Global financial markets are facing significant anxiety early Wednesday as the U.S. government shutdown begins after U.S. policymakers' failure to pass a stopgap funding bill in the U.S. Senate. This raises concerns over the release of key economic data and the functioning of the U.S. economy, which is shutting down for the first time since 2018-19. The shutdown is expected to last up to two weeks, and while the economic impact may be minimal, it creates uncertainty, particularly for the U.S. labor market and future data releases, including the non-farm payrolls report.
The U.S. government shutdown is set to begin at midnight after a Democratic bill failed in the Senate, with Republicans voting against it. The White House has instructed federal agencies to prepare for mass layoffs, and while hopes remain for a short-term reprieve, the shutdown follows Trump's broader strategy. The U.S. labor market is already facing challenges, and the layoffs will add to economic woes. JPMorgan Chase & Co. forecasts the shutdown could last up to two weeks and warns of market disruption.
Historically, the longest shutdown during Trump’s first term lasted 35 days and impacted Gross Domestic Product (GDP) by 0.1 percentage points. The S&P 500 initially dropped 2.1%, but ultimately rallied 10.1% during the shutdown. Analysts expect a 0.1 percentage point rise in unemployment and around 40,000 new jobless claims, which would likely reverse after the shutdown ends. This is the first shutdown since 2018-19, and it has thrown U.S. data releases into uncertainty, particularly non-farm payrolls scheduled for Friday.
Meanwhile, tensions between the U.S. and Taiwan are rising over a proposal to move half of Taiwan's semiconductor production. Taiwan warns that the plan could harm its economy and strategic advantage, while the Trump administration wants to reduce reliance on Taiwan for semiconductor manufacturing. U.S. Trade Representative (USTR) Jamieson Greer stressed the importance of finding a balance in trade with China, while U.S. Secretary of Defense Pete Hegseth emphasized military readiness.
The Golden Week holidays in China will close mainland markets from October 1–8, while Hong Kong markets will shut on October 1 and October 7, potentially reducing liquidity across equities, foreign exchange, and commodities markets in the region.
On the U.S. data front, September consumer confidence came in at 94.2, below the expected 96.0, and the Chicago PMI dropped to a three-month low. The JOLTS job openings report showed 7.227 million job openings in August, slightly above expectations. Dallas Fed President Lorie Logan warned that inflation expectations can’t be taken for granted and that more labor market slack may be necessary to return inflation to 2%. Other Fed officials expressed caution about further rate cuts, but some indicated that if data support easing, cuts could follow.
In Europe, ECB President Christine Lagarde noted that inflation risks are contained. Meanwhile, in Japan, the BoJ Tankan survey showed improvement in sentiment among large manufacturers, signaling resilience against U.S. tariffs. However, the final September manufacturing PMI showed contraction at the fastest pace in six months.
Australian Dollar underperformed after reports emerged that China Mineral Resources Group (CMRG) instructed steelmakers to halt new dollar-denominated purchases from BHP, although these reports were disputed. New Zealand's building permits rose 5.8% month-on-month in August, slightly higher than July’s 5.3%.
In commodities, gold hit a new record high, continuing its five-day uptrend. Crude oil prices rebounded, ending a three-day losing streak. A private survey showed a significant crude oil inventory draw against expectations for a build. OPEC has rejected reports of a large output increase, but some sources suggest a smaller rise could be approved at their October 5 meeting. Russia has expressed unease about a larger increase due to its own production constraints.
U.S. equity markets showed tentative gains despite the looming government shutdown. The S&P 500 rose 0.4%, the Nasdaq gained 0.3%, and the DJIA was up 0.2%. For September, the S&P 500 rose 3.5%, marking its best performance since 2010, while the Nasdaq climbed 5.6%. The DJIA posted a 1.8% gain. For the quarter, the S&P 500 rose 7.8%, the Nasdaq 11.2%, and the DJIA 5.2%. The S&P 500 is now near its all-time high.
Pfizer reached a deal with the Trump administration to offer steep discounts on certain prescription drugs via the TrumpRx platform, with discounts up to 85%. In exchange, Pfizer secured a three-year exemption from pharmaceutical tariffs. Additionally, Pfizer pledged to invest $70 billion in U.S. research and development and domestic manufacturing over the next several years.
The European Central Bank (ECB), with backing from Europe’s Systemic Risk Board, is pushing to ban multi-issuance stablecoins, fearing they could destabilize the European economy in a crisis. This could affect major stablecoin issuers like Circle and Paxos and is part of broader plans for a digital euro by 2029.
The U.S. Dollar Index (DXY) dropped for the fourth consecutive day, allowing EURUSD and GBPUSD to post four-day uptrends. USDJPY fell for the fourth day in a row, while the AUDUSD stalled after three days of gains. NZDUSD edged higher, while USDCAD faded after a rebound. WTI crude oil ended its three-day losing streak, and gold continued its uptrend. Cryptocurrencies also edged higher after a brief retreat, while equities traded mixed, with the ongoing U.S. government shutdown adding to market uncertainty.
EURUSD rises for the fourth straight day, driven by a broadly weaker U.S. Dollar. The Euro gains momentum from positive German inflation data, ECB President Christine Lagarde’s cautious optimism, and expectations ahead of today’s EU inflation data.
A group of BoE officials raised concerns about market uncertainty, attempting to challenge the GBPUSD bulls, but failed. Meanwhile, Japan's Q3 Tankan survey data and broader market uncertainty pushed USD/JPY into a four-day downtrend.
AUDUSD halts its three-day winning streak after hitting a weekly high, as market caution grows amid news that could affect Australia's iron ore exports, the country's biggest revenue source.
Meanwhile, NZDUSD edges higher despite expectations of rate cuts, while USDCAD reverses the previous day's gains, weighed down by a rebound in crude oil and broader USD weakness. However, the US-Canada trade deal, Canada-China trade talks, and the Bank of Canada's dovish stance provide resistance to USDCAD's decline.
WTI crude oil rebounds from a weekly low, breaking a three-day losing streak, after a surprise draw in U.S. weekly inventories (reported by API) for the third consecutive time, alongside OPEC announcements.
Meanwhile, gold benefits from a weaker USD and its haven status, hitting another record high. However, despite reaching new all-time highs daily, the bullion appears to be losing upside momentum.
Bitcoin (BTC) and Ethereum (ETH) recover from the previous day's losses but lack strong upward momentum. Meanwhile, Asia-Pacific equities trade mixed amid broad uncertainty and the ongoing Chinese holidays.
Latest moves of key assets
With EU inflation and a slew of mid-tier data from major economies, uncertainty surrounding U.S. data releases and the functioning of the world’s largest economy will likely drive markets on Wednesday, potentially weighing on risk assets. The USD may not rebound, allowing EURUSD and USDJPY to continue their previous trends, while GBPUSD and the antipodean currencies might retreat. Crude oil could extend its corrective bounce, and gold is likely to edge higher. Cryptocurrencies may face volatility, challenging buyers, while equities might drift lower.
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