US stock futures pare losses after inflation data

US stock index futures pared some declines on Friday after data showed inflation in the world’s largest economy cooled slightly last month, while European shares came under fire after Donald Trump’s latest threat to impose tariffs.

The data showed that US monthly inflation slowed in November after showing little improvement in recent months. The personal consumption expenditures (PCE) price index rose 0.1% last month after an unrevised 0.2% gain in October.

US Treasury yields also fell, with the benchmark 10-year yield sliding 6.6 basis points (bps) to 4.504%. On Thursday, it had hit a 6-1/2 month high of 4.594%.

US stock futures were down 0.6-0.8%, indicating Wall Street was set to open lower, but that compared to declines of 0.8-1.3% earlier in the day.

“All the macro data this morning was cooler than expected. This is good news for markets, but it doesn’t change the path for the Fed,” said Peter Cardillo, chief market economist at Spartan Capital Securities.

Global stocks more broadly came under pressure on Friday, as investors fretted about a potential US government shutdown, while President-elect Trump said he would impose tariffs on Europe if consumers in the region did not increase purchases of US oil and gas.

A spending bill backed by Trump failed in the US House of Representatives on Thursday as dozens of Republicans defied him, which investors said highlighted the increased potential for political volatility.

Trump, who assumes the US presidency in January, has issued stark warnings to his country’s major trading partners to address their trade surpluses with the United States or be subject to hefty duties on their imports.

“I told the European Union that they must make up their tremendous deficit with the United States by the large scale purchase of our oil and gas,” Trump said in a post on Truth Social on Friday.

“Otherwise, it is TARIFFS all the way!!!,” he added.

Europe’s main share index was down 1.8%, set for around a 3.5% drop this week. Adding to the gloom was Danish drugs giant Novo Nordisk, which said its experimental next-generation obesity drug was less effective than it had expected, wiping as much as $125 billion off its market value.

“With Trump back in the mix there’s every chance we see that (political impasse) extend past the weekend, and possibly even a shutdown, so that will dominate the focus,” Eren Osman, managing director of wealth management at Arbuthnot Latham, said.

“I wouldn’t be going on holiday leaving any big open bets on right now - there’s definitely a propensity for some pretty wild swings in markets.”

The cost of buying insurance against a potential US sovereign default rose on Friday, reflecting investor concern about the possibility of a government shutdown this weekend.

Credit default swaps (CDS), a derivative that ensures bondholders are paid if an issuer defaults, on six-month US bills rose to a four-week high of 11 basis points on Friday, from 10 bps at Thursday’s close, according to data from S&P Global Market Intelligence.

Trump’s proposed policies of tariffs, tax cuts and big spending are part of the reason the Fed has turned cautious about policy easing next year. Markets now see fewer than two rate cuts next year.

Wrapping an eventful year of rate decisions, central banks in Britain, Japan, Norway and Australia held firm, and Switzerland and Canada made cuts of 50 basis points at their last meetings of the year. Sweden’s Riksbank reduced its policy rate by 25 bps, as did the European Central Bank last week.

The dollar came off the boil on the day, down 0.4% at 107.97, but remained close to a two-year peak of 108.43. The euro gained 0.4% to $1.04075.

The dollar slipped 0.6% versus the yen to 156.48. The yen had dived 1.7% overnight as Bank of Japan held rates steady and Governor Kazuo Ueda struck a dovish tone by saying it would take some time to assess the wage outlook and the impact of Trump’s policies.

Data on Friday showed Japan’s core inflation accelerated in November, but swaps continued to lean towards a pause from the BOJ in January, which is 56% priced in.

Oil prices fell on Friday, with US West Texas Intermediate down 0.7% to 68.92. Gold gained 0.6% on the day to $2,609 per ounce.

Agencies