The U.S. government shutdown is about to end, and Morgan Stanley has formulated a data release schedule.

The U.S. government shutdown is about to end, and Morgan Stanley has formulated a data release schedule.

As the U.S. government shutdown nears its end, market focus is shifting from the political deadlock to the release schedule of the backlog of economic data and its impact on the Fed's December rate decision.

According to news from the Chase Wind Trading Desk, Morgan Stanley, in a research report published on November 10, predicted the timetable for key data releases based on experiences from 2013. The report indicated that once the government resumes operations, the postponed economic data will start to be released gradually.

According to the projections in the report, if the government shutdown ends on November 14 (Friday):

  • September Employment Report: Expected to be released on the third working day after the end of the shutdown, around November 19. This will be the first significant data the market receives.
  • September Retail Sales and PPI: Expected to be released on the eighth working day after the end of the shutdown, around November 26.
  • Q3 GDP: Expected to be released on the fifteenth working day, that is, December 5.
  • October Employment Report: May be released on the sixteenth working day, that is, December 8 (the day before the Fed meeting).

The report emphasized that since this shutdown covers the entire month of October, the collection of October data may be even more delayed than in 2013, with the risk that release schedules will be further postponed. For example, retail sales and CPI data for October may be available only on December 18, after the Fed meeting.

“Data Puzzle” for December Rate Cut: What Can the Fed See?

For investors, the key question is how much information the Fed will have for its December 9-10 meeting.

According to Morgan Stanley's analysis, by that time the Fed will almost certainly have access to September’s data on employment, inflation (PCE), and retail sales, as well as some trade and manufacturing indicators. In addition, initial Q3 GDP and the October employment report may also be published before the meeting. The report even suggests that the November employment report may be released on time or nearly on time.

However, policymakers will face an extreme lack of Q4 data. Apart from auto sales figures, there will be almost no official statistics on Q4 personal consumption before the meeting.

Morgan Stanley Base Forecast: 25bp Rate Cut in December

Despite the data delays, Morgan Stanley maintains its core view: the Fed will cut rates by 25 basis points at its December meeting.

The report suggests that the key factor driving the Fed to continue cutting rates is weak labor demand and rising unemployment. Morgan Stanley forecasts a net increase of just 50,000 nonfarm payroll jobs in September, with the unemployment rate at 4.3%; while unemployment rates for October and November are expected to rise further to 4.5%. Signs of “moderate slack” in the labor market will be enough to support Fed action.

Asymmetric Risks for Investors: When “Good News” Becomes “Bad News”

The report points out the “asymmetric risks” currently facing the market. Fed Chair Powell made it clear at the October meeting that a December rate cut is far from a “done deal,” and the committee will rely more on the data.

This means:

  • If the data is weak: Since the market has already priced in expectations of a rate cut, weak data in line with expectations (such as slowing employment growth) will not trigger dramatic market swings unless the data signals a sharp economic downturn (such as a surge in layoffs).
  • If the data is strong: This poses the real risk. If the job market unexpectedly picks up again (for example, a strong rebound in nonfarm payrolls and a drop in unemployment), it will directly challenge the prevailing narrative of rate cuts. In this scenario, the market will be forced to reconsider the Fed’s policy rate path, which could lead to a repricing of rate futures and put pressure on risk assets.

In summary, once the data returns, market attention will be highly focused on the labor market. For investors, “good news” (economic strength) in upcoming economic data may instead become the “bad news” leading to a market correction.

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The above content is from Chase Wind Trading Desk.

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