US stock index futures drop
US stock index futures were sharply lower in early trade this morning. The sell-off was the initial response from investors to news of the US government shutdown, which began at 12:01 EST. This came as Republicans and Democrats failed to agree on a temporary spending bill to keep funding going.
There have been previous shutdowns, and typically these have had little effect on financial markets. But much depends on how long the shutdown lasts. Given the current intransigence on both sides, there’s a possibility that federal services could be curtailed for some time.
Government data collection and statistical services have already been affected, and it’s looking increasingly like Friday’s Non-Farm Payroll update will be postponed. Given the recent volatility in this data series and the extreme revisions to prior releases, this will make life more difficult for economists and traders alike.
US Bureau of Labor Statistics (BLS) Commissioner Erika McEntarfer was fired by President Trump at the beginning of August following the release of a disappointing July jobs report and significant downward revisions to earlier numbers.
President Trump criticised the data release as being "rigged" against him despite providing no substantiating evidence for these claims. August’s data came in even weaker, despite the president appointing a Trump loyalist as the new commissioner.
The immediate effect of the shutdown is that around 750,000 federal employees will be furloughed, according to the Congressional Budget Office. But in contrast to other halts, this time, President Trump has warned that it could lead to permanent job losses. This puts additional emphasis on other labour market statistics due out this week.
Yesterday’s JOLTS Job Openings was broadly positive, although it did highlight a slowdown in hiring. All eyes will now be on today’s ADP Payroll number and tomorrow’s weekly Unemployment Claims update. This is particularly important given that the Federal Reserve has highlighted its concerns over signs of a weakening labour market.
The big question is if the Fed will be prepared to cut rates again at the end of this month, should they lack a key update on unemployment. The probability of a 25-basis point cut eased back slightly but remains above 90%.
Yesterday, US stock indices wrapped up the day, month, and quarter on a positive note with modest gains across the major indexes. For the third quarter, the S&P 500 gained around 8%, the Nasdaq advanced 9%, and the Dow added 5%. After-hours action saw Nike climb 4% on an earnings beat that surprised to the upside.
Source: TN Trader