Recent comments from Bank of Japan officials opened the door to further rate hikes, but fresh data may temper that stance. Industrial output fell 1.2% in August (worse than expected) driven by a sharp 5.7% drop in electrical machinery production following July’s surge. In contrast, auto output rose 2.5%, supported by a U.S.–Japan trade deal that lowered tariffs to 15%. Still, economists remain cautious, warning that Japanese manufacturers face ongoing pressure from elevated U.S. tariffs and broader trade headwinds.
Meanwhile, China’s manufacturing sector showed tentative signs of stabilization in September. The official PMI edged up from in 49.4 in August to 49.8 this month – still below the 50 threshold that separates contraction from expansion but pointing to gradual improvement. Within the details, production climbed to its highest level in six months, and new orders also gained ground. Chinese policymakers remain firmly committed to achieving 5% GDP growth this year. That goal has so far been supported by external demand that has surprised on the upside and which many economists believe could sustain momentum into late 2025, even as additional stimulus measures are anticipated in the coming months as third-quarter data makes its way onto traders’ newsfeeds.
Late Tuesday evening UK time, the U.S. entered its first government shutdown since December 2018, after Republicans and Democrats failed to agree on a short-term budget deal. The impasse could see many federal employees furloughed or even laid off, and lead to the suspension of a range of public services. Despite the headlines, markets have so far taken the development in stride. European equities opened higher on Wednesday, with investors instead focusing on the leadership meeting in Copenhagen, where regional security measures will be discussed. The FTSE 100 also opened slightly higher, rising 0.2% as gains made in the pharmaceuticals sector helped cushion broader market caution. Over in the U.S., futures pointed to only modest losses, with the S&P 500 and Nasdaq both down around 0.5%.
History offers some reassurance: past shutdowns have rarely had lasting effects on financial markets. They tend to be resolved relatively quickly, with any drag on growth later recovered, and in some cases equity indices have even advanced during periods of closure. For investors, the greater frustration lies in the delay of key economic data that the shutdown will cause, particularly jobs figures that could help shape the Federal Reserve’s next policy move.
Still to come this week we have the ECB’s inflation reading, Eurozone PPI, U.S. PMI data and Japanese consumer confidence.
Nicola Tune, Portfolio Specialist
