Sydney, September 29 (Reuters) - Share markets kicked off the week with a cautious tone in Asia as investors prepared for a potential shutdown of the U.S. government. This situation could lead to a delay in the release of the September payrolls report and other significant economic data. President Donald Trump is scheduled to meet with top Democratic and Republican leaders in Congress later today to discuss options for extending government funding. If a deal is not reached, a government shutdown could commence as early as Wednesday, coinciding with the implementation of new U.S. tariffs affecting heavy trucks, pharmaceuticals, and various other items.
The anticipated closure raises concerns among analysts regarding the Federal Reserve's ability to gauge the economy effectively during its upcoming meeting on October 29. In a recent note, BofA analysts indicated that if the shutdown extends beyond this meeting, the Fed would have to depend on private data for its policy decisions. They suggest that this scenario may slightly reduce the likelihood of an interest rate cut in October, although only to a marginal extent. Currently, markets are pricing in a 90% probability of a rate cut this October, with a 65% chance of another cut in December.
Analysts from BofA also estimated that a government shutdown would likely reduce economic growth by approximately 0.1% for each week it persists. They highlighted that while the immediate impact on financial markets has historically been minimal, there is a risk that permanent layoffs during the shutdown could significantly harm payrolls and consumer confidence.
Moreover, uncertainty looms regarding an upcoming meeting of U.S. military leaders in Quantico, Virginia, scheduled for Tuesday, which will be attended by Defense Secretary Pete Hegseth and President Trump.
Despite the uncertainty, analysts anticipate that equities may find support from buying activity as the new quarter begins. Historically, the fourth quarter has been favorable for stock performance, with the S&P 500 gaining 74% of the time during this period. Both S&P 500 futures and Nasdaq futures experienced a slight increase of 0.2%, rebounding after a modest decline last week. Additionally, EUROSTOXX 50 futures, along with FTSE and DAX futures, also rose by 0.3%.
In the bond markets, U.S. Treasuries found stability at 4.17%, despite facing pressure last week from a series of positive U.S. economic reports. These reports prompted investors to adjust their expectations regarding the potential trajectory of Federal Reserve rates. This week, an array of central bank officials are scheduled to speak, with at least four representatives from the Fed and the European Central Bank making appearances on Monday alone.
The dollar index remained steady at 98.134, bolstered by a collection of favorable economic news from the previous week. The euro traded at $1.1708, settling within the lower range of its recent fluctuations between $1.1646 and $1.1918. Meanwhile, the dollar was positioned at 149.49 yen following a rally of over 1% last week, distancing itself from the September low of around 145.50.
In the commodities sector, gold prices hovered just below a record high of $3,764 per ounce. Conversely, oil prices saw a decline as crude oil shipments began flowing through a pipeline from the semi-autonomous Kurdistan region in northern Iraq to Turkey for the first time in two and a half years. According to Reuters, OPEC+ is expected to approve an additional oil production increase of at least 137,000 barrels per day at its meeting scheduled for next Sunday. As a result, Brent crude prices dropped by 0.8% to $69.57 per barrel, while U.S. crude oil eased by 0.9% to $65.14 per barrel.
Editing by Shri Navaratnam
