The U.S. government shutdown due to funding cuts since early Wednesday (October 1) has closed most operations, casting a new sense of uncertainty over global markets. Driven by risk aversion, gold surged to $3,875 per ounce, marking a historic high for the third consecutive trading day.
As a result of the government shutdown, Wall Street futures dipped with S&P 500 futures and Nasdaq futures both falling approximately 0.5%. In the foreign exchange market, the U.S. dollar index fell for the fourth consecutive day, dropping 0.2% to 97.62.
The U.S. Treasury market remained stable during Asian trading hours. The 10-year U.S. Treasury yield held steady at 4.1522%, but had previously risen by 1 basis point the night before.
The primary impact of the government shutdown is the delayed release of economic data. With no clear resolution to the funding impasse, government agencies have warned that the highly anticipated September non-farm payroll report will be temporarily halted. Meanwhile, about 750,000 federal employees will be forced to take unpaid leave, costing approximately $400 million per day.
The lack of data may make it more difficult for the market to assess the U.S. economic situation, potentially increasing expectations of a rate cut. Futures market data shows that the possibility of a rate cut by the Fed in October has risen from 90% the previous day to 96%.
Investors will now focus on the ADP National Employment Report, often referred to as the “mini non-farm report,” which will be released on Wednesday. Projections indicate that the private sector is expected to add 50,000 job opportunities.
Anthony Saglimbene, Chief Market Strategist at Ameriprise, noted in a report that if the shutdown continues, the accuracy of the inflation data for September, to be released in mid-October, may also be affected.
He said, “If the U.S. Bureau of Labor Statistics is unable to operate at full capacity for an extended period, it could affect data collection for other reports and subsequently impact data quality.”
Kyle Rodda, Senior Analyst at Capital.com, also mentioned, “Typically, government shutdowns have little impact on the market. In fact, during the over one-month shutdown from 2018 to 2019, Wall Street actually rose.”
However, Rodda also warned that another issue the market needs to watch is President Trump’s suggestion that the government may use this opportunity to dismiss some federal employees, potentially turning this shutdown into a minor labor market shock.
While the market is concerned about delayed U.S. data, Asian and European markets have mostly shown subdued performance.
On Wednesday, the Nikkei index fell by 0.85% to close at 44,550.85 points. However, the Japanese stock market had surged by 11% in the previous quarter.
A survey by the Bank of Japan showed that confidence among large Japanese manufacturers improved for the second consecutive quarter, increasing the likelihood of a rate hike this month.
South Korea benefited from its fastest export growth in 14 months in September, with the KOSPI index rising by 0.91% to close at 3,455.83 points, continuing the 11.5% increase from the previous quarter.
The Taiwan Weighted Index increased by 0.63% to close at 25,982.91 points. Taiwan’s Chief Trade Negotiator, Ching Li-chun, stated on Wednesday that the Taiwanese negotiation team had never made a promise to split chip manufacturing “fifty-fifty” and denied discussing it during the U.S. visit, nor agreeing to such conditions.
Hong Kong and Shanghai markets were closed for the Chinese holiday.
The pan-European STOXX 600 index remained near flat.
The highlight in European markets was healthcare stocks, surging 2.7%. This was fueled by two industry positive news: Pfizer announcing an agreement with Trump to lower prescription drug prices and Novartis receiving FDA approval for an oral skin disease treatment drug.
On individual indices, the German DAX index fell by 0.5%, while the UK’s FTSE 100 index rose by 0.2% and hit a historic high.