Shutdown showdown

• In a risk-off market, UK equities managed to stay flat (0%)
• Sterling managed to scratch back losses against the dollar to end the week around 1.31 USD
• Gold managed to stem recent losses to end the week ~$4,000 per troy ounce

• Other equities slid: US -2%, Asia ex-Japan -1.8%, emerging markets -1.7%, Europe -1.2% and Japan -1% (in sterling terms)
• Brent crude oil slipped -2.2% in dollar terms

Lasting more than 40 days, the longest and costliest US government shutdown on record may be coming to an end. But the US Congressional Budget Office estimates permanent losses of between $7bn and $14bn, even after the government reopens. Around 1.4 million federal employees are still working without pay or on unpaid leave. Some employees are not showing up, preferring fractional paid work in the gig economy until their federal paycheques resume. The dispute had led the Federal Aviation Authority to cut domestic flights by 10%, cancelling hundreds of thousands of journeys. 

Ending the spat is tricky. The Democrats want to extend expiring tax credits which make healthcare cheaper for millions of Americans. Emboldened after last week’s election wins, they may have dug in: Zohran Mamdani won the New York City mayoral race, and the Dems took over the governor and attorney general in Virginia and the governor in New Jersey. Set against low approval ratings for President Trump on the economy and inflation, the wins are the first indication that the Democrats may retake the House of representatives in the US mid-terms in November 2026. President Trump will want to do everything possible to juice the economy and prevent negative headlines until then.

The shutdown is still delaying the collation and distribution of key economic data: no jobs data (non-farm payrolls) were released last week. Less official data makes it more likely that the market will overreact to any information it does get – often politically biased sentiment surveys – in a data blackout.

Rate-setters at the Bank of England (BoE) voted 5-4 to hold interest rates at 4% last week, perhaps delaying a decisive move until after the Autumn Budget. Their dovish assessment was that UK inflation has peaked and that borrowing costs were "likely to continue on a gradual downward path". Bank Governor Andrew Bailey voted for no change, preferring to “wait and see" if price rises continue to ease this year. September’s UK consumer prices inflation came in at 3.8%, so cutting rates by 0.25% now would have led to a negative real bank rate of 3.75%. Crucially, there are still two key inflation data releases before policymakers next convene on 18 December. Concern that these might not report moderating inflation, together with uncertainty around the Budget in November, means that markets are only pricing in a c.70% probability of a rate cut in December. Ordinarily a close vote and a dovish statement would near-guarantee a cut at the next meeting. Chancellor Reeves’ unusual pre-Budget speech last week did little to prevent speculation that she will break a Labour manifesto pledge and raise income tax rates. If anything, it may have laid the groundwork for it.

China’s exports fell -1.1% compared to October last year, the first decline since the US announced ‘Liberation Day’ tariffs in April. Imports grew by 1% on the same basis. The fall in exports surprised economists who had expected +3.5% export growth, coming after months of strong growth and an +8.3% rise in September. Trade data can be very volatile and has been especially so during recent US-Sino negotiations. Experts believe China trade data should remain strong into 2026 as companies look to frontload their shipments ahead of any renewed escalation. But it’s clear that standard trade patterns are being distorted by new US tariffs – despite a year-long truce.

Additionally, China’s Purchasing Manager Index (PMI) data for both manufacturing and services continued to expand in October staying above the critical 50-level signalling expansion, albeit at a slower pace than previous months. Compared to September, the Services PMI slipped to 52.6 from 52.9 and the manufacturing PMI slid to 50.6 from 51.2. The small contractions may reflect a decline in overseas orders and a boost in domestic demand. 

• US October job cuts surged: US employers planned 153,074 job cuts in October – the highest October since 2003 (Challenger, Grey & Christmas). Around 50,000 were tied to budget trimming and 31,000 to AI adoption. This report fuelled much debate following delays to official jobs data due to the government shutdown
• US Institute for Supply Management (ISM) Services PMI beat expectations (52.4 vs 50.8 forecast), pointing to the strongest expansion in the sector since February (readings above 50 indicate expansion)
• US Manufacturing PMI fell to 48.7 in October (vs 49.5 forecast), marking an eight consecutive month of contraction, driven by weaker production and inventories
• US consumer sentiment weakens: The University of Michigan preliminary November sentiment index fell 3.3 to 50.3, the lowest since June 2022. The decline was driven by a large drop in current personal finances and an 11% fall in expectations for year-ahead business conditions
• Nikkei retreats as AI stocks sell off: Japan’s Nikkei 225 fell sharply on Wednesday as AI-related tech and chip stocks came under pressure, dragging the index -4% lower over the week
• Cryptocurrencies slide with tech sell-off: Bitcoin pulled back last week, slipping below $100,000 and marking a second weekly decline. Ether and other major tokens followed as weaker tech sentiment hit risk appetite
• OpenAI has signed a seven-year, $38bn deal to use Amazon Web Services (AWS) for its AI infrastructure, diversifying beyond its dependency on Microsoft
• AstraZeneca US stock market listing: shareholders voted 99% in favour of pursuing a New York Stock Exchange direct listing, while retaining its London and Stockholm listings
• Uber delivers strong Q3 beat: Uber reported a 20% rise in revenue to $13.bn year-on-year, ahead of forecasts. Monthly active consumers rose 17% to 189 million, with trips up 22% year-on-year to 3.5 billion
• Sky eyes £1.6bn ITV Deal: Sky has entered preliminary talks to acquire ITV’s media and entertainment business for £1.6bn, potentially creating the UK’s largest broadcaster and boosting competition against US streaming giants like Netflix and Disney
• COP30 begins in Brazil: World leaders gather this week for the UN’s climate summit in the Brazilian Amazon to discuss efforts to combat human-driven climate change. Presidents Xi and Trump and Prime Minister Modi are expected to be absent

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