SYDNEY :Share markets got off to a cautious start in Asia on Monday as investors braced for a possible shutdown of the U.S. government, which would in turn delay publication of the September payrolls report and a raft of other key data.
President Donald Trump will meet with the top Democratic and Republican leaders in Congress later on Monday to discuss extending government funding. Without a deal a shutdown would begin from Wednesday, which is also when new U.S. tariffs on heavy trucks, pharmaceuticals and other items go into effect.
A protracted closure could leave the Federal Reserve flying blind on the economy when it meets on October 29.
“If the shutdown lasts beyond the Fed meeting, the Fed will rely on private data for its policy decisions,” analysts at BofA wrote in a note. “On the margin, we think this may lower the likelihood of an October cut, but only marginally.”
Markets imply a 90 per cent chance of a Fed cut in October, with around a 65 per cent probability of another in December.
The BofA analysts estimated a shutdown would subtract only a slight 0.1 per cent percentage point from economic growth for every week it lasted, while noting the impact on financial markets had been minimal in the past.
They cautioned that should the government use the closure to lay off workers permanently, then it could have a more meaningful impact on payrolls and consumer confidence.
There is also much uncertainty about what might happen at a meeting of U.S. generals and admirals in Quantico, Virginia, on Tuesday, called by Defense Secretary Pete Hegseth which Trump will reportedly attend.
Q4 USUALLY GOOD FOR STOCKS
Otherwise, analysts expected equities to be supported by buying for the new quarter which historically tends to be a positive one for stocks. The S&P 500 has gained 74 per cent of the time in the fourth quarters.
S&P 500 futures and Nasdaq futures were both up 0.2 per cent, having eased modestly last week.
EUROSTOXX 50 futures added 0.3 per cent, as did FTSE futures and DAX futures.
Japan’s Nikkei slipped 0.7 per cent, having risen 6 per cent for September so far, while South Korea bounced 1.2 per cent, bringing its gains for the month to 6.3 per cent.
MSCI’s broadest index of Asia-Pacific shares outside Japan firmed 0.4 per cent, to be up almost 4 per cent for the month.
In bond markets, Treasuries found support at 4.17 per cent having been pressured last week by a run of upbeat U.S. economic data, that led investors to pare back expectations for how low Fed rates might ultimately go.
A host of central bank speakers are on the diary this week, with at least four from the Fed and the European Central Bank appearing on Monday alone.
The dollar index was steady at 98.134 having benefited from the batch of better economic news last week. The euro held at $1.1708, in the lower half of its recent $1.1646 to $1.1918 range.
The dollar stood at 149.49 yen, after rallying just over 1 per cent last week and away from the September low around 145.50.
In commodity markets, gold was holding just below a record high at $3,764 an ounce.
Oil prices slipped as crude started to flow through a pipeline from the semi-autonomous Kurdistan region in northern Iraq to Turkey for the first time in 2-1/2 years.
Reuters reported OPEC+ will likely approve another oil production increase of at least 137,000 barrels per day at its meeting next Sunday.
Brent dropped 0.8 per cent to $69.57 a barrel, while U.S. crude eased 0.9 per cent to $65.14 per barrel.
(Editing by Shri Navaratnam)
