US government shutdown

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US futures sank, the dollar slipped, and world shares were mixed after a US government shutdown began on Wednesday.

The partial closure of the federal government is feared to have economic implications if it lasts, and Washington is bracing for what could be a prolonged deadlock. This comes after lawmakers missed the deadline to agree on funding for the government.

Equity markets in Europe were volatile in the morning on Wednesday, as investors reacted to the news from across the Atlantic. Major European stock indexes started trading mostly in negative territory, but the picture fundamentally changed by midday.

“The US government shutdown has left investors wondering what might happen next, with a minor pullback on European equity markets and weaker futures prices for Wall Street,” said Russ Mould, investment director at AJ Bell.

At first, the FTSE 100 in London made an exception of the negative trend, rising 0.7% two hours after the opening, “thanks to a surge in pharmaceutical stocks”.

Soon enough, the German DAX turned its initial loss of 0.3% into a gain of more than 0.3%, just like the CAC 40 in Paris. The IBEX 35 in Madrid was down by nearly 0.2% at around midday.

US futures were mostly down at the same time, with the S&P 500 dropping 0.5%, the Dow Jones Industrial Average slipping 0.5%, and the Nasdaq down 0.6%.

Eurozone inflation ticked up in September

The trend in Europe’s equity markets was also influenced by freshly released eurozone inflation data, showing that prices have increased by 2.2% in September. This is slightly above the European Central Bank’s 2% target, where eurozone inflation had been sitting for the previous three months. Core inflation remained stable at 2.3%, despite services edging up modestly.

“The outlook has not changed and still clearly points to inflation descending thanks to cooling wage growth, low energy commodity prices, a stronger euro, and contained demand-side pressures,” said Riccardo Marcelli Fabiani, senior economist at Oxford Economics.

He added that the September rise in inflation will cement the ECB’s conviction that further easing would be overdue. “Only a strong surprise in inflation could spur a cut this year.”

The US shutdown’s impact on the equity markets

While trading activity was expected to slow in the case of a shutdown in the US, many investors didn’t sell off their holdings.

One explanation is that past US government shutdowns have had a limited impact on the economy and the stock market, and investors may be predicting something similar this time around. Many analysts agree that the market is tuning out the political noise and focusing on the economic fundamentals.

However, if the shutdown lasts, it is expected to prevent the Friday release of a monthly labour market report. This is key for investors and for the Federal Reserve to get a pulse check on the US economy and decide whether to cut interest rates again.

But the stubborn positivity among investors may last, continuing the relentless run the US stock markets have been on since hitting a low in April. The bullish market sentiment is fuelled by expectations that President Donald Trump’s tariffs won’t derail global trade and that the Federal Reserve will cut interest rates several times to boost the slowing job market.

Meanwhile, Tuesday brought mixed reports on the US economy. A Conference Board survey showed consumers are feeling less confident than economists expected, with many respondents pointing to the job market and to stubborn inflation.

A second report suggested the job market may be remaining in its “low-hire, low-fire” state. US employers were advertising roughly the same number of job openings at the end of August as the month before. The hope on Wall Street had been for a moderate number, one balanced enough to keep the Fed cutting interest rates.

The central bank just delivered its first cut of the year, and officials have pencilled in more this year.

Bonds, gold and oil

The US shutdown had a limited impact on US Treasury yields, which rose slightly as European markets opened. This could be explained by the fact that the shutdown had been anticipated and it is not expected to last long.

In other news, gold has struck a new record, with the safe-haven asset hitting $3,918.80 before midday in Europe.

Oil prices reflected concerns, meanwhile, with US benchmark crude oil losing nearly 1% to $61.75 per barrel. Brent crude, the international standard, lost nearly 0.9% to $65.44 per barrel.

The US dollar fell to 147.13 Japanese yen from 147.94 yen. The euro climbed to $1.1745 from $1.1734. The British pound gained slightly, coming to $1.3470.

Shares in Japan slid, rising elsewhere in Asia

In Asia, Japan’s Nikkei 225 index shed 0.9% after the Bank of Japan (BOJ) reported a slight improvement in business sentiment among major manufacturers.

The indications from the BOJ’s quarterly tankan survey raise the odds that the central bank will increase its key interest rate to counter inflation that has topped its target range of about 2% for some time.

Political uncertainty is also looming over Japan’s markets, with the ruling Liberal Democratic Party due to choose a new leader and prime minister later this week to replace embattled Prime Minister Shigeru Ishiba.

Markets and offices in mainland China are closed 1-8 October for the National Day holiday. Elsewhere in Asia, South Korea’s Kospi gained 0.9%, while Taiwan’s Taiex added 0.6% on heavy buying of semiconductor-related shares. Australia’s S&P/ASX 200 slipped less than 0.1%. In India, the Sensex rose 0.6%.

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It’s not only European tourists traveling in the United States and finding themselves in front of closed museum doors or national park gates.

Because the US is so central to the global economy, European businesses could feel negative effects of a US government shutdown too.

In fact, they should get ready for a rough ride that will only become more painful the longer the gridlock in Washington lasts.

So, why should corporate Europe be worried about public employees on the other side of the Atlantic not being able to work?

Well, the shutdown halts or scales back many federal operations like providing loans or permits and disrupts the work of government agencies that provide oversight, slowing down economic activity.

What makes this more significant is its timing. This year, the US economy is already navigating slower growth, persistent inflation pressures and increasing financial insecurity.

The shutdown is adding to this insecurity and has the potential to trigger a chain reaction of economic consequences.

Take European trade businesses. Already rattled by the tariff chaos, they rely on consistent and predictable market conditions to plan their production, allocate resources and meet their customers’ needs.

Even a slight slowdown in economic activity would lead to lower US imports, which would reduce demand for European companies, whose growth, revenue and profitability would in turn be affected.

European imports arriving in America will meet less government staff in ports and customs who handle administrative and regulatory tasks associated with importing and exporting goods.

As a result, there will be delays which can extend the time it takes for goods to reach their destinations, disrupting delivery schedules.

The delays can have cascading effects on supply chains that rely on precise timing to function efficiently. This may lead to unexpected costs for expedited shipping and penalties for missed delivery deadlines.

In addition, there is the danger from a potential halt in export license approvals.

European companies need these approvals – or their renewals – to conduct their business operations in the US altogether.

“Companies will be frozen, they can’t get anything approved, no permits or licenses, can’t sell corporate debt in the US,” a lawyer in the business of negotiating transatlantic deals for multinational corporate clients told Euronews.

“A government shutdown sends home the people who execute regulations, but the regulations themselves remain – and remain to be complied with.”

This regulatory uncertainty can leave European exporters in a state of limbo, unsure of their ability to continue their activities with the US market in the short-term.

Look especially for sectors that rely on US demand such as machinery, automotive components or chemicals.

Those companies might see downward stock market swings as investors react to uncertainty in the US.

Speaking of financial markets. Prolonged uncertainty in the US could lead to rising interest rates on US government bonds, as investors would consider them to be higher risk.

That would lead to higher rates elsewhere in the world.

In Europe, for example, this could depress stock markets, increase the cost of financing public deficits, and reduce overall demand due to the higher cost of credit.

The rise in rates would increase the risk of default by over-indebted borrowers, and therefore of a financial crisis.

As the lack of a budget agreement in Washington would compromise the financing of US support for certain countries, the risks of geopolitical instability would increase, which would depress business investment and intensify the decline in demand already affected by inflation.

Economists estimate that a two-week US government shutdown would have a negative impact on EU GDP of €4 billion. If the shutdown lasted for 8 weeks, the impact would increase to €16 billion.

Whether it will really come to this is in the hands of politicians in Washington.

What is at stake is nothing less than America’s reputation as a global economic anchor of stability.

Published on
29/09/2025 – 14:05 GMT+2

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The price of gold climbed to a new record on Monday, rising above $3,850 an ounce in the afternoon in Europe, up more than 1% on the day.

Precious metals across the board surged, fuelled by a weak dollar and high uncertainty around funding for the US federal government.

On Monday, US President Donald Trump and the Republican Party are meeting with Democrats to discuss a short-term spending bill to avoid a government shutdown on Tuesday. Republicans need at least seven votes from Democrats to pass the legislation.

Uncertainty is high, which historically sees investors flocking into so-called safe-haven assets such as gold. The precious metal is a more stable option in turbulent times when other asset classes are far more volatile.

So far this year, gold has shown itself to be an investor favourite amid increased geopolitical tensions and trade uncertainties. Since January, the precious metal has gained over 45%, rising from $2,669 an ounce.

Other factors are also supporting gold prices, including expectations of further rate cuts from the Federal Reserve. On 17 September, the Fed lowered its target range for its main lending rate to 4% – 4.25%, and officials indicated that there could be two more rate cuts this year.

Lower rates tend to weaken the US dollar, in which gold is denominated, increasing the metal’s appeal. This is particularly the case when other interest-bearing assets like bonds and savings accounts offer lower yields, following rate cuts.

“Gold prices continue to mark new records, with expectations for further rate cuts from the Fed supportive, given the precious metal does not offer income,” said Russ Mould, investment director at AJ Bell.

“Now above $3,800, gold has also been boosted by central bank buying over several years, weaker demand for traditional safe havens like US government bonds driven by concerns over US deficits and trade policy, dollar weakness and geopolitical tensions, including conflicts in the Middle East and Ukraine,” Mould added.

“The threat of a shutdown in Washington, as policymakers engage in tense negotiations ahead of a deadline at midnight on Tuesday, is yet another factor driving support for gold.”

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