U.S. government shutdown impacts markets, gold surpasses $3,900 to hit new record high, U.S. stock futures and Japanese stocks fall

U.S. government shutdown impacts markets, gold surpasses $3,900 to hit new record high, U.S. stock futures and Japanese stocks fall

At 12 noon, the U.S. government will shut down again for the first time since 2019, and global financial markets are facing new uncertainties.

During the Asian trading session, S&P 500 index futures and Nasdaq index futures both fell by about 0.5%.

Safe-haven sentiment pushed COMEX gold above $3,900/oz, hitting a new record high. Spot gold rose 0.2% to $3,865/oz, once again approaching Tuesday's all-time high of $3,871.45.

The latest development is that after the deadline of midnight (23:59) Eastern Time on Tuesday, the government will officially shut down. As Congress failed to pass a temporary funding bill, U.S. federal government agencies have begun implementing an "orderly shutdown."

One of the most immediate impacts of this government shutdown is the postponement of key data releases such as the non-farm payroll report originally scheduled for Friday, depriving investors and policymakers of a key indicator to assess the health of the economy. As a result, the market's probability expectation for a Fed rate cut in October has climbed from 90% a day earlier to 96%.

Divergence in Asian Market Performance

News of the U.S. government shutdown triggered a chain reaction in Asian markets, with risk aversion sentiment clearly rising. After strong gains in the previous quarter, Japan’s Nikkei 225 index fell 1% today, and the TOPIX dropped 1.69%. Australia's S&P/ASX 200 index edged down 0.4%.

However, Asian market performance was not uniformly negative. South Korea’s Kospi index rose 0.7%, extending its 11.5% gain in the previous quarter. Data shows that South Korea's export value in September grew at the fastest pace in 14 months, providing market support.

It is worth noting that China's A-shares and Hong Kong markets are closed for the National Day/Mid-Autumn Festival holidays.

Against the backdrop of rising uncertainty, asset performance has been mixed. In addition to the strength in gold prices, the U.S. dollar index stabilized at 97.84 after three consecutive days of declines. The U.S. dollar rose 0.1% against the Japanese yen to 148.1, with the market reacting blandly to a Bank of Japan survey showing corporate inflation expectations above the 2% target.

The U.S. Treasury market remained stable during the Asian trading session. The benchmark 10-year U.S. Treasury yield was unchanged at 4.150%.

In commodities, oil prices stabilized after two straight days of declines. Investors are weighing plans by OPEC+ to possibly increase production next month and prospects of a drop in U.S. crude inventories.

Data Vacuum and Fed Outlook

The “data vacuum” caused by the U.S. government shutdown is forcing the market to reassess the Fed’s policy outlook. With the absence of the non-farm payroll report, investors may focus more on the upcoming ADP National Employment Report, which is expected to show a moderate increase of 50,000 jobs in the private sector.

Kyle Rodda, senior analyst at Capital.com, noted that government shutdowns usually have limited market impact. For example, during the shutdown that lasted more than a month in 2018-2019, Wall Street stocks even rose. But he added that the current market faces two issues: first, the delay in release of key employment data, and second, "President Trump has threatened to permanently fire workers, which could turn the shutdown into a minor shock to the labor market."

This uncertainty has significantly raised the market’s expectation for Fed rate cuts. Futures market quotes show that in addition to October’s rate cut probability rising to 96%, the likelihood of another cut in December has reached about 74%.

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