Wait and see

The week started with minor gains in US and European equities, despite fresh tariff threats from Donald Trump and no material progress on talks to avoid a US government shutdown. The S&P 500 and Nasdaq traded flat, just a touch below their all-time highs, while the US 10-year yield fell on safe-haven inflows. A shutdown by tomorrow is a real possibility, though it wouldn’t be the first nor the last time the US government closes on funding issues. A short shutdown wouldn’t have a major impact on US growth expectations or risk appetite.

What’s more worrying for investors is the risk of US data not being released – or being delayed – as government agencies would be mostly closed in case of a shutdown. The lack of data would muddy the Federal Reserve (Fed) outlook. And because the softening Fed outlook and rising rate cut expectations have been a major support to the latest US stock rally, the absence of data could encourage some investors to take profit and move sideways.

If the shutdown lasts a few weeks – which is possible – then growth expectations would start to deteriorate. But that deterioration would boost Fed cut bets. And that “magic mechanism” of dovish Fed expectations would likely put a floor under any potential market sell-off. From a medium-term perspective, I wouldn’t be too worried about a shutdown. Any price pullbacks could be seen as an opportunity to buy the dip.

Now, speaking of data – because today could be the last day of releases before a shutdown, the job openings report (JOLTS) could attract more attention than usual. Job openings are expected to have declined further. A softer-than-expected JOLTS figure today could bolster the Fed doves and weigh further on US yields and the dollar, though it might not boost appetite for equities.

In Asia, appetite for Chinese stocks remains intact after the latest PMI data showed manufacturing activity at its strongest in six months. Export orders rose for the first time in six months, new business expanded at the fastest pace since February, supply conditions improved and input cost inflation accelerated to a 10-month high, driven by higher metal prices. On top, the Chinese government said it will deploy 500bn yuan – the equivalent of about $70bn – to further back investment and boost growth. Appetite is improving as momentum picks up.

Foreign holdings of Chinese assets are expanding for the first time in four years, mostly led by the Chinese technology giants and the AI rally. Alibaba has gained around 130% since the beginning of the year, while the Hang Seng index has rebounded by as much as 43% since January to levels last seen in 2021. But despite these inflows, global investors remain relatively under-exposed to Chinese stocks, leaving further room for the rally to develop. Chinese tech stocks, despite a strong rally this year, still trade at cheaper valuations than their US peers, where stretched multiples are becoming a concern.

High valuations in US Nig Tech haven’t necessarily been a barrier to further gains, but flows suggest that speculative longs may be retreating. Leveraged ETFs – those that double or triple the daily moves in indices or single stocks – saw about $7bn in outflows in September, a warning that hot money could be paring back after the recent push higher.

In Australia, the Reserve Bank of Australia (RBA) kept its policy rate unchanged today, as widely expected. The AUDUSD pushed above 0.66, while the ASX remained under pressure near its 200-day moving average, weighed down by energy stocks. In Japan, the Nikkei was flat, caught between limited risk appetite due to US shutdown uncertainty and support from a softer yen.

In FX, the US dollar is better bid in Asia this morning but remains capped by its 50-day moving average. The EURUSD is consolidating gains above its own 50-DMA, while the USDJPY benefits from a softer US dollar and some safe-haven flows into the yen. The pair is preparing to test its 200-DMA to the downside and could break lower in the event of a US shutdown.

But the real “safe-haven” action is in precious metals. Gold rallied to a fresh record this morning, now trading near $3’864 per ounce, well into overbought territory – though that hasn’t deterred those chasing gold’s ultimate safe-haven status combined with strong momentum. The same is true for silver, which is approaching the $50 per ounce level. That milestone wasn’t reached back in 2011 but could be challenged this time as appetite for precious metals is supported by reduced demand for the US dollar and US Treasuries, waning trust in traditional currencies and stronger demand for hard assets as global inflation expectations rise due to trade frictions.

Elsewhere in metals, copper futures have been trending higher on a mix of supply shock and speculative pressure. A serious accident at Freeport’s Grasberg mine in Indonesia – one of the world’s largest copper mines – forced the company into force majeure, spooking markets over tighter output ahead. Meanwhile, demand expectations remain intact, especially from China, and traders are positioning for a potentially undersupplied copper market. That, combined with a softer dollar and lingering tariff anxieties, keeps the outlook positive.

In energy, crude oil failed to benefit from the softer US dollar or heightened geopolitical tensions in Ukraine. Reports yesterday that OPEC could announce another supply increase in November weighed on sentiment and sent US crude back below $65 per barrel. Consequently, the latest bullish attempt has fizzled, leaving WTI stuck in the $82–85 range and awaiting a meaningful breakout.