US government shutdown continues with no end in sight

 Ebury, the global financial services and payments specialist, released its latest market commentary as investors continue to navigate heightened uncertainty stemming from the ongoing US federal government shutdown.

The shutdown of most US federal functions continues into a second week, after Congress failed to agree upon spending bills to keep the government running.

Last week, this delayed the publication of the most important piece of economic data in the world, the US payrolls report. Markets took it in stride, however, as stocks continued to print at record highs and Treasury rates were steady. The dollar edged lower against most of its peers, albeit losses were largely contained. Indeed, currency markets traded in some of the tightest ranges we’ve seen all year. The biggest move in the G10 was the yen, which gave back its gains on Monday on news of the right-wing, pro-stimulus Takaichi's victory in the nation's ruling party's leadership election.

Matthew Ryan, Head of Market Strategy at Ebury, said: “With both Democrats and Republicans seemingly dug in, the main question for markets is how long the shutdown can go on before it begins to do real damage, both through the direct economic effects and the delay of key reports and resulting uncertainty. So far, markets remain sanguine. This week's docket of economic releases would be unusually light even without the shutdown, so currency markets will have little to go on other than watching the headlines on US budget negotiations.”

Matthew Ryan added: “The government shutdown has deprived markets of critical information on the state of the US economy, and we now have to rely on less conclusive privately generated data, notably the PMI numbers. Last week’s most important data release was the ADP measure of private sector job creation for September, which was bleak and suggested modest job destruction. That said, this measure has often diverged from the more influential BLS payroll numbers, and while it was not totally ignored by market participants, its impact on the dollar was relatively contained.”

The absence of Friday’s payroll data means that the bad taste left from the dismal ADP print will linger, and the longer the impasse continues, the more challenging it will be to get a clear read on the state of the US economy.

The Atlanta Fed real-time forecast for third quarter growth points to strong expansion of nearly 4% annualised, in spite of the undeniable slowdown in job creation, suggesting that the latter is due to shrinking labour supply rather than any collapse in demand for workers.