allowed companies to increase their profitability and consumers to spend more, they are worried about what’s coming after that, especially because of rising interest rates rise.
Political risks of no more free giveaways are also increasing. There is admittedly a three-month break in the trade war with China, but a solution is not in sight. Furthermore, President Trump can’t control Congress anymore ever since the November interim elections.
Treasury Secretary Steven Mnuchin tried desperately to talk up markets, releasing a statement yesterday that he had spoken to the CEOs of the six largest banks. He tried to stave off a 20% drop for the year, which would mean 2018 would officially be considered a bear market. However, his statement indeed worked counterproductive and US markets dropped down ever further.
Over in Asia, the financial markets followed the US to lower regions. The Tokyo stock market carried over the drop and closed down 5% today, meaning the Nikkei index is at its lowest point in 20 months.
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