Market Report.
📉 The U.S. government shut down just after midnight, after Congress failed to pass stopgap funding bills before the deadline. The shutdown occurred as Republicans and Democrats refused to budge from their opposing positions, with Democrats insisting on including an extension of enhanced Affordable Care Act (ACA) tax credits in any funding bill.
🤔 Democratic leaders Schumer and Jeffries said Trump’s behavior has become “more erratic and unhinged” and accused Republicans of wanting to gut healthcare for Americans. However, Democratic Senator Fetterman broke ranks to support the Republican stopgap funding bill, saying he voted “for our country over my party.”
🔥 President Trump has added fuel to the fire, threatening to cancel programs favored by Democrats and fire more federal workers if the government shuts down.
🚫 The shutdown is expected to disrupt a wide range of government services and functions, from air travel to economic data releases, as hundreds of thousands of federal workers are furloughed without pay.
💰 The nonpartisan Congressional Budget Office estimated the shutdown could furlough around 750,000 federal employees, costing roughly $400 million per day in compensation. Both sides continued to blame the other, with Democrats warning of higher insurance premiums and Republicans denying claims they want to provide benefits to undocumented immigrants.
📉 The last government shutdown in 2018-2019 cost the U.S. economy $3 billion, and this one could disrupt everything from air travel to economic data releases. With no sign of compromise, it’s unclear how long this shutdown will last, with past shutdowns ranging from a day or two to the record 35-day shutdown under Trump.
🛃 Does this mean that there will be no customs staff to apply the tariffs? well, not exactly.
📦 The Department of Homeland Security (DHS) has stated that the collection of tariffs and duties on imported goods will continue during the government shutdown. This means that the U.S. Customs and Border Protection agency, which is part of DHS, will continue to process imports and collect tariffs despite the broader government shutdown.
⚖️ This underscores how the tariff policies championed by the Trump administration remain a priority, even as the broader government faces a partial closure. The shutdown’s effects on the economy and businesses will still be significant, even with customs operations continuing, as other government services critical to commerce are disrupted.
📉 The data prior to the employment report still give weakness for the labor market in the US. Job openings increased marginally in August, while hiring declined, indicating lackluster labor market conditions that could allow the Federal Reserve to cut interest rates further.
🔍 The causes could be a lagging drag from trade policy uncertainty and the rise of artificial intelligence for the stagnation in the labor market, along with an immigration crackdown reducing labor supply.
📊 The report could be the last key economic data for a while as the government is likely to shut down when funding runs out, suspending data releases including the September jobs report. The Fed is expected to put more emphasis on the labor market, though the partial government shutdown could delay the release of key data ahead of their October meeting.
🇩🇪 In Europe, German inflation accelerated more than expected in September, rising to 2.4% – the highest level since February. This comes as Germany, Europe’s largest economy, is only just emerging from two consecutive years of economic contraction and will likely still be hit by the effects of U.S. tariffs.
📈 The rise in German inflation could indicate similar developments in euro zone inflation, which is expected to increase to 2.2% in September from 2.0% the previous month. Germany’s core inflation rate, excluding volatile food and energy prices, rose to 2.8% in September, proving more persistent than many had expected.
🏦 The European Central Bank left interest rates unchanged this month, but the higher German inflation data may catch the attention of the ECB’s “hawks” who could argue against further rate cuts.
⚖️ However, other German economic data points to deflationary risks, with retail sales unexpectedly falling, import prices decreasing, and unemployment rising more than expected while the economy struggles to recover. The ECB is clearly disoriented.
🇬🇧 In the UK, Bank of England Deputy Governor Sarah Breeden warned of the threat to the economy posed by leaving interest rates too high for too long, exposing divisions within the central bank. Breeden played down factors that could keep inflation elevated, such as a recent rise in household inflation expectations, but did not indicate whether a rate cut would be needed at the next meeting.
📉 The UK economy is grappling with stubbornly high inflation, which rose to 2.8% in September, exceeding the BOE’s 2% target. The BOE held interest rates steady at its last meeting, but the split views suggest there may be a debate over the appropriate policy path going forward.
⚖️ The diverging perspectives within the central bank, also in the UK, reflect the challenging trade-offs policymakers face in trying to balance price stability and supporting the UK’s economic recovery.
💊 Meanwhile, in the corporate world: President Trump announced an agreement with Pfizer to voluntarily sell its medications for less, as his administration pushes to link U.S. drug prices to cheaper ones abroad. Pfizer has agreed to sell its existing drugs to Medicaid patients at the lowest price offered in other developed nations, and to guarantee the same “most-favored-nation” pricing on its new drugs for Medicare, Medicaid and commercial payers.
🏭 As part of the deal, Pfizer will invest $70 billion to reshore domestic drug manufacturing and research facilities, and will have a three-year grace period during which its products won’t face pharmaceutical-specific tariffs.
💸 Pfizer will offer discounts of 50% on average and up to 85% on a large share of its primary care treatments and certain specialty branded drugs, which will be available for direct purchase at a discount on a new website called TrumpRx.gov.
📅 The deal comes as Pfizer and 16 other drugmakers face a Monday deadline from Trump to take steps to lower drug prices, including pursuing tougher price negotiations abroad and adopting models that sell medicines directly to consumers or businesses.
🚫 Taiwan has pushed back on a U.S. request to move chip production stateside to cover half of America’s semiconductor demand. Taiwan’s Vice Premier Cheng Li-chiun stated that the idea of having the U.S. produce 50% of the semiconductors it needs came from Washington, and Taiwan has never made such a commitment. Trump has been pressuring Taiwan, a major global chip producer, to shift more manufacturing to America to reduce reliance on foreign sources and bolster domestic chip production.
🌍 Geopolitics:
⚓ According to Reuters, Italy’s navy will cease escorting the Gaza flotilla once it is within 150 nautical miles of the shore to prevent “a diplomatic incident” with Israel.
📢 Following the press conference with Trump regarding a new peace agreement, Netanyahu asserted that Arab countries have accepted Israel’s terms and stated that Israel will never withdraw from Gaza. He claimed, “Instead of Hamas isolating us, we isolated Hamas. Now the entire world, including the Arab and Muslim world, is pressuring Hamas to accept the terms… to release all our hostages… while the IDF remains in most of the Strip.” Netanyahu’s remarks indicate a hardline stance rather than a genuine offer for a ceasefire, framing the situation as an ultimatum to the Palestinians.
✊ For the fourth night in a row, Morocco is experiencing demonstrations led by young people demanding social improvements to the monarchy that runs the country. Multiple cases of repression and riots have been reported during these protests.
🇲🇦 Morocco is an important ally of the USA and Israel, so these revolts, unlike the Arab springs, are definitely not sponsored by them.
⚔️ Reports indicate that the likelihood of a new conflict with Iran is increasing, as the U.S. is deploying a significant number of fighter jets and aerial refueling tankers to the Middle East. Some of these tankers have already arrived at Al-Udeid Airbase in Qatar, transporting fighter jets with them. Additionally, dozens of aerial refueling tankers and fighter jets remain stationed at various RAF bases across the United Kingdom, awaiting deployment.
🔔 U.S. Secretary of War Pete Hegseth has declared that the newly restored Department of War will focus solely on “war fighting, preparing for war, and preparing to win.” He emphasized that the department will be “unrelenting and uncompromising” in this mission.
🛡️ “From now on, the job of the U.S. military will be to create peace through war. No more identity politics, no more men in dresses. Our focus is on combat,” Hegseth also said.
🛡️ In Europe, The “threat of Russian drones” works. Business moves to defense. Venture capital funding for European defense tech startups is projected to rise by 132% in 2025 from last year, now accounting for 6.2% of total European VC funding, up from less than 1% before 2020. Much of this new capital is going into startups focused on using AI in defense, robotics, and autonomous systems, as Europe seeks to bolster its military capabilities.
📉 Market View.
😱 The worst-case scenario is unfolding as the US government shuts down. This does not seem to have sat well with the markets in the United States, although panic has not ensued. Mini S&P 500 futures have retraced below 6,700 points, currently at 6,689.50 points, while Nasdaq 100 futures are following a similar trend, dropping to 24,675 points.
📉 The dollar index is weakening, falling to 97.50 points. EUR/USD has managed to surpass 1.1750, rising to the current 1.1775.
📉 In Europe, DAX 40 futures managed to exceed 24,000 points yesterday; however, they are experiencing a strong retracement at the start of the European session, currently at 23,920 points. Eurostoxx 50 futures have also retraced after reaching 5,550 points, now trading at 5,535 points.
📉 Oil has continued its decline within the channel formed since August, with Brent crude falling to around $65.60, rebounding slightly to the current $66.27.
📈 Gold futures reached slightly above $3,900 in recent hours but have retraced slightly to the current $3,890.
💰 Lastly, Bitcoin, which was approaching $115,000 yesterday, has pulled back but is attempting to rally again, currently trading at $114,425.
