Global stock markets experienced a notable uptick on Tuesday as investors welcomed the prospect of an imminent end to the US government shutdown. The US Senate passed a deal on Monday aimed at restoring federal funding, providing a much-needed boost to market sentiment. Nevertheless, concerns about high valuations in the technology sector tempered some of these gains, while the US dollar maintained its strength against other currencies.
European Markets Respond Positively
European shares rose in early trading, with London’s FTSE 100 index leading the way. The index reached record highs, buoyed by a decline in the pound following disappointing employment data from the UK. This data increased investor confidence in the likelihood of a rate cut from the Bank of England next month.
According to Philip Shaw, chief economist at Investec, while the shutdown is not fully resolved, the arithmetic in the House of Representatives suggests a favorable outcome for the deal. He stated, “Given the arithmetic of the House, that seems pretty certain.” The impending release of various economic data, spanning jobs to industrial production, is expected to bring volatility to the markets.
Implications of the Shutdown and Economic Data
The Federal Reserve had recently lowered interest rates, but Chair Jerome Powell warned against assuming another cut in December. The uncertainty regarding forthcoming employment and inflation data remains a crucial factor. The STOXX 600 index rose by 0.6 percent, contrasting with a 0.1 percent drop in S&P 500 and Nasdaq futures, reflecting a mixed performance in US markets.
The bill addressing the shutdown now moves to the House, where Speaker Mike Johnson expressed intentions to expedite its passage, potentially by Wednesday. Market predictions, particularly on platforms like Polymarket, suggest a high likelihood of reopening by the end of the week. Economic forecasts indicate that the shutdown may have already reduced fourth-quarter GDP by approximately 0.4 to 1 percentage points, according to Carlos Casanova, an economist in Hong Kong.
Casanova noted, “Typically what happens is in the quarter after the activity bounces back… so I think what the market is doing is looking ahead one quarter and repricing that rebound.” On Wall Street, the S&P 500 climbed by 1.54 percent, marking its largest one-day percentage gain since mid-October. The Nasdaq also achieved significant gains, reflecting a broader rebound in technology stocks.
Notably, a selection of major AI-linked US tech stocks experienced their largest single-day rally since May, rising by 2.8 percent. This surge, however, may be tempered by developments from Japan’s SoftBank Group, which announced the sale of its entire stake in Nvidia for $5.83 billion in October.
Currency and Commodities Markets
On the currency front, the pound underperformed against the dollar, falling nearly 0.4 percent to $1.3128. This decline followed reports indicating that British wage growth slowed while unemployment increased during the three months leading up to September. Furthermore, consumer spending exhibited a slowdown in October, reinforcing the case for the Bank of England to consider rate cuts next month. The upcoming annual budget from finance minister Rachel Reeves, expected on November 26, may also introduce new tax hikes, contributing to uncertainty for UK households and businesses.
Meanwhile, the Japanese yen hit its lowest level since February, trading at 154.49 against the dollar before recovering slightly to 154.355 during European trading hours. In the commodities market, gold remained steady above $4,100 an ounce, while copper futures increased by 0.5 percent to $10,851 a tonne. Brent crude futures dipped slightly to $63.90 a barrel.
The US Treasury market remained closed in observance of Veterans Day. As global markets adjust to the potential end of the shutdown, investors will be closely monitoring forthcoming economic data and central bank decisions that could shape market dynamics in the weeks ahead.
