First Light News: Shutdown Fears, RBA Holds, and US Employment Data Eyed

Major US equity indices ended Monday’s session on the front foot, with the S&P 500 adding 0.3% and finishing within touching distance of recent all-time highs at 6,699. Overall, it has been a very positive quarter for equities.

In the FX space, following a meaningful rally in the USD index – bolstered by reduced bearish positioning and less dovish Fed commentary than markets had anticipated – the buck ended modestly lower yesterday, down around 0.3%. Ultimately, the trend has remained south since the beginning of this year; therefore, selling rallies are likely to remain the core theme.

Gold continued to power higher, recently reaching another record high of US$3,870 per troy ounce amid market uncertainty regarding a potential US government shutdown, as well as expectations for rate cuts.

US Government Shutdown Imminent?

Vice President JD Vance made headlines yesterday, expressing his belief that the government is headed for a shutdown, placing blame on Democrats following a White House meeting with congressional leaders. With funding poised to lapse at 12:01 am on Wednesday, there has been little development from either Republicans or Democrats.

Of course, the implications extend beyond politics. A potential shutdown would delay the release of key economic data, such as Friday’s monthly employment report, and temporarily furlough hundreds of thousands of federal workers. This could also lead to the markets overweighting private economic data, such as the US ADP print out tomorrow.

Depending on the length of any shutdown – I read markets are forecasting a short-lived shutdown should this come to pass – this may leave policymakers in a tricky spot at the October Fed meeting. However, let’s be frank, Trump holds the record for the longest government shutdown in history (35 days), so time will tell how this pans out, as the situation remains very fluid.

RBA Stands Pat

As widely expected, the RBA unanimously held its cash rate at 3.60% overnight, with markets pricing in just -2 bps of easing for this meeting. This decision should not have raised too many eyebrows, as August CPI inflation hit 3.0% and growth remains elevated – essentially constraining the RBA’s ability to ease policy – while weak jobs data suggests caution.

Despite a solid bid in the AUD this morning, markets are pricing in the next -25 bp rate cut for early next year – currently a toss-up between February and March, with the RBA signalling comfort taking a slower quarterly pace on rate reductions.

August US JOLTS Data on Deck

Today’s August JOLTS job openings data will be released at 2:00 pm GMT, with economists suggesting 7.185 million, essentially matching July’s reading of 7.181 million. Notably, the forecast distribution shows a range between a high of 7.910 million and a low of 7.000 million.

The report matters because it offers one of the cleanest reads on underlying labour demand ahead of what could be Friday’s marquee employment report.

Any upside surprise in today’s data could lead to an unwinding of USD shorts and open the door to a bullish scalp. I feel it would take a notably disappointing print to move the USD lower, given dovish Fed rate pricing and market positioning.

Friday’s NFP – If We Get It!

While there is a strong chance that we may not receive Friday’s September US jobs data, if we do, I will be closely watching for better-than-expected numbers. Much like how I will be viewing today’s JOLTS data, a stronger print appears to offer the most bang for your buck right now, triggering an unwind in USD shorts and prompting investors to trim aggressive rate-cut bets. Softer numbers would need to be notably disappointing to excite USD shorts, in my opinion, essentially adding to already dovish market positioning.

For commodities, weak job numbers would support a further bid in Gold, while for Stocks, a slightly better/worse print (or even in line with estimates) might be bullish overall. This would confirm gradual cooling without threatening the soft-landing narrative.

That’s it from me this morning. Have a wonderful day!

Written by FP Markets Chief Market Analyst Aaron Hill