Issue #30 - Markets Keep Climbing Despite Shutdown—Here’s Why”

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What’s in this issue;

This week’s markets defy the U.S. government shutdown, hitting record highs in Europe and Wall Street, while AI excitement drives tech and sector rotations. Investors are weighing inflation trends, delayed jobs data, and Fed signals, with healthcare, copper, and AI-related stocks leading gains.

From eurozone inflation ticks to geopolitical flashpoints in the Middle East and Asia, our roundup highlights what’s moving markets and what to watch for the week ahead—including key earnings from PepsiCo, Delta, and Constellation Brands.

Without further ado…

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Weekly Movement - Heatmaps

European, UK, and US stocks all moved higher on Friday, though each region showed different drivers and constraints. European equities extended their winning streak, with the Stoxx 600 hitting a record 570.40, buoyed by banking sector gains—Raiffeisen rose 8% on potential EU sanction relief and banks like Banco Santander and Deutsche Bank also rallied—and industrials benefitting from proposed steel quotas and tariffs, even as weaker eurozone economic data weighed, with services PMI revised down to 51.3 and PPI falling 0.3%.

In London, the FTSE 100 gained 0.67% to an intra-day record of 9,494.64, supported by AI-related tech and resource stocks such as copper miners and Big Pharma, with mid-cap financials leading gains, although UK services PMI slowed to 50.8 and cost pressures persisted, exemplified by JD Wetherspoon’s results showing minimal price increases amid inflation.

Across the Atlantic, the Dow Jones climbed 0.51% to a record 46,758.28 on healthcare and financial sector strength from UnitedHealth and Goldman Sachs, while the Nasdaq fell 0.28% as tech names like Applied Materials retreated, reflecting broader macro concerns from the US federal government shutdown, stalled services PMI at 50, and inflationary pressures from trade tariffs—highlighting the contrasting influences of policy, corporate earnings, and domestic economic signals across the three regions.

What is Moving the Markets This Week

Market Resilience Amid Government Shutdown: Despite the U.S. government shutdown disrupting key economic data like nonfarm payrolls, the S&P 500 surged 1.1% to a record 6,716, extending a five-month winning streak.

For investors, this signals strong underlying economic momentum and historical precedent that shutdowns rarely derail bull markets, suggesting opportunities to stay invested rather than panic-sell.

AI Sector Momentum Boost: OpenAI’s $500B valuation from a secondary stock sale highlighted ongoing AI hype, driving Nasdaq’s 1.3% gain and tech sector +2.2%.

Investors should view this as validation for AI-themed portfolios, but monitor for overvaluation risks as the rally could fuel further rotations into growth stocks.

Divergent Sector and Commodity Shifts: Healthcare led with +6.8% gains, while energy lagged at -3.4% amid oil’s -7.4% drop to $60.88/bbl; gold rose 3% and Bitcoin +11%.

This implies defensive sectors like healthcare offer stability in uncertain times, while energy weakness may prompt diversification into commodities or crypto for hedging inflation or dollar weakness.

Global Sync-Up with U.S. Rally: Major world indices rose (e.g., Europe +2.7%, Hong Kong +3.9%), aligning with U.S. gains.

For global investors, this broad uptrend reduces regional risks and supports diversified equity exposure, potentially amplifying returns through international ETFs or mutual funds that capture emerging market growth, such as those tracking the MSCI World Index.

However, with the U.S. dollar showing slight weakness (EUR/USD +0.35%, USD/JPY -1.38%), currency-hedged versions could mitigate forex volatility, ensuring smoother portfolio performance amid synchronized global recovery signals.

Top Economic News This Week

US Government Shutdown Delays Jobs Data, Raises Layoff Fears

A partial federal shutdown has halted key economic releases, including September payrolls, while President Trump’s threat of permanent job cuts adds to uncertainty for markets and the Fed.

🔎 Market impact: Increases volatility and clouds the Fed’s rate-cut calculus.

Private Sector Job Losses Signal Cooling US Labor Market

ADP data showed employers cut 32,000 jobs in September, deepening concerns about labor market weakness just as official reports remain stalled by the shutdown.

🔎 Market impact: Heightens recession worries and supports the case for looser policy.

Eurozone Inflation Ticks Higher, Keeping ECB on Alert

Headline inflation rose to 2.2% and core to 2.3%, driven by sticky services prices, raising questions over the ECB’s next policy steps.

🔎 Market impact: Limits scope for aggressive rate cuts in Europe despite slowing growth.

Track Inflation Across Europe & US

European and US inflation rates have shown a gradual rise through 2025, signalling persistent price pressures but at a slower pace than seen in 2022-2023. In the US, the annual inflation rate accelerated to 2.9% in August 2025 from 2.7% in June and July.

In the Euro Area, inflation climbed to 2.2% in September 2025 from 2.0% in August, with future projections expecting rates in the 1.8-2.2% range through 2026. Monetary policymakers are watching core inflation trends, as food and energy remain volatile but underlying rates remain above target.

US Inflation Trends

The US inflation rate was 2.7% in both June and July 2025, increasing to 2.9% in August 2025, reflecting broad-based price pressures including imported goods and rising gasoline costs.

Core inflation (which excludes food and energy) held at 3.1%, above the Federal Reserve’s 2% target, suggesting underlying inflationary momentum persists.

The CPI monthly gain in August was 0.3%, indicating continuous rises in consumer prices.

Eurozone Inflation Trends

In the Euro Area, annual inflation reached 2.2% in September 2025, up from 2.0% in August.

Service costs rose sharply (3.2% in September), while energy inflation remains mildly negative, moderating broader gains.

Core inflation was steady at 2.3%, supporting the current policy focus on price stability.

Projections for 2026 suggest inflation will hover around 1.8-2.1%, close to the ECB target but signaling some lingering upward pressure.

Notable Trends

US inflation acceleration is partly driven by higher transport and supermarket costs, while rents show early signs of easing.

In Europe, a key macro shift is lower energy inflation, but service sector costs are climbing, keeping overall inflation slightly above the ECB’s target.

Both the US and Eurozone maintain vigilance around core inflation rates, reflecting concerns that price gains may prove sticky until supply constraints and wage pressures ease further.

Macro Outlook & Key Observations

The upward movement during summer 2025 suggests global inflation is not yet fully tamed, but the dramatic surges of 2022 appear behind both regions.

Central banks are likely to maintain a cautious stance, watching for further easing before making significant policy changes.

Energy and food price volatility remains a risk factor for headline inflation going forward.

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Things I’m Paying Attention To

Key Geopolitical Flashpoints Shaping Markets

Russia-Ukraine: Conflict escalates with new strikes and Trump’s long-range weapons signals. Energy stays volatile with OPEC+ cuts and Russian noncompliance, while defense stocks swing and supply chains remain snarled.

👉 Investor takeaway: Energy hedges and selective defense exposure make sense, but broad equities face higher borrowing-cost headwinds.

Middle East: UN sanctions crush Iran’s rial, locals rush into gold, and oil spiked 7% after Israel’s latest strike. Israel faces growing economic isolation, while Strait of Hormuz risks keep oil premiums elevated.

👉 Investor takeaway: Gold/silver remain strong safe-haven plays, while oil-heavy portfolios need active risk management.

US-China Rivalry: Trade frictions intensify as Washington penalises India and Beijing blocks supply chain shifts. The China-Russia “DragonBear” pact adds further uncertainty, pressuring Indian equities despite resilient domestic fundamentals.

👉 Investor takeaway: Short-term EM pain is likely, but India’s long-term consumption story offers selective entry points.

Market Outlook: Geopolitics is fueling equity dips, commodity spikes, and safe-haven flows. History suggests markets price in shocks quickly, but black swan risks (like nuclear escalation) still hang over sentiment.

👉 Investor takeaway: Stay diversified—defense, energy, and safe havens provide insurance while waiting for earnings-driven rebounds.

Looking Forward: What We Anticipate Next Week

🗽 Wall Street Watch: Fed Speak Meets Earnings Anticipation

Markets enter the first full week of October balancing macro signals, Fed speak, and a handful of early corporate results — the calm before Q3 earnings season officially kicks off on October 14 with the big banks.

With the U.S. government shutdown delaying key economic data, attention turns squarely to the Federal Reserve, where traders will listen closely for fresh policy clues. Fed Chair Jerome Powell headlines the week with his Thursday speech in Washington, D.C., while Vice Chair for Supervision Michelle Bowman and Governor Stephen Miran are also set to speak — offering insights into how deep the Fed’s dovish pivot might go.

On the corporate side, it’s a light but meaningful lineup. PepsiCo (PEP), Delta Air Lines (DAL), and Constellation Brands (STZ) headline this week’s reports — key barometers for consumer resilience, travel demand, and broader spending patterns heading into the holiday quarter.

💼 Earnings on Deck

A blend of late Q2 and early Q3 reports provides early reads on consumer strength, travel demand, and business momentum.

Monday · Oct 6 — Constellation Brands (STZ), Aehr Test Systems (AEHR)

Tuesday · Oct 7 — McCormick & Co. (MKC), Saratoga Investment Corp (SAR)

Wednesday · Oct 8 — Richardson Electronics (RELL)

Thursday · Oct 9 — PepsiCo (PEP), Delta Air Lines (DAL), Levi Strauss (LEVI), Tilray (TLRY)

💡 Spotlight

Consumer bellwethers PepsiCo and Constellation Brands test household spending strength, while Delta and Levi Strauss reveal whether travel and retail demand are holding up into Q4.

🌍 Macro & Policy Watch

This week’s data run offers a global check-in on confidence and sentiment — key inputs for assessing the health of the “soft-landing” narrative.

Tuesday — Westpac Consumer Confidence Change

📈 Forecast: +3.2 %    Previous: –3.1 %

➡️ A strong rebound signals households are regaining optimism — a positive sign for future spending.

Wednesday — NAB Business Confidence & FOMC Minutes

📊 NAB Forecast: 9    Previous: 4

➡️ Rising business confidence hints at improved corporate sentiment.

🪙 FOMC Minutes: Traders will parse every line for clues on the Fed’s post-cut outlook and policy bias.

Friday — Canada Unemployment & U. of Michigan Sentiment

👷‍♀️ Canada Unemployment Rate: 7.1 % (steady)  ➡️ Suggests a balanced labor market, keeping the BoC on hold.

💭 U.S. Consumer Sentiment: 54.0 (forecast) vs 55.1 (previous)  ➡️ A dip would hint at softer discretionary spending heading into the holidays.

🧭 The Takeaway

Confidence and consumption take centre stage this week.

Earnings from PepsiCo, Delta, and Constellation Brands will gauge how resilient consumer demand remains, while the Fed’s minutes and sentiment readings could shape expectations for the next policy move.

Expect cautious optimism — but sensitivity to any sign the economy is losing momentum.

ICYMI: Top Headlines

Fed Rate Cut Bets Heat Up: Traders are now pricing in near-certainty for a second 25-basis-point Federal Reserve cut this month, as cooling inflation and labor market signals bolster hopes for a soft landing. Short-term bonds are feeling the pinch from lingering inflation fears tied to the shutdown’s fiscal fallout, but overall sentiment remains bullish.

Japan’s Political Shift: The Liberal Democratic Party elected Sanae Takaichi, a conservative former Economic Security Minister, as its new leader—paving the way for her to become Japan’s first female prime minister. This hawkish pivot could ripple into yen volatility and trade tensions, indirectly pressuring global supply chains and export-heavy US firms.

What Else is Happening? (Catch-All for Notable Developments)

Beyond the big-ticket items, a few under-the-radar stories are bubbling up with subtle market ties. Recession doomers and bearish analysts are nursing losses as the US economy’s stubborn strength—fueled by heightened consumer spending and AI-driven productivity—keeps stocks climbing, even as fiscal drama unfolds.

In retail, Target’s shares are trading at a deep discount amid a “personal bear market,” positioning it as a contrarian buy for value hunters betting on holiday rebound.

Over in Europe, citizen scientists uncovered rare pink and purple fungi species, a quirky win for biodiversity that could indirectly boost agrotech and biotech stocks if it sparks innovation in sustainable farming and on the health front, HHS Secretary Robert F. Kennedy Jr. fired a top NIH scientist who championed COVID measures, stirring debates on public health policy that might echo into pharma sector volatility if trust erodes further.

These threads weave into markets indirectly: Political instability (US shutdown, Japan leadership) tests fiscal resilience but hasn’t dented corporate earnings yet; rate cut optimism props up growth stocks; and niche discoveries like fungi could seed green investment trends.

Bears might be licking wounds, but the rally’s got legs—for now.

Useful Links (Interesting Stories to Dive Deeper)

Market Defies D.C. Gridlock: S&P and Dow Soar Amid Shutdown – Why politics isn’t tanking your portfolio (yet).

Recession Bears in a Losing Streak – A reality check for the pessimists.

Why Target Remains a No-Brainer Buy – Retail turnaround play in a frothy market.

Japan’s LDP Elects Takaichi: What It Means for Global Trade – Geopolitical chess with yen implications.

Rare Fungi Finds Spark Biodiversity Buzz – Weird science with potential green market upside.

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