The Daily Digest: Policy Fog, Steeper Curve, and Crypto Breakout

Market Snapshot

Markets navigate heightened uncertainty as policymakers operate without key economic data during the shutdown. Rate cuts are priced in despite limited visibility, while alternative indicators point to cooling labor markets and slowing growth. Meanwhile, new tariffs pressure freight and healthcare costs, even as digital assets break to new highs on institutional demand.

Fed Set for Cut Amid Data Blackout

Markets price a near-certain 25 bp October cut as policymakers lack key data due to the shutdown.

With official economic releases on hold, rate markets are overwhelmingly pricing another 25 bp cut at the Federal Reserve's October meeting, reflecting roughly 95% odds. The Fed began easing in September but now must operate with limited visibility, an unusually challenging setup for a data-dependent central bank. The transmission of policy remains uneven: mortgage rates firmed after the September cut, underscoring how long-end yields, term premia, and forward-looking markets can blunt the direct impact of lower policy rates. Equity leadership has tilted defensive, credit conditions are bifurcated (IG resilient, HY more selective), and the dollar and long-end rates are being driven as much by global demand for duration as by domestic policy. The risk is miscalibration: easing into sticky inflation risks, or easing too slowly into a weakening labor market. For investors, the near term hinges on the path of the long end, the shape of the curve, and the Fed's guidance on how far and how fast it intends to move without the usual macro gauges.

Alt-Data Flags Labor Softness in September

With the jobs report delayed, private sources point to cooling employment and narrower job growth.

Alternative indicators suggest a softer labor backdrop. ADP reported a 32,000 decline in private payrolls for September, while labor analytics from professional networking data estimated roughly 60,000 net job gains concentrated in education and healthcare—and geographically in California, New York, and Massachusetts. The share of consumers saying jobs are "hard to get" has risen to post-pandemic highs in confidence surveys, and online job postings have cooled, pointing to moderating hiring intentions. Initial claims and participation data, still available, support a narrative of gradual deterioration rather than a sharp break. The breadth of job growth is a concern: concentration in slower-growth, lower-productivity sectors raises questions about wage dynamics, productivity, and the downstream effect on consumption. If confirmed by official data once released, softer jobs would validate market expectations for continued Fed easing and could pressure cyclical equities, small caps with operating leverage, and lower-quality credit.

Yield Curve Steepens as Long Rates Ease

Long-end Treasury yields slipped while front-end held firmer, signaling slower growth expectations.

Treasury price action points to rising demand for duration and a cautious growth outlook. The two-year yield eased to about 3.58% from 3.63% last week, while the ten-year fell to roughly 4.13% from 4.20%, steepening the curve after a long period of inversion. The dynamic reflects both safe-haven buying amid policy uncertainty and the market's view that growth and inflation should trend lower into 2026. Auction supply is in focus this week across the 3-, 10-, and 30-year tenors; bid-to-cover ratios, indirect (foreign) demand, and any tails will be critical signals for duration appetite. Credit markets remain orderly, though high yield shows more dispersion as investors differentiate balance sheet quality. For portfolios, selective duration extension in the belly and long end can reduce reinvestment risk if growth slows, while maintaining some dry powder for auction volatility. A sharper drop in the long end would support duration-sensitive assets (utilities, REITs) and lower coupon MBS; a re-steepening led by front-end cuts would favor carry strategies.

New Tariffs Hit Trucks and Branded Drugs

Fresh levies raise cost pressures and complicate supply chains across logistics and healthcare.

Trade policy is back as a macro driver. A 25% tariff on medium- and heavy-duty trucks takes effect November 1, elevating capex costs for carriers in a sector that moves roughly 73% of U.S. domestic freight. Expect higher equipment prices to ripple into freight rates, with potential pass-through to goods inflation and inventory strategies. Meanwhile, a 100% tariff on branded pharmaceuticals effective October 1 adds cost pressure across drug supply chains, with implications for pharmacy benefit managers, payers, and providers. The net impact is complex: domestic truck makers could see pricing power, but globalized component sourcing blunts simple "import substitution," and healthcare players may struggle to offset drug-cost inflation. For investors, monitor margin guidance from carriers and drug-exposed healthcare names, and the potential for downstream price pressure in consumer goods. Any retaliatory measures or exemptions could shift relative winners and losers quickly.

Bitcoin Hits Record, Institutions Drive Inflows

Digital assets rallied as ETF demand, staking features, and new platforms broaden participation.

Crypto is breaking out against a backdrop of macro uncertainty. Bitcoin pushed above $126,000 to new highs, up roughly 10% since the shutdown began, while Ethereum climbed toward $4,700 and major miners rallied double digits. Flows into spot ETFs remain robust, and product innovation is accelerating—plans to enable staking within Ethereum ETF structures could add a yield component attractive to traditional investors. On the market infrastructure side, new institutional-grade trading platforms are launching to compete for retail and professional flow, reinforcing a deeper, more resilient liquidity pool. Seasonality also helps: October and November have historically been two of crypto's strongest months. Correlations to equities have drifted lower, improving diversification optics, but tail risks remain—policy shifts, liquidity shocks, and exchange-specific issues can still drive sharp drawdowns. For allocators, disciplined sizing, rebalancing, and attention to vehicle selection (spot ETFs vs. futures vs. equity proxies) are paramount.