Stock Futures Fall as US Government Nears Shutdown: Markets Wrap

(Bloomberg) — S&P 500 and Nasdaq 100 index futures extended their losses as the US government neared a shutdown after a stopgap funding bill to avoid the closure failed.

Contracts for the S&P 500 fell 0.3% after the index had its best September in 15 years. A gauge of the dollar edged higher after three days of losses while gold hovered around a record high set Tuesday. 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 in Tuesday 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 Federal Reserve’s path on interest-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.

Trump’s threat to permanently lay off workers could turn the shutdown into a “mini labor market shock,” wrote Kyle Rodda, a senior market analyst at Capital.com in Melbourne.

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 lack of key data on Friday in the event of a shutdown 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.”

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.

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.

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 UFG Financial Group is in advanced talks to take a 20% stake in Shriram Finance for about $2.6 billion, the Economic Times reported. Some of the main moves in markets:

Stocks

S&P 500 futures fell 0.3% as of 9:57 a.m. Tokyo time Japan’s Topix fell 1% Australia’s S&P/ASX 200 was little changed Euro Stoxx 50 futures rose 0.2% Currencies

The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.1736 The Japanese yen fell 0.1% to 148.11 per dollar The offshore yuan was little changed at 7.1305 per dollar Cryptocurrencies

Bitcoin fell 0.4% to $114,224 Ether fell 1.2% to $4,146.3 Bonds

The yield on 10-year Treasuries was little changed at 4.15% Japan’s 10-year yield advanced one basis point to 1.645% Australia’s 10-year yield advanced five basis points to 4.36% Commodities

West Texas Intermediate crude fell 0.2% to $62.25 a barrel Spot gold was little changed This story was produced with the assistance of Bloomberg Automation.

–With assistance from Rob Verdonck.

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