How a U.S. government shutdown could impact global markets

Core Viewpoint - The U.S. government shutdown has raised concerns among investors regarding its potential impact on the economy and capital markets, particularly with upcoming jobs data and Federal Reserve decisions on the horizon [2][12]. Market Reactions - U.S. risk assets showed volatility, with gold reaching its 39th record high this year, indicating a flight to safe-haven assets [5]. - European stocks experienced slight gains, while Asian shares had mixed performances amid the uncertainty [5]. - The U.S. 10-year Treasury yield fell by 4 basis points following a surprise decline in private payrolls [5]. Historical Context - Historical data shows that government shutdowns typically result in modest market impacts, with average changes in the S&P 500 and other indices being relatively small [4][15]. - The longest shutdown in history occurred during Trump's first term, raising concerns about the current impasse's duration [3]. Economic Implications - The shutdown could lead to delays in critical U.S. jobs data, complicating the Federal Reserve's outlook just weeks before its next meeting [2][17]. - Analysts suggest that widespread layoffs could negatively affect the dollar's value and lead to capital flows into other currencies like the euro and yen [12][13]. Investor Sentiment - There is a prevailing sentiment among analysts that the shutdown should not be viewed as a major risk event, as past shutdowns have resulted in only short-lived volatility [14][15]. - UBS analysts recommend that investors focus on other market drivers, such as ongoing Fed rate cuts and strong corporate earnings, rather than the shutdown itself [18].