US government shutdown looms
César Pérez Ruiz, Chief Investments Officer Pictet Wealth Management.
A funding standoff in Congress is pushing the US government towards a shutdown on 1 October. This shutdown is not linked to any debt ceiling (reducing potential disruption), though President Trump may use it to shed some federal employees. The impasse in Congress caused some uncertainty in markets last week. The S&P 500i hit a new intraday high of 6,699, 10 times its low in 2009, but slid 0.3% on the week (in USD). Trump unveiled new import tariffs, including 100% duties on patented drugs – unless the importing company is building a manufacturing plant in the US – and 25% levies on heavy-duty trucks, triggering fresh trade uncertainty. Safe-haven gold and silver hit new highs. The dip in the S&P 500 came ahead of October, which is historically the most “dangerous” month of the year for investors, and despite data showing consumer services spending boosted US growth in the second quarter. In the corporate world, Nvidia said it would invest USD 100 billion into OpenAI to help fund its data centre build out – the latest in a series of “circular” deals in which the AI chipmaker invests in, or lends money to, its own customers. Alibaba said it plans to increase spending on AI models and infrastructure on top of USD 53 billion over three years it announced in February. In Europe, the Swiss National Bank kept its policy rate at 0.0%, as expected, with markets expecting no further cuts. In the UK, a 30-year bond sale received the fewest orders since 2022.
GEOPOLITICS
Treasury Secretary Scott Bessent outlined plans for the US to help Argentina with a package that included a USD 20 billion swap line and a readiness to make purchases of Argentina's US dollar-denominated bonds.
KEY DATA
US consumer spending rose 0.6% in August after an unrevised 0.5% rise in July. US initial jobless claims fell 14,000 to a seasonally adjusted 218,000 for the week ended 20 September. The US Personal Consumption Expenditures Price Index rose 0.3% in August, versus the prior 0.2% rise in July.
The Euro zone private sector grew at its fastest pace in 16 months in September. UK PMIs surprised to the downside ahead of November’s budget.
MARKET VIEW
Markets will look to US jobs data this week for reassurance that the Federal Reserve remains on track to cut interest rates further. We expect two more Fed cuts this year. We are negative US and global government bonds. In Asia, Japan’s Tankan survey on Wednesday is expected to show a slight improvement in business sentiment. In China, the Golden Week holiday period gets underway, boosting travel.
Last week saw copper prices rise after a US miner said it would be unable to meet contracts following a landslide at its huge mine in Indonesia. Drone incursions over Denmark made oil rally. We are positive real assets.
Markets are in a positive environment as growth remains robust and the Fed has embarked on an easing cycle. As we enter October, investors should pay attention to potential headwinds: the effect of tariffs on US prices, third quarter earnings, the potential US government shutdown, and signs of circular deals and vendor financing in the tech sector.
