- Stocks were sold off in Asia this morning and Europe also fell. US futures fell marginally before the bell after yesterday’s 0.28% decline in the S&P 500. Analysts pointed to a US government shutdown, with no solution in sight. Some no longer expect two additional interest rate cuts from the Fed this year.
It’s not chaos, but it’s not good: Yesterday’s S&P 500 lost 0.28%, and this morning futures are flat — suggesting traders aren’t eager to bid up the market. Meanwhile, markets have lost steam across Asia. China’s CSI 300 index closed nearly 2% lower after the government there announced strict new controls on the export of rare earth materials. The controls would hamper the American technology companies that rely on it to manufacture semiconductor chips and the Chinese companies that supply them.
The Nikkei 225 fell after the Japanese government lost a coalition partner.
In Europe, the Stoxx 600 index and the British FTSE 100 index fell slightly in early trading.
The backdrop is a negative turn on Wall Street. It now appears that the government shutdown will be long, not short. Polymarket odds show that more than 90% of traders are betting on October 15 or later for the lockout to end.
“The mood music has not been helped by the government shutdown, now in its 10th day. The fear is that the longer it continues, the worse the economic impact will become, as increasing numbers of workers miss out on paychecks from here,” Jim Reid and the team at Deutsche Bank he said in a note this morning.
The shutdown will slightly increase unemployment, according to Pantheon Macroeconomics: “The September payrolls report will likely be released about three business days after the shutdown ends. October payrolls will not be affected by the shutdown, but the unemployment rate will be raised by 0.2 percentage points,” Samuel Tombs and Oliver Allen said in a note to clients.
This negativity is compounded by the release of minutes from the US Federal Reserve’s interest rate-setting Federal Open Market Committee, which show that Fed members may not be as keen to deliver two more rate cuts this year as Wall Street had assumed. (Stock traders love interest rate cuts because cheap money generally inflates stock prices.)
“The FOMC should be cautious about adjusting policy so we can collect more data (…) and better assess the balance of risks,” Fed member Barr said, suggesting the FOMC should be skeptical about calls to look at tariff-induced inflation. Meanwhile, the Fed’s Daley struck a different tone, saying the labor market was “concerning.” It calls for ‘risk management’ amid ‘modestly restrictive’ monetary policy,” RBC’s Peter Shavrik noted this morning.
Macquarie agreed, saying: “Based on FOMC minutes, Fed officials were not so dovish in mid-September. Since then, unofficial inflation indicators have been pointing not to less inflation, but to more inflation. With stocks rising, gold prices rising, and corporate credit spreads remaining tight, the implied possibility of a Fed cut seems likely The Fed on October 29 – now at 96% – is too high. The correct pitch should be “50-75% probability,” Thierry Wiesmann and Gareth Perry told the agents.
Looking ahead, Pantheon noted that when the FOMC members rotate next year, the new members may be more hawkish on interest rates than those they replace.
Here’s a quick snapshot of the markets before the opening bell in New York this morning:
- Standard & Poor’s 500 futures It decreased marginally this morning. The index closed down by 0.28% in its last session.
- Stokes Europe 600 It fell 0.2% in early trading.
- FTSE 100 index in the United Kingdom It decreased by 0.14% in early trading.
- Japan’s Nikkei 225 Decreased by 1.01%.
- China CSI 300 Decreased by 1.97%.
- South Korea Cosby It rose by 1.73%.
- India stylish 50’s It rose by 0.51% before the end of the session.
- Bitcoin Contract at $121.4K.
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