Markets bounced back on Monday, shaking off last week’s tech-driven slump as optimism grew that a U.S. government shutdown may soon be resolved. In the U.S. the S&P 500 gained 1.5% whilst the tech heavy Nasdaq jumped up 2.3%, as investors piled back into tech stocks to take advantage of last week’s pull back. Sentiment was further supported by progress on the government shutdown on Sunday, where eight Democratic lawmakers broke ranks with their party to strike a deal that could end the longest government shutdown in U.S. history. The agreement would not only restore government funding but also halt layoffs – though only until the 30th January. This makes it a short-term fix that will require further negotiation over the holiday period. The proposal must still pass through the House of Representatives, where Democrats are expected to complicate its approval, and Republicans have made it clear they are not committing to any concessions on the healthcare subsidy component.
On Tuesday, data showed that UK unemployment rose to 5% in the three months to September, coming in slightly above expectations. At the same time, average wage growth eased to 4.6% in the third quarter, down from 4.7%. Together, the figures suggest a modest cooling in the labour market. The Bank of England expects unemployment to remain broadly stable in the near term, though some economists argue that the slowdown in hiring reflects business caution ahead of the upcoming budget, suggesting that seasonal factors are potentially influencing this current round data. Still, signs of labour market moderation could strengthen the case for the Bank to consider cutting interest rates at its December meeting, following last time’s narrow 5 – 4 vote to hold them steady. UK markets responded positively to the data, with the FTSE climbing 1.3% yesterday.
Meanwhile, on Monday, President Trump announced that he is close to finalising a trade deal with India, whom he described as a key strategic and economic partner. While few details were provided, he suggested the agreement would focus on reducing tariff barriers, improving market access, and supporting American workers and businesses. The potential deal forms part of a wider U.S. effort to deepen engagement with Indo-Pacific allies amid ongoing global trade realignments.
Investors this week also absorbed the Bank of Japan’s October meeting minutes, which revealed an active debate among policymakers over the timing of another rate hike. Some members argued that economic conditions were beginning to justify a move away from the long-standing ultra-loose monetary stance. The central bank’s future policy direction now appears to hinge on whether corporate earnings and executive commentary suggest that firms will continue raising wages next year – an essential factor for anchoring inflation on a stable path. The BOJ ended its decade-long, massive stimulus program last year and raised short-term interest rates to 0.5% in January, reflecting growing confidence that Japan was nearing a sustainable 2% inflation rate.
Still to come this week we have Japan PPI, UK GDP and U.S. inflation data.
Nicola Tune, Portfolio Specialist
