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Investors are going on the offensive to start this week after a few Senate Democrats announced they will support an agreement to end the government shutdown. Washington is indeed poised to reopen in the coming days as the GOP majority in the lower chamber is likely to close the deal and our prediction exchange is signaling 87% odds of a resumption of federal functions by this Friday. The development removes a major hurdle from the cycle’s momentum and is bolstering growth prospects and reigniting animal spirits. Stocks, rates, the greenback, bitcoin and commodities are climbing as a result. But an improving landscape is weighing on the probability of a Fed reduction next month, as the yield curve ascends in bear-flattening motion led north by the monetary policy sensitive shorter tenors. Duration faces additional tests too, however, as the Treasury gears up for offerings of 3-, 10- and 30-year debt to the tune of $123 billion. Risk-on winds have traders dialing down volatility protection premiums and heavier financing costs are weakening lumber demand. Meanwhile, forecast contracts are catching bids related to a potential Capitol Hill settlement as well as the initiation of bullish positions tied to domestic equity benchmarks.

Finalized Deal to Propel Stocks Further

A finalized deal later this week is set to drive stocks to stronger advances as a significant economic risk is tossed to the rear-view mirror and replaced with improved prospects for the holiday season as well as favorable seasonals. Indeed, a prolonged government closure threatened to soften pivotal retail results in the final two months of the year and weigh on travel plans as income pressures, heightened uncertainty and inconvenience related to delays and cancellations at airports had the potential to meaningfully hamper transaction volumes. Now with the worst likely behind us, barring unexpected hurdles in the House of Representatives, the cycle stands to benefit from an increase in relative certainty and stimulative fiscal policies passed in 2025 that are positioned to strengthen activity and corporate earnings in 2026.

International Roundup

China’s Inflation Gauges Shows Slight Increase

China’s Consumer Price Index (CPI) in October posted its first positive year-over-year (y/y) result in four months amidst a slight acceleration of price pressures relative to September. The metric climbed 0.2% month over month (m/m) in October after September’s 0.1% print. For the y/y print, it was up 0.2% following 0.3% and 0.4% declines in the prior two periods. The gauge was flat in July.  The y/y print also surpassed the economist consensus estimate for no price change. Beijing has attempted to stymie deflation with its “anti-involution” program that has reduced production while clamping down on businesses that have responded to weak demand and excess supplies by aggressively cutting prices.

But Wholesale Prices Show Persistent Deflation

China’s Producer Price Index (PPI), which measures how much businesses charge each other for services and products, slipped 2.1% y/y in October, illustrating that deflation is easing but still prevalent. The economist consensus estimate called for a repeat of September’s 2.3% decline. The PPI has been negative for 37 consecutive months as the country struggles with excess production capacity.

Bank of Japan Eyes Rate Hikes

Policymakers from the Bank of Japan are leaning toward raising the organization’s key interest rate in response to wage pressures, according to minutes from the October meeting released this morning. Of the 13 members, nine either called for a rate increase or spelled out conditions that would increase the cost of short-term debt. The minutes point to an increased likelihood that the bank will approve a hike at its next meeting in January.

Japan’s Leading Index Climbs

Japan’s Leading Index climbed 1% m/m in September, following the 1.3% gain in October and marking the fourth consecutive month of improvement. At 108, furthermore, it is the highest reading since April’s 108.1

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