Newsflow has been light and markets show only modest movements amidst a US government shutdown. US equities show little change and US Treasuries have traded narrow ranges, with a small flattening bias. The USD is slightly stronger overnight. The NZD has traded a narrow range and is currently 0.5820. Oil prices are lower for a fourth consecutive day.
Betting markets suggest that the US government shutdown will last at least a week and probably longer. Historically, government shutdowns have had only small impacts on the economy and markets.
The White House is looking at the government shutdown as an opportunity to permanently reduce federal jobs. Trump’s press secretary Leavitt said “it’s likely to be in the thousands”, adding that the entire team at the White House was working to identify possible cuts and looking “at agencies that don’t align with the administration’s values”. This ploy aims to put pressure on Democrats to vote to reopen the government.
In terms of US data releases affected by the government shutdown, the first casualty has been the weekly jobless claims release. In the absence of government data releases, private sector economic reports will be given more attention. Challenger and Co’s monthly data on hiring and firing showed companies in September planned to add 177k jobs, down 71% y/y, the weakest hiring intentions for a September month since 2011. On a year-to-September basis, the historical low stretched even longer, back to 2009. On a slightly more positive note, planned job cuts were “only” 54k in September, down 26% y/y.
Another private sector company reporting employment data, Revelio Labs, showed employment gains of 60k for September and, based on its model estimates, this translates into a non-farm payrolls estimate of 38k, modestly weaker than the consensus estimate of 52k, and consistent with a slowdown in employment growth.
Treasury Bessent talked up the progress with China in trade talks, saying that his discussions with Vice Premier He “should show a pretty big breakthrough” in his next round of talks. A meeting is scheduled between Presidents Trump and Xi later this month on the sidelines of a regional summit in South Korea.
US equity markets show small movements with the S&P500 currently flat and the Nasdaq up modestly. European equities closed higher for the fifth day running, with the Euro Stoxx 600 index up 0.5% to a fresh record high.
The US 10-year Treasury has traded a range of 4.08-4.125% overnight and currently sits at the bottom end, down 2bps from the NZ close. The curve is slightly flatter.
In currency markets, net movements have been small but with broad gains for the USD overnight. The NZD is currently 0.5820, after nudging just over 0.5840 last night finding support just over 0.58. NZD/AUD recovered up through 0.88 during local trading hours and the move has been sustained overnight, pushing up to 0.8825, likely reflecting some profit taking after its big lurch down over the past month. NZD has also solidified the small gains it made against GBP and EUR yesterday. NZD/JPY is back down to 85.6 after a failed attempt to break up through 86 overnight.
Oil prices are down for a fourth consecutive day ahead of the OPEC+ meeting this weekend, where the cartel is expected restore more supply. Brent crude is down nearly 2% to a USD64 handle, a four-month low.
NZGB and swap rates were flat to slightly lower across the curve yesterday. Demand was solid for the weekly NZGB bond tender, although the market weakened somewhat following the event. The 5-year rate closed down 1bp at 3.36% and the 10-year rate closed down 3bps at 4.19%. In the swaps market, the 2-year rate was flat at 2.63% while the 10-year rate fell 2bps to 3.71%.
On the economic calendar, the key US employment report, which was scheduled for tonight, will be delayed due to the government shutdown. The ISM services survey isn’t affected by the shutdown and the market expects a nudge lower to 51.7 for September.
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Jason Wong is the Senior Markets Strategist at BNZ Markets.
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