Gold reached a new high yesterday, while stock markets showed varied performance as traders anticipated a potential US government shutdown that might impact the release of important economic data, although expectations of further Federal Reserve interest rate reductions offered some support.
A series of key metrics has recently reinforced investor belief that the US central bank will cut interest rates two more times this year, following its first reduction this month since December.
This week features analyses of the labor market, including job vacancies, private sector hiring, and non-farm payrolls, with analysts expecting these indicators to reveal a continued slowdown in the labor market, providing the Fed with flexibility to ease monetary policy.
Nevertheless, there are worries that the inability of Republicans and Democrats to reach an agreement on maintaining government funding might result in certain schedules being delayed.
Leaders from both political parties in Congress met with President Donald Trump on Monday in an effort to reach an agreement before the Tuesday midnight deadline, yet senior Senate Democrat Chuck Schumer stated to reporters that "significant gaps" still existed.
Vice President JD Vance claimed the Democrats are holding "a gun to the American people's head" through their financial requests, stating, "I believe we are moving toward a government shutdown because the Democrats aren't doing what's right."
Although shutdowns are typically not painful, Neil Wilson from Saxo Markets stayed cautious.
"Typically, markets pay little attention to shutdowns — they usually last just a few days, and investors tend to maintain a long-term perspective, meaning the brief nature of most events has minimal effect on company earnings. The average duration of shutdowns is eight days," he wrote.
However, he cautioned, "It might be different this time."
Intense political disagreements might prolong the situation. A prolonged shutdown could lead to significant impacts on stock markets. During the 35-day shutdown in 2018-2019, the S&P 500 dropped by 14%.
He also highlighted the White House's warning of large-scale dismissals, continuing a recent broad federal reduction in workforce, while recent adjustments to economic policy have increased uncertainty and signaled the possibility of a recession.
Asian stock markets started the day by continuing Monday's rise, although some found it difficult to keep up the momentum.
Shanghai increased despite data indicating that Chinese factory activity declined for the sixth consecutive month, while Hong Kong, Taipei, Singapore, Mumbai, and Wellington also rose.
Tokyo, Sydney, Seoul, Manila, Bangkok, and Jakarta were joined by London, Paris, and Frankfurt.
The possibility of a government shutdown and predictions of interest rate reductions put pressure on the dollar, contributing to gold reaching a new high above $3,871.
There is increasing speculation that it may soon reach US$4,000, having risen by nearly 50% since the start of the year.- Nampa/AFP
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