Traders Unperturbed by US Government Shutdown…For Now

Investors seem rather unperturbed by the US government shutdown, probably because we have seen this type of episode play out before. Which usually goes something like this – Congress cannot agree on a spending bill, the threat of a government shutdown looms, then at the last minute, a deal is reached, and the crisis is averted.

On this occasion, we actually have moved into official government shutdown territory (rather than a last-minute deal arriving) but traders are banking on history repeating - that one side will blink in the game of political brinksmanship, and that any shutdown will be short-lived and will not have lasting consequences. Stocks and bond markets are trading in reserved fashion on anticipation that either Democrats or Republicans will cave on their respective demands and that the whole shutdown thing will soon blow over. History tells us that this is probably what will happen. But if a government shutdown drags on, anxiety levels in the market will likely ratchet up. As such, the duration of the government shutdown is the deciding factor which could shift markets from being unfazed to frazzled.

The marquee economic event this week is scheduled to be the Non-Farm Payrolls (NFP) release on Friday, but a US government shutdown could put a stop to that. We expect to see another sub-par jobs reading of around the 50k mark, which would reinforce the prevailing theme of a stuttering labour market. If we do get another batch of underwhelming or even alarming US jobs data this week it should keep the Fed on track to deliver another two rate cuts before the year is out. However, an upside beat of any significance (such as jobs growth in September moving in the direction of 100k) could scale back rate cutting expectations for the Fed.

If the government shutdown means we don’t get to see the NFP figures this week, that could leave markets ‘flying blind’ to some extent regarding the latest labour market conditions and how this might impact the next Fed meetings. Anything which economic uncertainty levels generally tends not to sit well with risk-assets. We have however been able to see private payrolls data this week with the ADP print, which looked quite dire with 32k jobs lost last month compared to expectations of a 52k gain.

Gold’s been having another record-breaking week, with government shutdown fears injecting the precious metal with additional safe haven flows. If US jobs data this week does nothing to dissuade expectations of the Fed remaining on a dovish policy path, gold could be eyeing off even loftier price levels. While momentum is still well and truly on the side of gold, any signs of a rebound in the jobs market could provide an obstacle for the precious metal from a yield perspective. Levels to watch include support at $3847, $3830, and $3790. Resistance awaits at $3891.

Oil continues to broadly operate in the $61-$66 range (for the US contract), with the sentiment regularly swaying between geopolitical risks (such as Ukrainian strikes on Russian energy infrastructure) to oversupply risks (such as Kurdistan oil re-entering the market). All eyes will be on the upcoming OPEC+ meeting this week where the cartel is expected to once again announce it is ramping up supply next month. If OPEC+ does announce production increases for November, the size of any increase (relative to expectations for a 137k bpd increase) could dictate whether oil prices move higher or lower in the aftermath. Range-trading conditions remain in place unless a break from the $61-$66 range occurs.

For the rest of the week, all eyes will be on Washington as the market tries to gauge whether the US government shutdown will last days, weeks, or longer. For context, the last partial government shutdown in 2018 lasted for 35 days, while the last full government shutdown in 2013 lasted 16 days. How long the 2025 version lasts could depend on when Republicans or Democrats start to feel the public pressure first and then come to the table for a deal.

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