Q4 Begins As US Government Shuts Down

WHERE WE STAND – Here we go then, the final 3 month long sprint, or slog, into the end of 2025, as Q4 gets underway. Where has the year gone?!

Of course, we start the final quarter of the year with a US government shutdown. You’d have to have spent the last day or so living under a rock not to know that already, given that it’s been almost impossible to move without some mentioning, or asking about, the subject. While we wait to see how long the current Congressional impasse may persist for, I remain strongly of the view that participants should continue to look-through the political noise as, in the grand scheme of things, the expiration of federal funding doesn’t make especially much difference.

Chiefly, this is because we all know that, sooner or later, a deal will be cut, the government will re-open, and any economic data that was delayed (e.g., Friday’s jobs report) will be released in due course. Any market moves that we do see on the back of ‘shutdown fears’, or similar, are in my view there to be faded, particularly if stocks were to have a wobble amid a protracted shutdown.

Wall Street benchmarks did come under some modest pressure yesterday, though recovered well into the close, which means I’m able to reach for that time-honoured excuse of ‘month-end rebalancing’ to explain away the move. I jest, a little, because all models did actually point to some fairly chunky flows out of equities, and into bonds, to wrap up the quarter. For once, those models were correct, too!

Anyway, to me, the path of least resistance continues to lead to the upside, both on Wall St, and across DM equities, with economic growth resilient, earnings growth solid, the latest tariff news-flow manageable, and the monetary policy backdrop becoming increasingly loose as we move through to year-end. I was asked yesterday whether we could see spoos trade at 7k before year-end; my answer, that there’s a very decent chance indeed that we do, especially considering that such a milestone is only about 5% away.

Yesterday’s JOLTS job openings data spoke to that continued economic resilience, pointing to an above-consensus 7.227mln vacancies in August, even if such a figure does mean that, marginally so, the number of unemployed continues to exceed the number of job openings. Still, that degree of labour market slack gives the Fed room to deliver a few more 25bp ‘risk management’ cuts, almost certainly in both October and December at least, again helping that equity bull case.

Elsewhere, yesterday saw Treasuries advance a little across the curve, probably on the aforementioned EoM/Q flows, with those very same flows also making a bit of a mess of the G10 FX market, which displayed next-to-no clear trend whatsoever. Still, my bias remains towards USD upside, and towards a steeper Treasury curve, amid upside risks to the US economy from the Fed’s ‘run it hot’ approach – let’s see how those views pan out now that we can, hopefully, get a bit of a cleaner read on proceedings.

Besides that, crude barrelled lower intraday on reports OPEC+ were mulling a 500k bpd output hike at each of the next three meetings, before recovering lost ground after the cartel issued an outright denial of those ‘sources’ stories. In truth, it seems that what’s happened here is someone at OPEC+ decided to float a trial balloon ahead of this weekend’s meeting, and then decided they didn’t like the market’s reaction very much. Overall, the backdrop for crude remains one of a market that is massively over-supplied, and one where OPEC+ are still engaged in a war for market share with peers such as the US. All signs, over the medium-term, point to further downside.

Speaking of downside, yesterday wasn’t exactly ‘plain sailing’ for precious metals, with gold ending proceedings broadly unchanged, as bullion’s higher-beta cousins such as silver and platinum rolled-over. I think this is probably just a case of the market having gone ‘too far, too fast’, with some technical factors in the mix too, amid fading physical demand now month-end settlement has passed. The case for further upside in the PM complex remains a solid one, amid continued demand from reserve allocators, upside inflation risks, and runaway DM government spending.

Actually, in many ways, this little flush out of weaker longs actually strengthens the bull case here, potentially creating a much healthier, and more resilient, rally moving forwards.

LOOK AHEAD – The new month, and the new quarter, begins with a relatively busy data docket.

On this side of the pond, we have final manufacturing PMI figures due from across Europe, and here in the UK, though none of those are likely to be revised significantly from the previously released ‘flash’ estimates. Of more importance will be this morning’s ‘flash’ eurozone CPI figures, set to show headline inflation having ticked up to 2.2% YoY last month, while core prices held steady at 2.3% YoY. Data of that ilk, pretty clearly, suggests little need for the ECB to ease further.

Across the Atlantic, we also get manufacturing PMI stats, from the ISM, with that index seen rising to 49.0, from a prior 48.7. The employment sub-index may attract more attention than usual, in the likely absence of a jobs report on Friday, as will the ADP employment report, which is set to show +50k private sector jobs having been added last month. We also hear from 2027 Fed voter Barkin today, who will repeat the remarks he made on Friday – how easy life would be if we could all get away with doing that!