U.S.
Muted Reaction to Government Shutdown as Stocks Advance
U.S. equities ended the week with solid gains despite political gridlock in Washington that resulted in a partial government shutdown beginning Thursday. Investors appeared largely unconcerned about the temporary closure of nonessential federal operations. In fact, the market adopted a “bad news is good news” narrative after a weaker-than-expected private payrolls report from Automatic Data Processing (ADP) hinted at a softer labor market, reinforcing expectations that the Federal Reserve might deliver a rate cut in its October policy meeting.
Technology names once again led the rally, helping the Nasdaq Composite outperform broader benchmarks. Growth-oriented stocks continued to beat value shares, while small-cap companies — tracked by the Russell 2000 Index — rose sharply as investors priced in lower borrowing costs, outperforming the S&P 500 Index.
Oil prices tumbled as the OPEC+ alliance announced plans to lift production in November, driving West Texas Intermediate (WTI) crude down more than 7% and weighing on energy shares. By contrast, other commodities saw robust gains: gold advanced more than 3% amid renewed safe-haven demand, while copper — often viewed as a gauge of industrial and manufacturing health — surged over 7%.
Labor Data Delay Leaves Markets Searching for Direction
A major story of the week was not what was released but what wasn’t. The highly anticipated September nonfarm payrolls report from the Bureau of Labor Statistics (BLS) was postponed due to the government shutdown, which has temporarily sidelined about 750,000 federal employees, according to the Congressional Budget Office. Should the closure persist, additional key indicators — such as the September Consumer Price Index (CPI), originally scheduled for October 15 — may also face delays, clouding the outlook ahead of the Fed’s late-October policy decision.
With official government data unavailable, traders turned their attention to private-sector proxies. The ADP employment report indicated a loss of 32,000 jobs in September, defying consensus forecasts for a gain of 51,000. The weaker print heightened confidence that monetary easing is on the horizon.
Nevertheless, public comments from several Federal Reserve officials were relatively hawkish. Chicago Fed President Austan Goolsbee highlighted persistent services inflation and warned that delays in CPI data could complicate the Fed’s decision-making. Dallas Fed President Lorie Logan also urged a slower normalization of policy, signaling caution about cutting rates too quickly.
Bond Market Strengthens as Yields Decline
U.S. Treasury prices rose across the yield curve as investors sought safety, pushing yields lower. (Bond prices and yields move inversely.) The subdued labor market data, together with weaker-than-expected Conference Board consumer confidence readings, contributed to the drop in yields.
Municipal bonds also performed well, closing out a strong September supported by muted issuance and steady demand. Investment-grade corporate debt outperformed Treasuries, as issuance volumes met expectations and new deals were heavily oversubscribed. According to T. Rowe Price traders, high-yield bonds benefited from favorable macro conditions and active month-end trading, though primary issuance eased slightly toward week’s end.
| Index | Friday’s Close | Week’s Change | % Change YTD |
|---|---|---|---|
| DJIA | 46,758.28 | 510.99 | 9.91% |
| S&P 500 | 6,715.79 | 72.09 | 14.18% |
| Nasdaq Composite | 22,780.51 | 296.44 | 17.97% |
| S&P MidCap 400 | 3,288.93 | 21.14 | 5.38% |
| Russell 2000 | 2,476.18 | 41.86 | 11.03% |
Source: Reuters, Yahoo! Finance, Bloomberg. Past performance does not guarantee future results.
Europe
Markets Rally on Tech Strength and U.S. Rate-Cut Hopes
European stocks moved decisively higher, with the STOXX Europe 600 Index climbing 2.87% in local terms to record highs. A global rebound in technology shares and expectations of forthcoming U.S. rate cuts helped drive investor optimism.
Major national indexes followed suit: Germany’s DAX gained 2.69%, France’s CAC 40 rose 2.68%, Italy’s FTSE MIB advanced 1.43%, and the UK’s FTSE 100 added 2.22%.
Inflation Edges Up but Remains Under Control
Headline inflation across the eurozone accelerated slightly to 2.2% in September, compared with 2.0% in August, as service prices rose and energy costs declined at a slower pace. The core inflation rate, which strips out volatile food and energy prices, remained steady at 2.3%.
At a Bank of Finland conference, ECB President Christine Lagarde stated that inflation risks appear “quite contained in both directions,” suggesting confidence that current policy settings are appropriate. With benchmark rates now at 2%, Lagarde emphasized that the ECB is “well positioned to respond if risks evolve or new shocks emerge.”
Labor Market and Sentiment Indicators Mixed
Eurozone unemployment inched up to 6.3% in August, slightly above July’s record low of 6.2%, contrary to forecasts that it would remain unchanged. Spain, France, and Italy continued to exhibit higher unemployment levels, while Germany and the Netherlands retained the lowest. Year-on-year, the region’s unemployment rate remained stable.
Meanwhile, consumer confidence improved modestly, with the index rising to -14.9 from -15.5 the prior month. The improvement reflected a greater willingness among households to make large purchases within the coming year — a sign of resilient sentiment despite lingering inflation concerns.
UK Housing Market Cools but Prices Rebound Slightly
Bank of England data revealed that mortgage approvals slipped to 64,700 in August from 65,200 in July, breaking a three-month streak of increases. However, the Nationwide Building Society reported that UK house prices rose 0.6% month-over-month in September (seasonally adjusted), reversing August’s 0.1% decline — an encouraging sign of stabilization amid higher interest rates.
Japan
Mixed Market Performance as Yen Strengthens
Japanese equities posted a mixed performance for the week. The Nikkei 225 Index advanced 0.91%, while the TOPIX Index fell 1.82%. Gains in technology shares, buoyed by global enthusiasm for artificial intelligence investments, helped offset broader market weakness.
Despite political uncertainty surrounding the Liberal Democratic Party (LDP) leadership election on October 4, the Japanese yen appreciated, strengthening to around JPY 147.3 per USD from JPY 149.5 the previous week. The move reflected dollar weakness following the U.S. government shutdown.
Monetary Policy Outlook: Gradual Tightening Expected
Yields on 10-year Japanese Government Bonds (JGBs) edged higher to 1.67% from 1.64%, as expectations for future rate hikes persisted. Bank of Japan (BoJ) Governor Kazuo Ueda reiterated that the central bank is committed to a gradual normalization path but will act only if economic conditions align with forecasts.
Ueda noted that while U.S. tariffs have pressured Japanese exporters, the broader economy remains stable. The BoJ’s “tankan” survey showed solid business sentiment among large manufacturers, reinforcing the likelihood of further rate increases before year-end — the first since the January hike.
China
Stocks Gain Ahead of Golden Week Holiday
Mainland Chinese equities advanced during a shortened trading week, with both the CSI 300 and Shanghai Composite Index rising through September 30. Markets closed from October 1–8 for the National Day and Mid-Autumn Festival holidays and will resume on October 9.
The Hang Seng Index in Hong Kong climbed 3.88%, buoyed by optimism over domestic spending during the upcoming Golden Week, when millions travel and spend heavily on retail, dining, and leisure activities. Analysts expect this consumption surge to bolster consumer and travel-related stocks, providing insight into the strength of China’s household sector — a key driver of Beijing’s ongoing push toward a consumption-led economy.
PMI Data Paint a Mixed Picture
China’s official manufacturing PMI improved modestly to 49.8 in September from 49.4 in August, signaling a slower contraction than expected. However, the nonmanufacturing PMI — which tracks construction and services activity — slipped to 50.0 from 50.3, just on the threshold of expansion.
Although the manufacturing figure exceeded economists’ median forecast, it marked the sixth consecutive month of sub-50 readings, underscoring continued softness in factory output. Both indices suggested that momentum weakened during Q3 after a robust first half of the year.
Other Key Markets
India: Policy Pause as Central Bank Waits for Effects to Emerge
At the end of its three-day policy meeting, the Reserve Bank of India (RBI) voted unanimously to keep the repo rate unchanged at 5.50%. Officials maintained other key rates as well, signaling a desire to assess the lagged impact of previous monetary actions.
The RBI noted that the global economy has been “more resilient than anticipated,” while domestically, “strong private consumption and fixed investment” continue to underpin growth. Policymakers cited supportive conditions in manufacturing and services, aided by a favorable monsoon that should lift agricultural output and rural demand.
Headline inflation eased to an eight-year low of 1.6% year over year in July, largely due to falling food prices. Nonetheless, officials warned that “unfavorable base effects” may push inflation higher later this year. The committee described growth as “below aspirations” but opted for patience, emphasizing that policy changes made earlier — including rate cuts in February, April, and June alongside fiscal measures such as tax reforms — still need time to take effect.
While keeping policy steady, the RBI hinted at future easing potential, noting that current conditions “have opened policy space to further support growth.”
Egypt: Central Bank Delivers Expected Rate Cut
Egypt’s Monetary Policy Committee (MPC) reduced the overnight deposit rate by 100 basis points to 21.00%, aligning with consensus expectations. Other key rates were lowered accordingly.
In its post-meeting statement, the Central Bank of Egypt observed that global growth continues to recover, with inflation expectations broadly stable and monetary policy loosening gradually across many economies. However, officials cautioned that both growth and inflation remain exposed to external risks, including geopolitical instability and trade disruptions.
Domestically, Egypt’s GDP growth accelerated to 5.0% in Q2 from 4.8% in Q1, though output remains slightly below potential. Inflation pressures have eased notably: headline inflation dropped from 13.9% in July to 12.0% in August, and core inflation fell from 11.6% to 10.7%, largely driven by declining food costs.
Looking forward, the MPC expects inflation to continue moderating at a slower pace while remaining alert to upside risks. The committee concluded that the rate cut was consistent with maintaining a “monetary stance that anchors inflation expectations and preserves the disinflation trend.” Officials added that any additional easing would depend on evolving conditions, assessed “on a meeting-by-meeting basis.”
