Shutdown Starts, Markets Navigate the Data Fog

Market Snapshot

A U.S. federal shutdown has begun after Congress failed to pass funding, threatening delays to key economic releases. Equity futures are modestly lower, the VIX near 16, and the 10-year Treasury around 4.15%. The macro mix: cooling labor momentum, moderating but sticky core inflation, and a sharp pullback in oil. Near term, investors will watch shutdown duration, any data blackout, and bank earnings.

Shutdown Begins, Data Blackout Threat Looms Missing official data could cloud the Fed’s decisions and risk pricing. Congress failed to pass funding, triggering a shutdown that may delay BLS releases, including the jobs report. Past episodes had limited direct GDP drag, but uncertainty scales with duration, pushing markets to lean on high-frequency indicators and Fed speakers. Key Takeaway A short lapse is a blip; a multi-week shutdown raises volatility as the data vacuum deepens.

Stocks Slip, VIX Subdued, Yields Hold Price action signals caution, not capitulation, with catalysts ahead. S&P 500 and Nasdaq 100 futures eased while the VIX stays near 16.3 and the 10-year sits around 4.15%. Quality and low-volatility factors lead as breadth narrows; IG credit is steady while HY would be most vulnerable if the shutdown drags. Key Takeaway Positioning is defensive but orderly unless the shutdown stretches or inflation re-accelerates.

Job Growth Cools to 22,000 in August Soft hiring strengthens the case for continued policy easing. Nonfarm payrolls rose 22,000, unemployment held at 4.3%, participation slipped to 62.3%, and long-term unemployment rose to 25.7% of the jobless. Rates typically bull-steepen as cut odds build; defensives and strong balance sheets often outperform while small caps and cyclical value lag. Key Takeaway Labor softness tilts the curve toward cuts and favors quality over beta.

CPI 2.9%, Core 3.1% Complicates Cuts Disinflation continues, but sticky services keep the Fed cautious. Headline CPI rose 0.4% m/m (2.9% y/y); core is 3.1%, with shelter up 0.4% and energy up 0.7% on a 1.9% gasoline jump. The mix keeps yields range-bound—lower energy helps consumers, but shelter pressures real estate—while USD direction hinges on cut pricing versus shutdown haven flows. Key Takeaway Shelter and services disinflation timing will be pivotal for the rate path.

Oil Slumps as Supply Rises, Demand Wobbles Lower crude eases inflation but pressures energy equities and HY. Brent fell to about $65.28, a three-week low, as OPEC+ weighs +500k bpd monthly hikes and U.S. output hit ~13.6 mbpd; Brent is down ~11.7% y/y. Lower fuel costs support consumers and compress breakevens, but prolonged weakness could widen HY energy spreads; watch OPEC+ decisions, U.S. rigs, and inventories. Key Takeaway Sustained soft oil would reinforce disinflation and rotate leadership away from energy.

Quick Hits

• Tesla: Street sees 465k–470k Q3 deliveries (vs ~445k cons.) and $0.55–$0.60 EPS, aided by U.S. credits and solid China.
• JPM, WFC, Citi report this week; estimates: JPM ~$4.48 EPS on ~$44B rev, WFC ~$1.40, Citi ~$1.60—watch NIM, credit costs, IB fees.
• Bitcoin rallies toward ~$118,200 as crypto treats the shutdown as a “non-event” amid elevated institutional flows.
• ECB holds (refi 2.15%, depo 2.00%), signaling steady policy into year-end; limited spillover for U.S. assets.
• Shell launches a $3.5B three-month buyback across UK/NL lines, underscoring balance-sheet strength despite softer crude.

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