Market snapshot: records broken both sides of the pond

Washington may have turned the lights out, but investors bypassed the political noise to send the Dow Jones to a new record high.

Nonetheless, there are some implications of a US government shutdown which are difficult to avoid, such as the possibility of mass layoff of federal workers which would put extra strain on an already anaemic labour market. Apart from the fact that the non-farm payrolls report may not now be released on Friday, which hampers the Federal Reserve’s visibility on the latest state of play, any shutdown lasting more than the usual couple of weeks would leave some shifting uncomfortably in their chairs.

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In the meantime and by default, other employment data takes on extra significance. The job openings report yesterday highlighted weakness in hiring new staff, while today’s ADP report could highlight further weakness with the addition of a modest 50,000 jobs expected.

The beginning of the new quarter will also herald a number of new tariffs coming into force, including patented drugs and large trucks. It appears that tariff collections will continue despite any shutdown, which will keep inflationary fears in play for investors and indeed the Federal Reserve itself.

Conversely, from a market perspective the uncertainty increases the likelihood of an interest rate cut later this month, where the consensus is pricing a 96% probability of a reduction to come, which provided extra fuel to the main indices.

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At this very early stage, Dow futures are pointing marginally lower, without any obvious signs of upsetting the positive momentum which has powered markets ahead. In the year to date, the Dow Jones is now up by 9.1% at its new record close, the benchmark S&P500 has gained 13.7%, while the Nasdaq spike of 17.3% capped off a strong third quarter, largely driven by the revival of AI euphoria.

Asian markets were mixed to lower with more pressing domestic issues in focus. Chinese markets are closed for the week on a National holiday, but the central bank nonetheless announced an injection of cash liquidity aimed at stimulating business investment and consumer spending. Japan’s Nikkei 225 slipped, with data which leaves the likelihood of an imminent interest rate rise likely, and which came alongside the opposing forces of political uncertainty in the country, yet improved business sentiment from the main manufacturers.

Having also reached a record closing high, the FTSE 100 was cautiously positive at the open, taking its year to date gain to 14.8% while further underlining its credentials as a credible alternative investment destination on the global stage.

The pharmaceutical sector led the way, with the previous AstraZeneca (LSE:AZN) announcement of a dual listing in New York not only prompting hopes of a valuation boost, but also reading across to its competitors who could conceivably be considering a similar move. In addition, the announcement from the White House on a deal with the drug companies could also have positive implications for the UK pharmas which do much of their business stateside.

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Elsewhere, Entain (LSE:ENT) continued to feel the weight of potential tax increases on companies in the gambling sector at the upcoming Budget, while International Consolidated Airlines Group SA (LSE:IAG) weakened, possibly due to the impact of limited travel to the US through its British Airways subsidiary in particular due to the shutdown. Nonetheless, the opening gains leave the premier index well placed for further appreciation, especially given its heavily discounted valuation in comparison to many of its global peers.