World stock markets experienced a notable rally following indications that the US Congress is poised to end a federal shutdown that has caused economic uncertainty. The potential resolution aims to restore funding to government agencies after the shutdown began on October 1, 2023. As a result, European stocks reached record highs during early trading, and US stock futures signaled a positive opening on Wall Street. Additionally, Japan’s blue-chip index, the Nikkei, and broader Asian equity markets rose approximately 0.4 percent.
The Republican-controlled House of Representatives is scheduled to vote on a compromise plan later today, which follows the Senate’s approval of the deal on Monday night. Michael Metcalfe, head of macro strategy at State Street, commented, “There was always a risk that if the shutdown continued, further growth would be impacted and so data would be hard to read.” He emphasized that resolving the shutdown alleviates fears of a significant slowdown in growth.
Markets are particularly focused on upcoming US jobs data, which has been delayed due to the shutdown. Investors are weighing the implications for potential interest rate cuts by the US Federal Reserve in December. Preliminary weekly jobs data from ADP indicated a decline of an average of 11,250 jobs per week over the four weeks ending on October 25. Currently, markets estimate a roughly 64 percent chance of a 25-basis-point rate cut at the next Federal Reserve meeting.
In Japan, the Topix index surged over one percent, reaching a new record high. However, the SoftBank Group bucked this trend, experiencing a 3.5 percent decline after announcing it sold its entire stake in Nvidia, resulting in a monthly loss of approximately 19 percent for the tech investor. Despite the recent downturn, SoftBank’s shares have more than doubled this year.
The currency markets saw the Japanese yen hit nine-month lows at around 154.79 yen per dollar before making a slight recovery. Japanese Finance Minister Satsuki Katayama acknowledged that the negative impacts of a weak yen on the economy have become more pronounced. The yen’s decline of nearly 0.8 percent this week has been attributed to improved market sentiment regarding an end to the US shutdown, alongside expectations for increased fiscal measures under new Prime Minister Sanae Takaichi.
Analysts like Chris Turner, ING’s global head of markets, noted that investment flows into the United States have been supporting the dollar against the yen. He pointed out that this has brought the dollar/yen exchange rate to a psychological resistance level at 155, where intervention from Japanese authorities could increase. Turner added that many investors might hesitate to sell at this level, considering the potential for the rate to climb to 160 in thinner year-end markets.
In broader currency trends, the dollar index rose by 0.1 percent to 99.574, while the euro remained stable at approximately USD 1.1582. The British pound experienced a slight decline, trading around USD 1.3124. UK government bonds underperformed as political dynamics resurfaced, with Health Minister Wes Streeting denying any plans to undermine Prime Minister Keir Starmer amid rumors of a potential leadership challenge.
Oil prices softened slightly but retained most gains from the previous session, with expectations that resolving the US shutdown could enhance demand in the world’s largest oil consumer. Brent crude futures decreased by 29 cents, or 0.3 percent, to approximately USD 65 a barrel after a 1.7 percent rise the day before. Meanwhile, US West Texas Intermediate crude fell 0.4 percent to USD 60.77 a barrel. Gold prices also dipped 0.1 percent, trading at around USD 4,131.
As markets respond to these developments, investors remain cautiously optimistic about the economic outlook in the wake of the US congressional actions.
