Stocks Head for Second Quarter of Gains; Oil Drops: Markets Wrap

(Bloomberg) — US equities are on track for a second straight positive quarter even as stock moves were tepid for most of Tuesday’s session. Traders remain concerned that the delayed release of crucial economic data because of an imminent US government shutdown would cloud the Federal Reserve’s path of interest-rate cuts.

The S&P 500 has been oscillating between modest losses and gains even as it’s gearing up for the best September in 15 years, fueled by optimism over artificial intelligence and lower rates. Treasuries gained for the third straight quarter.

The Bloomberg Dollar Spot Index is little changed for the month after declining for a third consecutive session. Oil extended a sharp decline as OPEC+ considers boosting the pace of its output hikes in the coming months.

Economic data over the past month has showed that the labor market is slowing down while inflation is relatively under control — but still above the Fed’s 2% target. Friday’s nonfarm payrolls data would have provided more clarity on the pace of the Fed’s rate cuts for the rest of the year. But even with the release of the data in doubt as the US government veers toward a shutdown, traders are still getting glimpses this week of how the labor market is faring.

The JOLTS report on Tuesday showed US job openings were little changed in August while hiring was subdued, indicating that demand for workers is slowing. Wednesday’s data will provide insight on company hiring.

Still, many federal operations would pause in the event of a shutdown, and the Bureau of Labor Statistics — responsible for a number of gold-standard US economic releases — would cease operations and likely delay Friday’s payroll report.

This hindrance wouldn’t change the Fed’s decision for at least its upcoming meeting in October, according to David Seif, Nomura’s chief economist for developed markets.

“The less data that comes out, the less reason the Fed would have to deviate from the dot plot,” he said on Bloomberg Television on Tuesday. “The dot plot indicates 25 basis points in October. It is our view that will happen, whether or not they get the data.”

Even so, “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.”

What Bloomberg Strategists say…

“With just hours to go until a midnight deadline, markets have started to display more jitters about the impasse in Washington. Stocks fell, which has been common for risk assets at the onset of past shutdowns. The dollar’s performance has been more nuanced on shutdown days but overall slightly positive, on average. This time, concerns about the dollar’s status and broader US institutional credibility could magnify the currency’s swings. Bonds have rallied as investors seek safety.”

—Tatiana Darie, Macro Strategist, Markets Live

For the full analysis, click here.

Traders have also been hearing from a handful of Fed speakers. Boston Fed President Susan Collins said further rate reductions may be appropriate this year given a weaker labor market, but officials need to remain wary about the possibility of persistent inflation. Fed Vice Chair Philip Jefferson warned that the central bank faces a cooling labor market alongside rising inflation pressures, complicating the policy outlook.

“I see the risks to employment as tilted to the downside and risks to inflation to the upside,” Jefferson said in remarks prepared for the fourth International Monetary Policy Conference hosted by the Bank of Finland. “It follows that both sides of our mandate are under pressure.”

Investors, meanwhile, are assessing what investment opportunities a shutdown would create. Citi Research says that the length of the shutdown is important to note, as stocks typically weaken in the event of longer shutdowns while rates rally. Monica Guerra, head of US policy at Morgan Stanley Wealth Management, writes that shutdowns in the past have had minimal negative impact on real GDP and S&P 500 performance historically.

“We would remind investors that shutdowns are common, and once resolved, agency operating budgets and employees are made whole, blunting any broader market and economic impacts,” she wrote. “Sectors with high exposure to government contracts, such as defense and health care, may face weakness in a full shutdown scenario, indicating a buying opportunity given a positive long-term outlook for the sectors.”

Corporate News:

Pfizer Inc. Chief Executive Officer Albert Bourla said the company secured a three-year grace period from Trump’s promised tariffs on pharmaceuticals in a deal that would lower some of the company’s US drug prices. CoreWeave Inc. has signed a deal to supply Meta Platforms Inc. with as much as $14.2 billion worth of computing power. EchoStar Corp. shares jumped as the satellite-TV company engaged in talks to sell some of its wireless spectrum to Verizon Communications Inc. Exxon Mobil Corp. plans to cut about 2,000 jobs globally as the Texas oil company consolidates smaller offices into regional hubs as part of its long-term restructuring plan. Spotify Technology SA Chief Executive Officer Daniel Ek is stepping aside after almost two decades at the music streaming company he co-founded, leaving the leadership in the hands of two trusted executives. China’s state-run iron ore buyer has told major steelmakers and traders to temporarily halt purchases of all new BHP Group cargoes, escalating a pricing dispute that risks upending one of the mining giant’s most important trading partnerships. Some of the main moves in markets:

Stocks

The S&P 500 rose 0.1% as of 2:54 p.m. New York time The Nasdaq 100 was little changed The Dow Jones Industrial Average was little changed The MSCI World Index rose 0.2% Currencies

The Bloomberg Dollar Spot Index fell 0.2% The euro rose 0.1% to $1.1743 The British pound rose 0.2% to $1.3450 The Japanese yen rose 0.5% to 147.81 per dollar Cryptocurrencies

Bitcoin fell 0.6% to $113,652.48 Ether fell 2.7% to $4,114.28 Bonds

The yield on 10-year Treasuries was little changed at 4.14% Germany’s 10-year yield was little changed at 2.71% Britain’s 10-year yield was little changed at 4.70% Commodities

West Texas Intermediate crude fell 1.5% to $62.52 a barrel Spot gold rose 0.4% to $3,848.31 an ounce This story was produced with the assistance of Bloomberg Automation.

–With assistance from Andre Janse van Vuuren, Eman Abouhassira, Isabelle Lee and Vildana Hajric.

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