US shutdown rumbles on, with earnings season in view

European equities have kicked off the day with a mixed tone, with the FTSE 100 lagging behind amid gains for mainland indices. The main drag came from the defence sector, with easing Middle East tensions seeing sentiment sour for the likes of BAE Systems, Rolls-Royce, Thales and Rheinmetall. Progress towards a ceasefire in Gaza eased geopolitical risk premiums, reducing demand for defence names that had been buoyed by the conflict. Meanwhile, with tensions easing, we are also seeing gold miners like Fresnillo, and energy names such as Shell lose traction.

The Israeli government have approved the outline of a ceasefire and hostage-release deal with Hamas, with the US brokered deal calling for an immediate truce that involves an Israeli retreat and hostages freed within days. Washington confirmed that a 200-strong US military task force would oversee the implementation, though troops will not enter Gaza. While Israeli airstrikes continued in the hours before the vote, the announcement marked the most concrete step yet toward ending the two-year conflict. The prospect of reduced tensions has already weighed on oil and defence shares, though for traders it is worthwhile remaining cautious given the fragility of previous peace efforts.

Across the Atlantic, US stock futures are showing tentative gains as investors continue to weigh up the implications of a government shutdown that enters its tenth day. According to the Kalshi prediction market, the current forecast signals a possible 24-day shutdown this time around. The standoff in Washington remains unresolved, though some lawmakers have signalled a willingness to compromise on healthcare subsidies to end the impasse. Crucially, there have been some claims that next week’s CPI inflation reading will still be released by the BLS irrespective of whether an agreement is reached in time. Looking ahead, attention will turn to the University of Michigan consumer sentiment survey, expected to dip to 54.1 from 55.1. With a degree of hesitancy being shown in US futures, there is likely to be some caution as we weigh up the potential implications of the third quarter earnings season. Kicking off with the likes of JPMorgan and Citigroup next week, markets are likely to take on a wait-and-see approach as elevated valuations mean that weak corporate data would likely hurt market sentiment more than positive numbers benefit it.