Weekly market commentary

Market review

Global markets navigated a volatile week, as the longest US government shutdown in history finally ended; initially easing investor nerves and teeing up a swathe of backdated data releases, which the market is keenly waiting on. The 43-day impasse had halted food aid to millions of households, cancelled thousands of flights and forced federal workers to go unpaid for over a month. The Congressional Budget Office predicted that a 6-week government closure would lower real Gross Domestic Product (GDP) growth in the current quarter by 1.5%, though more than half of the loss may be recouped early next year as federal programs resume and government employees receive back pay.

In equities, Technology stocks led early gains fuelled by AI optimism, though profit-taking capped the positive start to the week, with the tech-heavy NASDAQ falling by little more than 2.5%, despite an upbeat start. The pressure on AI stocks came from question marks over valuations, with stock prices repeatedly hitting all-time highs, combined with Treasury yields edging higher. This reflected renewed uncertainty over Federal Reserve policy. Several voting members of the US Central Bank have spoken cautiously about cutting the lending rate too quickly, with inflation still above target and pre-shutdown labour market data suggesting relative resilience in the workforce.

Staying with central banks, the minutes from the recent Bank of Japan policy meeting indicated that the nine-member board appears more inclined towards a near-term rate hike, aligning with market expectations that policy normalisation could begin imminently. As opposed to its counterparts, the Bank of Japan continues to maintain very low interest rates following decades of low inflation and low growth. However, inflation has now risen close to 3% while the Japanese Yen has seen significant weakness in recent years, which may be enough to encourage policymakers to act.

Outlook

Whilst markets remain reactive to a mix of economic and geopolitical signals, investors seem largely undeterred and continue to buy into short term softness. As we continue through Q3 earnings season, results broadly suggest that demand from consumers and businesses remains robust. As inflation trends diverge and labour markets evolve, central banks may take increasingly different paths - raising the potential for greater dispersion across asset classes and regions in the period ahead.

Movers table