Wall Street futures retreated and gold surged to all-time highs on Wednesday as much of the US government entered a shutdown, threatening to disrupt the release of essential economic data and clouding the outlook for interest rates.
Both S&P 500 and Nasdaq futures declined 0.5%, reacting to the uncertainty, while European futures remained broadly unchanged. Gold rallied for a third consecutive session, climbing to a record $3,875 an ounce.
Agencies warned that the government shutdown would postpone Friday’s highly anticipated non-farm payrolls report and furlough 750,000 federal workers at an estimated daily economic cost of $400 million. With no clear solution emerging from Congress or the White House, investors may put increased weight on alternative indicators, such as the ADP National Employment Report, which is expected to show a modest 50,000-job increase in the private sector.
The shutdown is typically immaterial for markets. In fact, Wall Street rose during the lengthy 2018-2019 closure, noted Kyle Rodda, senior analyst at Capital.com. However, Rodda highlighted two critical risks this time: Delays in key economic data, and the risk of a mini-labour market shock if President Trump follows through on threats of permanent layoffs.
Market-based odds of an October Federal Reserve rate cut increased to 96%, up from 90% the previous day, with a 74% probability of another move in December. Anthony Saglimbene, chief market strategist at Ameriprise, said in a note that an extended shutdown could also affect the release and quality of September inflation reports. If the Bureau of Labor Statistics is hampered for long, data collection across reports might suffer.
In Asia, Japan’s Nikkei fell 1% after a robust 11% rally in the previous quarter. South Korean equities rose 0.8%, building on a strong quarter, buoyed by the fastest export growth in 14 months. Taiwan’s market climbed 1%, after its lead trade negotiator rejected a U.S. proposal requiring half the island’s semiconductor production to relocate to America. Chinese and Hong Kong markets were closed for holidays.
Overnight, Wall Street finished the third quarter on a positive note, with key data showing only a marginal rise in U.S. job openings for August, slower hiring, and a steeper-than-expected decline in consumer confidence.
The dollar index registered its fourth straight daily decline, dropping 0.2% to 97.62. Meanwhile, the greenback retreated 0.3% to 147.53 yen after a Bank of Japan survey indicated rising confidence among major Japanese manufacturers for the second consecutive quarter, raising the likelihood of an interest rate hike as early as this month.
In the bond market, US 10-year Treasury yields were steady at 4.1522% in Asian trading. Oil prices inched higher, with U.S. crude up 0.4% at $62.64 a barrel and Brent also rising 0.4% to $66.32, as investors weighed OPEC+’s potential output hike against concerns about U.S. inventory levels.
