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Investors are turning defensive again after weak Challenger and Revelio labor data reversed optimism from yesterday’s better-than-expected ADP print, which pointed to expanding rosters. Conversely, this morning’s releases reflected the largest number of October job cuts in 22 years alongside a 9k payroll employment loss for the same month. The two developments are upending yesterday’s comeback, sending stocks into sharp losses. Similarly, Treasurys are rallying relatively evenly across the curve following Wednesday’s selloff, as slowdown fears dial up Fed rate cut probabilities and motivate fixed-income watchers to lock in the yields of the present. The greenback and bitcoin are also performing dramatic U-turns, with the former being hampered by narrowing central bank estimate differentials, cheaper domestic borrowing costs and lightening growth projections, while a lack of speculative momentum against the backdrop of risk-off sentiment is weighing on cryptocurrency demand. A heavier likelihood of rising unemployment that could soften activity is driving the commodity complex minus natural gas south. Most major equity sectors are retreating sharply, and energy is the only gainer, while volatility protection instruments are catching bids in light of worries that the cycle could decelerate in a meaningful way. Meanwhile, forecast contracts are additionally seeing interest and are signaling declining odds of the Supreme Court upholding President Trump’s tariffs; chances dropped from a high of 46% yesterday to a low of 21% today.

Government Reopening to Support Prospects

The government’s closure is leading to cautious hiring decisions by employers as well as weakening household confidence, as the public sector’s stimulative forces are significantly impaired until a resolution is struck. The lack of paychecks for federal workers, declining revenues for contractors and vendors, and unsatisfactory service quality is negatively affecting economic prospects in a variety of ways, including sluggish consumer spending, greater uncertainty, increased inconvenience and general frustration, factors that in aggregate heavily suppress overall activity. But from a glass half-full perspective, the cycle is poised for a robust rebound following an agreement that resumes Washington’s funding and operations. The longest shutdown in history, now on its 37th day, is projected to end this month, according to our prediction market, with the 50-50 date falling on Nov. 16 and an 85% likelihood of a reopening by the 21st.

International Roundup

Bank of England Holds Key Rate

Bank of England (BOE) policymakers voted 5-4 to maintain the organization’s key interest rate at 4%, but the organization subsequently implied that a reduction is likely next month. Governor Andrew Bailey’s vote broke a tie as four members stumped for trimming the benchmark 25 bps. It was the first quarterly decision to not lower the benchmark since August 2024. Bailey maintained that the BOE should wait to ensure that price pressures are easing, but he appeared closer to embracing monetary easing, claiming that risks had become more balanced. Last month, inflation was up 3.8%, but the central bank believes the print is likely to be the peak.

European Shoppers Continue to Curtail Spending

Retail sales in the euro area sank 0.1% month over month (m/m) in September, matching August’s result and significantly missing the economist consensus estimate for a 0.2% gain. Sales were still positive compared to the year-ago period, climbing 1% and matching the economist forecast but slowing from the 1.6% year-over-year (y/y) result in the preceding period. Relative to August of this year, purchases were unchanged for the food, drinks and tobacco category. Conversely, non-food products except for automobile fuel and automotive fuel at specialized stores slipped 0.2% and 1% m/m. Luxembourg, Malta and Estonia clocked the fastest m/m growth at 1.7%, 1.7% and 1.5% while Lithuania, Slovenia and Lativia experienced the worst performance with activity dropping 1.1%, 0.7% and 0.7%.

Australia Exports Climb Following August Contraction

Australia’s exports climbed 7.9% m/m in September, a reversal from the 8.7% collapse in August, according to the Australian Bureau of Statistics. In the same month, imports were up 1.1% m/m, a deceleration from August’s 3.3% pace. The stronger export volume helped the country’s trade surplus balloon from 1.11 billion AU$ in August to 3.938 billion AU$ last month, surpassing the economist consensus estimate of 3.930 AU$.

Exports of non-rural goods expanded 3.7% m/m driven by foreign customers upping purchases of non-gold metal 4.1% and metal ores and minerals 9.7%. The other mineral fuels group and the machinery category, however, descended 9.8% and 4.2%. Rural goods, which are primarily agriculture products, were 0.7% higher m/m with meat and meat preparations showing the strongest expansion at 2.7%.

Real Wages Fall in Japan

Real wages in Japan weakened in September for the ninth consecutive month with price pressures exceeding workers’ raises. After adjusting for higher prices, real wages were 1.4% below compensation provided in the year-ago period. Paychecks grew 1.9% y/y but September prices were up 3.4%. 

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