Stocks Gain And Gold Rallies As Government Shutdown Looms

WHERE WE STAND – Another day, another stock market rally, and another record high for gold.

I wonder if there’s a way I can automate typing that, given how both of those seem to be daily occurrences at this stage. Maybe I’ll have to embark on some AI capex of my own.

Speaking of repetition, I wish I could compel everyone involved in markets to write out ‘a government shutdown doesn’t really matter’ 100-odd times, given not only how such a shutdown now looms large, but also how almost every tick that any market moves seems to be getting blamed on the upcoming expiry of federal funding.

As a reminder, in the prior 21 US government shutdowns, the S&P has averaged 12 gains and 9 losses, with a median return of +0.1%. Frankly, that’s just noise. Meanwhile, from a macro perspective, each week of a shutdown will likely subtract 0.1pp from GDP that quarter, though the sum total of what was lost will almost certainly be recouped in the very next quarter, once the government re-opens, causing little-to-no net impact overall.

The biggest ‘problem’ during a potential shutdown would be the lack of official data releases, such as Friday’s US jobs report. That said, given the numerous data quality concerns that continue to plague those, and other, federally-issued figures, I fear that plenty of participants are making a mountain out of a molehill on that front, especially when the data in question will drop as soon as funding resumes, and there are numerous private data series that will still be released.

Anyway, the general vibe of trade yesterday was ‘more of the same’, as it has been on so many occasions of late. Once more, precious metals continue to steal the show, not only with gold clearing $3,800/oz for the first time, but with silver, platinum, and palladium joining in on the upside too. It remains, in my mind, tough to bet against any of the four right now, with the bulls not only having momentum on their side, but also a solid fundamental case for further upside amid continued unfunded fiscal largesse across DM, and the lingering risk of inflation expectations un-anchoring from target.

That latter risk stems mainly from the Fed’s ‘run it hot’ approach, though that very same approach is helping to create something of a goldilocks backdrop for risk assets, especially at a time when earnings growth is already robust, and economic growth already solid. While one can’t really claim that a calmer tone on trade continues to prevail, especially with President Trump throwing a 100% tariff on foreign-made films yesterday, markets are becoming increasingly immune to headlines of this ilk, not least considering that many countries had the nous to negotiate carve-outs on these sector-specific tariffs as part of trade deal negotiations.

Most, that is, excluding the UK, in what will go down as yet another economic masterstroke from the dream duo of PM Starmer & Chancellor Reeves. In case it wasn’t obvious, that’s sarcasm, which is far from dead. Irony is also far from dead, it seems, given Chancellor Reeves yesterday noting her aim to keep taxes, inflation, and interest rates “as low as possible”. For those keeping score, she’s currently 0 for 3 on that front. Short GBP, and short long-end Gilts, remain my preferred plays into the end-November Budget.

Despite that, the quid did actually firm a bit yesterday, though this move seemed to stem more from rather broad-based USD weakness, amid EoM/Q flows, as opposed to any surge in optimism around the state of the UK economy. Still, though the buck faced headwinds yesterday, with this move being largely flow-driven, it’s one that I’m inclined to fade, at least once the month does draw to a close today, with the bull case for the buck still looking promising as risks to the outlook tilt to the upside, not only as the Fed lean in hard to support growth, but also as fiscal tailwinds mount. Dollar dips are there to be bought into, in my mind.

LOOK AHEAD – Quite a lot on today’s data docket for participants to digest.

We kick things off here in the UK this morning, with the final read on Q2 GDP which, although stale, is set to remain unrevised, pointing to 0.3% QoQ growth in the three months to June. Given mounting downside risks, though, that could well be as good as things get for UK Plc this year.

Moving on, this afternoon not only brings ‘flash’ inflation figures from Germany, ahead of the eurozone-wide CPI print tomorrow, but also a plethora of US releases. The latest Chicago PMI survey is likely to be glossed over by market participants, with more attention paid to this month’s CB consumer confidence index (exp. 96.0 vs. 97.4 prior), and last month’s JOLTS job openings report (exp. 7.20mln vs. 7.18mln prior), with the latter potentially being the last ‘official’ jobs data we get from the States for some time, with federal funding due to expire at midnight ET on Weds.

Elsewhere, a busy slate of central bank speakers awaits, highlighted (I use the word loosely!) by ECB President Lagarde, and Fed Vice Chair Jefferson, though neither are likely to offer much by way of fresh comments on the policy outlook. Lastly, on the earnings front, Nike will Just Do It and release figures after the close tonight.