By Kevin Flanagan, Head of Fixed Income Strategy Key Takeaways As the money and bond markets enter the second calendar week of the federal government shutdown, I thought it would be prudent to offer some insights and answer some questions our team has been fielding. While it doesn't seem as if an end is in immediate sight for the shutdown, as we've seen this year, developments and headlines can change quickly. Here are some key takeaways: The Facts: Bottom Line Typically, when disruptions such as a shutdown ...

Group 1 - Senator Elizabeth Warren is urging the Trump administration to release the September employment report, which is crucial for economic data, especially given the Federal Reserve's concerns about a weak job market and rising unemployment rates [1][2] - The Bureau of Labor Statistics (BLS) has reportedly completed the collection of labor data for September, and it is likely ready for release [1][2] - The White House has attributed the government shutdown to Democrats, claiming it creates an "information vacuum" that hinders decision-making for investors, economists, and Federal Reserve officials [2][3] Group 2 - The government shutdown is causing delays in the release of key economic data, including the BLS's non-farm payroll report and inflation reports, which are critical for economic assessments [1][3] - The Bureau of Economic Analysis (BEA) has also been asked to suspend operations, affecting the scheduled release of trade data and GDP figures [3] - The shutdown may force investors and Federal Reserve officials to rely on alternative data sources, such as the ADP report, which indicated a surprising drop in private sector employment, suggesting ongoing weakness in the job market [4]

Gold (GC=F) futures opened at $3,788.80 per ounce on Monday, up 0.4% from Friday’s close of $3,775.30. The price of the precious metal moved above $3,800 in early trading. Gold rose above $3,700 on September 22, the same day the S&P 500 and the Nasdaq Composite closed at record highs. Stocks have since retreated slightly as Wall Street attempts to predict how interest rates will evolve in the short term. Disagreement among Fed governors and, now, the potential for a government shutdown, confuses the issue ...

Market Overview - US stock markets experienced a decline for the second consecutive day, with the Dow Jones falling by 171.50 points (0.37%) to 46121.28, the Nasdaq down 0.34% to 22497.86, and the S&P 500 decreasing by 0.28% to 6637.97, as investors reacted to cautious remarks from Federal Reserve Chairman Jerome Powell [1] - The materials sector led the decline, while the energy sector gained momentum due to a significant rise in oil prices [1] Key Company Performances - Tesla shares rose by 4.0%, while Microsoft increased by 0.2%. In contrast, Amazon fell by 0.2%, Apple and Nvidia dropped by 0.8%, and Google decreased by 1.8%. Oracle's stock fell by 1.7% amid reports of a $15 billion bond issuance plan [1] - The Nasdaq China Golden Dragon Index increased by 2.8%, with Alibaba rising by 8.2%, JD.com and Baidu up over 5%, and Pinduoduo increasing by 1.9%. However, NetEase saw a decline of 1.8% [2] Economic Data - In August, new home sales in the US rose to an annualized total of 800,000 units, up 20.5% from July's 664,000 units, exceeding market expectations [2] - The Mortgage Bankers Association reported a 0.6% increase in mortgage applications for the week ending last Friday, attributed to a decline in the average rate for 30-year fixed mortgages [2] Federal Reserve Insights - Powell's remarks indicated concerns over high asset valuations, suggesting a balancing act between addressing inflation risks and labor market weaknesses [2] - San Francisco Fed President Mary Daly mentioned the potential need for further rate cuts due to slowing economic growth and consumer spending [2] - Chicago Fed President Austan Goolsbee expressed caution, stating that the employment market remains stable and that premature rate cuts could be problematic [2] Commodity Market Movements - International oil prices reached a seven-week high, with WTI crude oil near-month contracts rising by 2.49% to $64.99 per barrel, and Brent crude increasing by 2.48% to $69.31 per barrel [4] - Gold prices fell from record highs, with COMEX gold futures for September delivery dropping by 1.28% to $3732.10 per ounce [4]

Market Overview - U.S. stock markets experienced declines for the second consecutive day as investors reacted to Federal Reserve Chairman Jerome Powell's cautious remarks, awaiting key economic data later in the week [3] - The Dow Jones fell by 171.50 points (0.37%) to close at 46,121.28, while the Nasdaq and S&P 500 dropped by 0.34% and 0.28%, respectively [3] - The materials sector led the declines, while the energy sector gained due to a significant rise in oil prices [3] Economic Data - U.S. new home sales increased by 20.5% in August, rising from an annualized total of 664,000 units in July to 800,000 units, surpassing market expectations [3] - The Mortgage Bankers Association reported a 0.6% increase in mortgage applications due to a decline in the average interest rate for 30-year fixed mortgages [3] Federal Reserve Insights - Powell's comments indicated concerns over high asset valuations, suggesting a balancing act between addressing inflation risks and labor market weaknesses [4] - Macquarie Group noted that the market's reaction to Powell's "hawkish" remarks was not surprising, given the previous lack of market downturn after similar comments [4] - San Francisco Fed President Mary Daly suggested that further rate cuts may be necessary due to slowing economic growth and consumer spending [4] Individual Stocks - Intel shares rose by 6.4% as reports emerged that the company is seeking investment from Apple [6] - Micron Technology fell by 2.8% amid concerns over potential competition from Samsung in the high bandwidth memory sector [6] - Freeport-McMoRan's stock plummeted by 17% after announcing force majeure at its Grasberg mine in Indonesia, predicting a decline in copper and gold sales for Q3 [6] Commodity Prices - International oil prices reached a seven-week high, with WTI crude oil rising by 2.49% to $64.99 per barrel and Brent crude increasing by 2.48% to $69.31 [7] - Gold prices fell from record highs, with COMEX gold futures for September delivery dropping by 1.28% to $3,732.10 per ounce [7]

Investment Rating - The report indicates a cautious approach towards interest rate adjustments, suggesting a potential for rate cuts in the near future, with a target rate of 3.5% by Q3 2026 [1][9]. Core Insights - Economic growth is slowing due to reduced immigration, declining government spending, and stagnation in healthcare employment, but inflation is not a primary concern [1][3]. - Emerging technologies are driving capital investment, leading to economic growth, although companies prioritize profit margins over labor input, resulting in stagnant wage growth and hiring [1][4]. - The Federal Reserve is expected to initiate a cautious rate-cutting cycle, with inflation not anticipated to be a significant issue in the next 6-9 months [8]. Summary by Sections Economic Growth and Labor Market - Current economic conditions show a bifurcated landscape, with emerging technologies contributing to capital investment while companies focus on profit margins, leading to stagnant wage growth and hiring [4][11]. - Existing labor income is growing at an annual rate of 3.7%, but new job creation is stagnant [4]. Federal Reserve's Interest Rate Decisions - There is internal disagreement within the Federal Reserve regarding interest rate decisions, with some members advocating for rate hikes while the majority favors further cuts [5][6]. - The probability of a 50 basis point rate hike in October and December is higher than a pause, influenced by upcoming employment data [6]. Inflation and Future Projections - Inflation is not expected to be a major issue in the near term, allowing the Federal Reserve to approach a cautious rate-cutting cycle [8]. - By the end of 2026, the Federal Reserve may need to consider inflation concerns as credit expansion and emerging technologies impact the labor market [9]. Market Expectations - Market expectations for interest rates are around 3%, with a potential low of 2.85%, indicating uncertainty in the market [10]. - Emerging markets, such as Brazil and South Korea, are highlighted as areas of interest due to potential structural reforms and asymmetric opportunities [14].

Core Viewpoint - The Bank of England is set to announce its interest-rate decision on Thursday, which is highly anticipated by market participants and analysts [1] Group 1 - The decision is expected to have significant implications for the UK economy and financial markets [1] - Analysts are closely monitoring inflation trends and economic indicators leading up to the announcement [1] - The outcome of the interest-rate decision could influence borrowing costs and consumer spending in the UK [1]

Group 1 - The preliminary benchmark revisions indicated a decrease of 911,000 jobs, marking the first negative revisions since December 2020, raising concerns about the reliability of data used by the Federal Reserve for interest rate decisions [1] - The Bureau of Labor Statistics is aware of the issues related to low response rates and the challenges posed by the birth-death model, which complicates job creation data due to the dynamic nature of new businesses [3][4] - There is a need for higher response rates to reduce data volatility, which can be achieved by ensuring that data collection agencies have adequate resources [5] Group 2 - Job creation data tends to be less reliable in the first month due to low response rates, but improves significantly by the second and third months as more responses are collected [6] - If the benchmark data indicating that 51% of previously thought jobs were not actually there is accurate, it suggests a weaker job market entering the year, which could have influenced interest rate decisions if known earlier [7] - The current approach requires focusing on present data rather than past information, leading to timely actions based on the latest available data [8]

Group 1 - The Dow Jones 30 is currently flat as traders await the FOMC interest rate decision, with expectations for three interest rate cuts by year-end [1] - The S&P 500 is experiencing choppy trading, with market reactions anticipated based on the Federal Reserve's rate decisions [3] - A significant support level for the S&P 500 is identified at 6500, with expectations for a potential V pattern recovery after any downward movement [4] Group 2 - The market is sensitive to the tone of the FOMC statement, which could influence trader sentiment and market direction [1][3] - A breakdown below the rising wedge pattern could lead to a test of the 45,000 level, a psychologically significant figure [2] - The overall market sentiment remains bullish, despite the anticipated volatility in the hours following the FOMC meeting [4]

Group 1 - Asian equity markets ended on a mixed note as investors anticipated the Federal Reserve's interest-rate decision later in the day [1] - A 25-basis-point cut is widely anticipated and already priced in by the market [1] - China's Shanghai Composite Index advanced by 0.37% to close at 3,876, leading gains in the region [1]