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The specter of a US government shutdown is casting a long shadow over global markets, unsettling investors at a moment when reliable economic data is already scarce.
With the Bureau of Labor Statistics confirming that it will halt all publications if the government closes, Tuesday’s JOLTS job openings report for August may be the final guidepost for the Federal Reserve’s policy path until lawmakers resolve their standoff. Unless a deal is struck, Friday’s all-important nonfarm payrolls report will not be released, depriving traders of the labor market clarity they typically rely on.
This uncertainty has kept the US dollar subdued despite resilience in U.S. equities. On Monday, all three major U.S. benchmarks ended higher, but futures in early European trading gave back some of those gains, with the S&P 500, Dow Jones, and Nasdaq each down about 0.2%.
Treasury yields slipped as well, with the two-year down 2.6 basis points and the 10-year retreating to 4.12%, reflecting both a cautious bid for safety and expectations that the Fed will struggle to maintain its hawkish stance if the shutdown persists.
Global Spillovers and Sector Moves
The ripple effects were visible across regions. European stocks opened weaker, with the pan-European Stoxx 600 down 0.2%, dragged by energy names as crude prices slid. Brent settled near $67.66 and WTI at $63.13 per barrel, pressured by expectations of increased OPEC+ supply. Shares of Spain’s Repsol and France’s TotalEnergies fell more than 1%, underscoring how quickly the energy sector can recalibrate to shifts in supply sentiment.
Meanwhile, France’s inflation data showed a pickup at the end of summer, reinforcing expectations that the European Central Bank will leave interest rates unchanged at its next meeting. The inflation dynamic complicates the ECB’s policy calculus: while headline numbers remain sticky, growth indicators are softening, leaving monetary authorities little room for maneuver.
Asian markets mirrored the global unease but remained split. Japan’s Nikkei 225 slipped 0.2%, while Hong Kong’s Hang Seng added 0.7% and China’s Shanghai Composite gained 0.5%. The divergence reflects the region’s varying policy backdrops: Japan’s still-accommodative stance contrasts with Beijing’s ongoing efforts to stabilize growth, while Hong Kong equities are benefiting from selective bargain-hunting after recent volatility.
US Dollar Under Pressure, Gold in Demand
The US Dollar Index (DXY) edged 0.1% lower to 97.86, weighed by fiscal jitters and the prospect of stalled data-dependent Fed guidance. As Jefferies economist Mohit Kumar noted, the standoff in Washington is forcing investors to refocus on the fiscal picture—one already marred by widening deficits and heightened political polarization. The uncertainty has also extended to risk assets: Bitcoin, which briefly touched a one-week high overnight, eased back in sympathy with broader sentiment.
In stark contrast, gold continued its relentless rally, hitting an all-time high of $3,889.20 before settling slightly lower at $3,883.70 per ounce. With the US dollar weakening, Treasury yields falling, and equity valuations stretched, gold is enjoying a rare confluence of supportive factors. As Pepperstone strategist Ahmad Assiri put it, the metal is firmly positioned as both a hedge and a diversifier—a view that has gained traction as investors brace for data blackouts and political brinkmanship.
Investor Outlook
Markets are confronting a paradox: US equities remain buoyant, underpinned by hopes that the Fed will pivot if the economy weakens, while safe havens like Treasurys and gold are also in demand, signaling deep-seated anxiety. Should the shutdown materialize, liquidity in data-dependent trades will thin, magnifying volatility across asset classes.
For equities, stretched valuations leave little cushion if earnings guidance begins to weaken. Energy stocks are vulnerable to OPEC+ dynamics, while European exporters remain sensitive to a still-firm euro and uneven global demand. The bond market may continue to rally if data releases stall, but any hint of fiscal slippage could reignite concerns about long-term US creditworthiness.
In this climate, gold stands out as the clearest beneficiary. Unless Washington breaks its deadlock swiftly, investors will likely extend their allocation toward bullion, both as an inflation hedge and as insurance against fiscal dysfunction. The balance of risks tilts toward heightened volatility, making diversification not just advisable but essential.