Global markets are grappling with uncertainty following the US government shutdown after a congressional impasse. The shutdown has stalled the release of key economic data, including the September jobs report. Investors are left to interpret the hiatus with limited information, recalling that markets have generally remained nonchalant during previous shutdowns. However, the lack of data amid existing domestic political flux and economic ambiguity could fuel volatility as markets rely on less reliable private sector data.
The VIX volatility gauge has risen, stock index futures have retreated from recent highs, the US dollar has weakened, and gold has rallied. Compounding this, Chinese markets are closed for the Golden Week holiday. Eurozone inflation readings for September have come in slightly higher than expected, strengthening the euro as bets rise that the European Central Bank has completed its easing cycle.
Strategists warn that the absence of timely macro data could amplify swings in rates and foreign exchange markets. With the nonfarm payrolls report likely delayed, investors will focus on private and survey-based gauges. Today’s ADP reading takes on added importance for near-term Federal Reserve expectations. The Nikkei in Japan slipped about 1% after an 11% surge last quarter, and traders are looking past the details of the stronger BOJ Tankan as the broader US policy and shutdown sets the tone.
Elsewhere, the London Metal Exchange’s zinc inventory is now so depleted that it would cover less than one day’s worth of global consumption. The length of the delay from the US shutdown will likely dictate any short-term volatility, as the long history of temporary shutdowns rarely affects longer-term economic or market trends.
