The Weekly Note

Data Drought Obscures US Economic Outlook

United States

Despite the onset of a partial government shutdown on Thursday, US equity markets delivered strong gains. Investors appeared largely unbothered by the political stalemate in Washington, where lawmakers failed to secure a funding agreement to keep nonessential services running.

In a market climate where bad news often spells good news, a disappointing private sector employment report from payroll firm ADP provided unexpected support for equities. The data showed a loss of 32,000 jobs in September, well below the expected 51,000 gain. The figures boosted market confidence that the Federal Reserve could opt for an interest rate cut at its upcoming policy meeting in October.

Technology stocks led the rally, with the Nasdaq Composite outperforming. Growth shares outshone value, and the Russell 2000 Index of smaller companies, typically more sensitive to interest rate shifts, rose markedly.

Commodities delivered mixed results. West Texas Intermediate crude dropped by over 7% after OPEC+ indicated it would increase output in November, putting pressure on energy stocks. In contrast, gold extended its strong run this year with a rise of over 3%, while copper jumped more than 7%, buoyed by hopes of industrial demand.

The absence of official government data due to the shutdown became a key market focus. The widely watched nonfarm payrolls report from the Bureau of Labor Statistics was not released as scheduled. Should the shutdown persist, further delays—such as to the upcoming Consumer Price Index report—could complicate economic forecasting ahead of the Fed’s next meeting.

While markets took weak labour data as a cue for potential rate cuts, Fed policymakers struck a more cautious tone. Chicago Fed President Austan Goolsbee raised concerns over services inflation, while his Dallas counterpart, Lorie Logan, advocated for a slower approach to policy normalisation.

Bond markets rallied, with yields falling across maturities in response to soft employment and consumer confidence data. Municipal bonds also advanced, capping off a strong September. Corporate credit outperformed government bonds, buoyed by healthy demand for new issues and stable investor appetite in the high-yield space.

Europe

European markets posted robust gains, fuelled by optimism around potential US rate cuts and a surge in technology stocks. The STOXX Europe 600 rose 2.87%, with Germany, France, Italy, and the UK all seeing meaningful gains.

Eurozone inflation picked up slightly to 2.2% in September, though European Central Bank President Christine Lagarde said inflation risks remain “quite contained”. The bloc’s unemployment rate inched up to 6.3%, while consumer sentiment improved slightly.

In the UK, mortgage approvals declined in August to 64,700, ending a three-month streak of increases. However, Nationwide reported a 0.6% rise in house prices during September, hinting at underlying resilience.

Asia

Japanese stocks were mixed, with the Nikkei 225 up and the broader TOPIX down. The yen strengthened as the dollar weakened. The Bank of Japan reiterated its intention to raise interest rates if conditions align, though no timeline was offered.

In China, markets rose ahead of an extended holiday. Analysts expect Golden Week spending to provide a short-term boost to domestic demand, though recent manufacturing data suggested ongoing economic softness.

3rd October 2025

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