US shutdown hits record, as markets await ADP release

Another day of volatility appears to lay ahead, with European indices following their Asian counterparts lower in early trade. Most notably, the major decliners have come from Japan and Korea, with the Nikkei 225 and Kospi both tumbling after recent runs into record highs. From a data perspective, we saw some weakness from the latest Chinese services PMI, which eased back to 52.6. Nonetheless, we have seen some positive updates out of Asia, with the US and China removing their trade barriers in accordance with the agreements made between Trump and Xi. Meanwhile, the Chinese Premier Li Qiang pledged to open their consumers to international businesses following last week’s discussions.

Markets have taken a decidedly negative turn of late, with US tech stocks following the weakness seen for much of the market. Recent declines across equities, gold, and crypto marked an abrupt end to a number of momentum trades, with some noting the bearish positions in Nvidia and Palantir by Michael Burry (‘big-short’) as a sign that the overstretched valuations in the tech space are at extremes that will soon spark market tops. For a market that is so heavily reliant on the health of big tech stocks, a popping of the AI bubble essentially means collapse in financial markets as a whole. Notably, today also sees the US supreme court hear arguments over whether the tariffs imposed by Trump’s administration were lawful, in a case that could undermine Trump’s landmark policy that currently brings billions in customs revenues each month. However, it is notable that we have found ourselves in a position where markets perceive a disruption to the tariff policy as a risk to stability despite the fact that lower tariffs are typically seen as a positive for equities.

The continuation of the US shutdown brings us into relatively unknown territory, with today marking the longest in history. Temporary shutdowns have always brought periods of disruption but the ultimate resolution and backpayment means that the effect is relatively minimal. However, the longer this rolls on, the more stressed certain services become, and things could begin to break. Notably, the Department of Transport have now warned that they may need to shut down parts of the country’s airspace, with half of the major air traffic control facilities facing shortages. With over 13k workers currently expected to continue working without pay, there is a clear limit to the length of time this can continue for. Today does bring a rare piece of major economic data, with the absence of Friday’s jobs report meaning that today’s ADP payrolls figure will take on an increasingly important role. Markets expect a moderate rise to 32k, which would mark the sixth sub-100k reading out of the past seven releases. This highlights the relatively weak private job creation since Trump came to power. With the Federal reserve apparently undecided on the December rate decision, today’s data will undoubtedly be viewed through a prism of how it will impact the pace of easing at the Fed.