Republicans seek to lay off workers to put pressure on Dems

European markets are pushing higher this morning, with the DAX and CAC each gaining more than 1% to lead the region. Yesterday’s ADP payrolls figure came in sharply weaker at -32k, with the previous month revised down to -3k. The data emboldens calls for the Fed to ease in the months ahead, even if much of the weakness stems from an annual adjustment tied to BLS data. With the BLS expected to remain closed due to the government shutdown, traders are treating the ADP release as the main event in the likely absence of tomorrow’s jobs report. Importantly, the shutdown itself appears to be having little impact on market appetite for risk, with investors recalling that prior shutdown-induced weakness ultimately represented a buying opportunity. The dollar continues to soften after the payrolls release, helped along by a drop in the ISM manufacturing PMI’s prices paid index to 61.9 from 63.7, while gold and silver are finding fresh momentum to the upside this morning.

The broader question now is how long the US government shutdown drags on and how sentiment responds as it stretches into the coming weeks. A White House memo has warned that the economy loses around $15 billion in GDP for each week the government remains shut, a sizeable headwind if the deadlock lingers. For now, Vice President Vance has struck a confident tone, saying he does not expect a prolonged shutdown. But House Speaker Johnson has been less committal, remarking that “we all have different views” on how long it might last. Notably, White House Budget Director Vought is said to be preparing to move quickly in dismissing federal workers, putting pressure on the Democrats to draw a line under this impasse.

Despite the risks, the mood in equity markets remains constructive. Traders are buying dips rather than retreating, while the pharmaceutical sector has been leading the gains thanks to the Pfizer deal that sees the removal of tariffs in exchange for lower drug prices. With the jobless claims data likely to be off the table thanks to the ongoing shutdown, traders will instead focus on the challenger jobs cuts data release. With the Trump administration seemingly utilising the current shutdown as a means to lay of Federal workers, the weakness we are seeing the US jobs data could see a fresh source of weakness for the month ahead.