The U.S. Government is approaching its longest shutdown ever, as Republicans and Democrats remain in disagreement regarding the national budget. Although the impasse shows no immediate indication of resolution, investors and policymakers are operating without federal data to inform their assessments of the economy's condition.
TL;DR
- US government shutdown leaves investors and policymakers without federal economic data.
- Private surveys like ADP jobs report gain attention but analysts caution against overemphasizing them.
- Reliability of surveys is reduced by falling response rates and political polarization.
- Markets show little immediate reaction, but VIX volatility index indicates potential future turbulence.
The Federal Reserve has completed an interest rate discussion without crucial figures concerning its objectives of maximum employment and stable inflation. Concurrently, investors are facing another month devoid of major economic indicators, potentially leading them to consult private surveys for insights.
Analysts cautioned Monday against overemphasizing these private surveys, despite their utility when other data is scarce. For instance, the U.S. ISM manufacturing sentiment poll is scheduled for release on Monday, and the subsequent ADP jobs report is also anticipated later this week.
“The danger with this data is that its message will be given unwarranted credibility by the absence of proper economic data,” said UBS chief economist Paul Donovan in a note to clients on Monday. “Falling survey response rates and rising political polarization have conspired to reduce the reliability of survey-based evidence.
“Unfortunately, the frequency of surveys already means that they get more attention than they deserve. Frequency bias means we automatically pay attention to less … important things that are paraded before us more often. Remove alternative U.S. Data sources, and there is a temptation to say: ‘Well, we’ll use this inaccurate number because there are no accurate numbers available.’”
Deutsche Bank's Jim Reid shared a similar sentiment in a note reviewed by Coins2Day on Monday, stating: “If it weren’t for the shutdown, we’d be looking forward to the U.S. Jobs report for October on Friday. But given we aren’t getting the government data releases, there’s likely to be outsize attention on the ADP report of private payrolls on Wednesday, especially in light of Chair [Jerome] Powell’s hawkish press conference last week.”
At the Fed meeting last week, Powell delivered his highly anticipated 25-basis-point cut but failed to confirm what Wall Street has long been hoping for: a final cut of 2025 due to come in December. Instead, the Fed chair stuck to his wait-and-see rhetoric, arguably more suitable now than ever before in the absence of key metrics to help chart the best course for monetary policy.
Deutsche Bank anticipates the ADP report will show 50,000 jobs added, a significant increase from the prior -32,000 figure, while the market consensus stands at 30,000.
Deutsche’s economists “think a rebound in the ADP survey would align with seasonal patterns observed over recent years during the summer and autumn,” Reid added. “These seasonals may have artificially weakened the recent headline figures, although strict immigration curbs and subdued hiring and firing point to a fragile low level equilibrium in the labor market, which wouldn’t take much to shift momentum either way.”
Although less reliable information could lead to market fluctuations later in the week, currently, a lack of knowledge seems to be beneficial. In the United States, the S&P 500 and Dow Jones are showing no change prior to today's opening, despite the VIX volatility index increasing by 5%, indicating potential turbulence in the coming days.
Germany's DAX in Europe has seen a rise of 0.85%, while London's FTSE 100 remains unchanged, and Europe's STOXX 50 has climbed 0.54%. Asia is experiencing a comparable positive trend, with Shanghai's Stock Exchange up 0.55% and Hong Kong's Hang Seng Index showing a gain of 0.97%.
Here’s a snapshot of the markets ahead of the opening bell in New York this morning:
- S&P 500 futures were up 0.59%.
- The STOXX Europe 600 was up 0.37%.
- The U.K.’s FTSE 100 was flat.
- China’s CSI 300 was up 0.27%.
- India’s NIFTY 50 was up 0.16%.
- Bitcoin was down to $107K.