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The government reopening has become a buy the rumor, sell the news, event as investors turn their focus to extended tech valuations alongside a series of hawkish remarks from Fed speakers. Questions regarding whether significant AI capital expenditures will result in elevated returns as well as if the US central bank will reduce its benchmark again in December and/or January against the backdrop of a 3-handle on inflation are resulting in a bearish day on Wall Street. Indeed, stocks and Treasuries are sinking simultaneously in broad fashion, as bulls and bears alike await the resumption of economic data from federal agencies to justify the addition or removal of risk from portfolios. Monetary policy expectations are also highly sensitive to incoming publications, after being starved of pivotal public sector statistics for 43 days, minus a special exception for the September CPI. Meanwhile, today’s yield curve is ascending in bear-steepening motion led by duration, with those rates climbing further north relative to the shorter tenors, as growth prospects are served an assist from Washington’s agreement. Still, fixed-income watchers are nearing coin-flip odds as it relates to another 25-bp reduction next month. Anticipation of reaccelerating activity as well as rising safe-haven demand are driving the prices of cyclical commodities, gold and silver metals, and volatility protection instruments higher. Elsewhere, though, the greenback and bitcoin are suffering losses. Conversely, forecast contracts, shares in the defensive healthcare and consumer staples categories, and energy equities are catching bids.

Delayed Data, Liquidity Conditions in Focus

Federal agencies will release a calendar in the coming days which would provide clarity on when Wall Street will have access to the delayed data that weren’t released due to the shutdown. Fixed-income and equity volatility expectations are climbing significantly, as the 43-day blackout now places meaningfully more weight on incoming figures since they’ll either justify or reject recent market moves. Meanwhile, heavier turbulence in overnight rates and the usage of the Fed’s repo facility have economists wondering if the monetary policy authority will have to reverse from asset runoff to quantitative easing, as a smaller balance sheet, lightening cash reserves at financial institutions, mounting Treasury issuance and loftier credit losses are generating liquidity concerns. While a funding squeeze historically causes bumpiness in equities and yields alike, an expansionary central bank is spectacularly bullish across both categories and would absolutely offer motivation to buy for long-term investors. Don’t fight the Fed.

International Roundup

Australia Labor Market Validates Central Bank’s Recent Decision

Payrolls in Australia added 42.2k workers in October and the country’s unemployment fell from 4.5% in September to 4.3%, according to the Australian Bureau of Statistics. The data pointing to a strong job market comes one week after the Reserve Bank of Australia (RBA), citing tight labor conditions, decided to maintain its key interest rate. At the time, RBA Governor Michele Bullock said additional monetary easing is unlikely in the near future. The central bank has already made three reductions this year. September’s increase in employed individuals exceeded the economist consensus estimate of 20k and the preceding month’s 12.8k expansion. Regarding unemployment, the metric fell from 4.5% in September and was lower than the forecast for 4.4%

United Kingdom GDP Disappoints

The United Kingdom released weaker-than-expected gross domestic product (GDP) data this morning with the country’s economy contracting 0.1% month over month (m/m) in September after being flat in August. Economists predicted another goose egg. September was also expected to produce GDP growth of 1.4% year over year (y/y), but the pace slowed from 1.2% in August to 1.1%.For the third quarter, GDP climbed 1.3% year over year (y/y), matching the economist forecast but slowing slightly from 1.4% in the July to September period. Relative to the second quarter, GDP was only 0.1% higher, missing the 0.2% prediction and weakening from the 0.3% quarter-over-quarter result of the preceding period.

The third quarter ended with positive economic contributions from the construction industry, but manufacturing, industrial production and trade hurt results. In September, construction was up 1.3% y/y while industrial production and manufacturing slipped 2.5% and 2.2%. The construction industry surprised to the upside, beating the 1.2% y/y prediction following August’s 1.1% growth. The 2.5% and 2.2% declines in industrial production and manufacturing, however, were worse than economists’ forecast of -1.2% and -0.8%. The two metrics also sank faster than August’s descents of 0.5% and 0.7%.

The month-over-month metrics were also discouraging. Construction, which slipped 0.5% in August, was 0.2% higher in September, exceeding the estimate for a flat month. Similar to the y/y results, manufacturing and industrial production were 1.7% and 2% lower, considerably worse than estimates for declines of 0.7% and 0.5% and August’s 0.3% and 0.6% positive reads. Recent results were dinged by a cyberattack on Jaguar Land Rover, which halted production by the company and caused automobile production to plunge to a 73-year low.  The manufacturer employees 33,000 UK workers.

While Trade Deficit Leaps

The UK’s trade deficit doubled in the third quarter, surging from £2.8 billion to £5.6 billion. Goods exports shrank 5.5% while imports were down 2%. The UK’s services trade surplus grew from by £0.2 billion to £54.0 billion, partially offsetting the impact of the goods deficit widening to £59.6 billion, a £3.0 billion increase. The UK, like many countries, has been embroiled in a trade dispute with the US. The headwinds of President Trump’s import taxes weighed on the UK’s results with September good shipped to the US tanking 11.4% and hitting the lowest level since January 2022. The cyberattack on Jaguar Land Rover also hurt exports with automobile shipments to foreign lands plunging 24.5%. Meanwhile, US products shipped to the UK were 5.3% higher than in August, primarily because of stiffer demand for fuels and chemicals. 

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