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A looming US government shutdown starting as soon as tonight is capturing market and media attention. Policymakers had agreed on a bipartisan deal to fund spending through March 24. Enter Trump and Musk. Both urged Republicans to kill the deal, a.o. because it didn’t raise the debt ceiling. Trump otherwise has to address the issue during his own tenure. A bill that did contain such a provision was also shot down a bit later by the Republican-led House as Democrats were opposed and 38 Republicans defected. While we think the economic impact of a government shutdown is contained, it’s an unwelcome layer of uncertainty for the likes of stock markets at the eve of holiday-thinned end-of-year trading. WS already lost up to 3.5% post-Fed and opened another 1% (Nasdaq) lower today. Core bonds gained with UST’s outperforming Bunds. US yields ease between 1.8 and 6.7 bps with the move lower compounded by a slight miss in the November PCE deflators. The headline index picked up by 0.1% m/m to 2.4% from 2.3% vs 2.5% expected. The core gauge missed the bar by a similar margin, adding 0.1% m/m to 2.8%. Adding to the momentum, personal income and spending also printed a sub-consensus 0.3% and 0.4% m/m. Some Fed members came to the fore in the wake of Wednesday’s policy meeting. SF’s Daly said the economy is in a good place and is very comfortable with the projection of two rate cuts next year. She added that the rate decision two days ago was a close call. Vice chair Williams welcomed the “sizeable movement down in inflation over the past two years” but stressed the ongoing need to be data dependent in adjusting policy. He revealed himself as being one of the group that took into account some of Trump’s expected policies on trade and immigration. Cleveland’s Hammack dissented on Wednesday, calling for a status quo. She explained today she preferred to see more progress on prices before cutting again. Rates should stay high enough to modestly restrict activity “for some time”. JPY and CHF outperform against the backdrop of risk aversion. That said, the euro does gain against USD. EUR/USD rises towards 1.04. Sterling erased earlier losses following disappointing retail sales to trade unchanged at 0.828.

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The Czech National Bank kept its policy rate unchanged at 4% yesterday in a 5-2 vote, pausing the rate cut cycle which started in December of last year. The dovish wing of the board perceives stronger anti-inflationary risks associated with the weaker performance of the global and German economies. The hawkish wing referred to increased inflation momentum in services and faster wage growth. Governor Michl said that rates still remain at restrictive levels and that the board will decide at its next meetings whether to cut them or leave them unchanged. We err on the side of two more 25 bps moves in February and March. Meeting minutes, new inflation numbers (Jan 13), the preliminary Q4 GDP estimate (Jan 31) and CNB communication should provide more clarity from the beginning of next year. EUR/CZK holds withing the trading place between roughly 25 and 25.50 in place since the start of July.

The EC and Switzerland confirmed the completion of negotiations of a broad package of agreements that aim to deepen and expand the EU-Switzerland relationship. It includes an update of five agreements which already give Switzerland access to the EU internal market – air transport, land transport, the free movement of persons, conformity assessment and trade in agricultural products. Each agreement will reflect the evolution of EU legislation in the area concerned and will ensure it is updated dynamically. The agreements will include dispute resolution provisions and State aid disciplines will apply where relevant.