Stock Futures Dip, Gold Gains as US Nears Shutdown: Markets Wrap

(Bloomberg) — Equity-index futures for the US fell while gold hit a record for a second day as the looming government shutdown in the US cast doubt on the release of economic data key to the Federal Reserve’s interest-rate path.

Contracts for the S&P 500 and Nasdaq 100 index fell 0.4% after a stopgap funding bill to avoid the closure failed. The dollar steadied after three days of losses while while gold rose above $3,875 an ounce. Asian shares fell 0.4% with China and Hong Kong closed for a holiday. Treasuries were mostly flat with the yield on the 10-year at 4.15%.

The US government hurtled toward a shutdown as Congressional Democrats and President Donald Trump dug on a confrontation over health-care spending. The president raised the stakes in the fight, saying his administration may permanently fire “a lot” of federal workers in the event of a shutdown.

Investor focus is squarely on the looming shutdown, which threatens to delay key economic reports used to gauge the Fed’s path on rate cuts. While most standoffs have ended in last-minute deals, past episodes have caused enough disruption in the federal bureaucracy to force Wall Street to weigh the potential fallout for US markets.

“Things could get ugly if the shutdown creates an information vacuum for jobs and inflation data ahead of the next Fed rate decision,” said Michael Bailey at FBB Capital Partners. “Also, with stocks and valuations near prior peaks, we could see some minor bad news snowball into a correction near term.”

The latest deadlock over spending threatens to paralyze many US government operations for the first time in nearly seven years, causing the suspension of services for Americans and paychecks for federal workers.

Traders are concerned that the shutdown would delay the release of Friday’s nonfarm payrolls data by the Bureau of Labor Statistics. Economic data over the past month has shown that the labor market is slowing down while inflation is relatively under control — though still above the Fed’s 2% target.

“If we didn’t get the data, we didn’t get the job report, even further we didn’t get the inflation report, I think that would definitely become a real risk,” Hebe Chen, market analyst at Vantage Markets, said on Bloomberg Television. “And that risk I have to say the market yet to price in at this stage.”

What strategists say…

As traders prepare for the possibility of a US shutdown, evidence from past stalemates in DC suggests that the Japanese yen and the euro may be the preferred pairs against the dollar.

—Tatiana Darie, Markets Live strategist. To read full analysis, click here.

The shutdown will likely end when enough Democrats accede to a short-term funding bill that allows for health care negotiations and sets up another deadline later this fall, said Sarah Bianchi, a strategist at Evercore ISI, in a note late Tuesday.

“At this point, we think it is likely that the shutdown is relatively short-lived, one to two weeks,” she wrote. “We don’t see major macroeconomic implications of a shutdown, as long as it lasts less than a few weeks like all the prior shutdowns.”

Traders have also been hearing from a handful of Fed speakers. Chicago Fed President Austan Goolsbee said the most recent round of tariffs may be causing businesses in his district to again pause decision-making in order to see where the levies settle.

Federal Reserve Bank of Dallas President Lorie Logan said policymakers should be cautious in considering additional interest-rate reductions while inflation remains above target and the labor market relatively balanced.

Corporate News:

China’s state-run iron ore buyer has told major steelmakers and traders to temporarily halt purchases of all new BHP Group cargoes. Nike Inc.’s turnaround efforts are starting to pay off as the world’s largest sportswear company realigns the business around specific sports such as running and basketball. Pfizer Inc. secured a reprieve from Trump’s long-threatened tariffs on the pharmaceutical industry Tuesday by agreeing to slash some of its drug prices by up to 85% and selling directly to the American public. Warren Buffett’s Berkshire Hathaway Inc. is nearing a deal to acquire Occidental Petroleum Corp.’s petrochemical business for about $10 billion. Mitsubishi UFJ Financial Group is in advanced talks to take a 20% stake in Shriram Finance Ltd. for about $2.6 billion, the Economic Times reported. Qualcomm Inc. said a Delaware court dismissed Arm Holdings Plc’s last remaining legal claim against the chipmaker, handing the US company a victory in their long-running dispute. Some of the main moves in markets:

Stocks

S&P 500 futures fell 0.4% as of 11:50 a.m. Tokyo time Japan’s Topix fell 1.7% Australia’s S&P/ASX 200 fell 0.3% Euro Stoxx 50 futures were little changed Currencies

The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.1736 The Japanese yen was little changed at 148.00 per dollar The offshore yuan fell 0.1% to 7.1369 per dollar Cryptocurrencies

Bitcoin fell 0.3% to $114,338.47 Ether fell 0.9% to $4,156.84 Bonds

The yield on 10-year Treasuries was little changed at 4.15% Japan’s 10-year yield was little changed at 1.640% Australia’s 10-year yield advanced seven basis points to 4.36% Commodities

West Texas Intermediate crude rose 0.1% to $62.44 a barrel Spot gold rose 0.2% to $3,865.93 an ounce This story was produced with the assistance of Bloomberg Automation.

–With assistance from Joanne Wong, Joanna Ossinger and Vassilis Karamanis.

(An earlier version of the wrap corrected name of a company in the corporate section.)

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