It’s a much quieter week on the regular calendar, after the first Friday of this month didn’t mean the release of the monthly US payrolls report. There is the chance we get the delayed jobs data if the government shutdown ends, but that is a big unknown at the moment. For what it’s worth Polymarket see a near 60% chance of the shutdown finishing on October 15 or later. Otherwise, last week’s labour market data painted a mixed picture, with job growth slowing mainly due to weaker supply growth and not indicating an urgent need for more demand stimulus. The ‘low hiring, low firing’ narrative appears to more or less be continuing.
Volatility remains low across different asset classes with measures of US bond market volatility dropping to the lowest level since end 2021. This has meant broader FX volatility has hit multi-month lows. The delay in big US data releases simply cements this, as it further postpones forming a clear view on the friction between sticky inflation and a softening labour market, the two sides of the FOMC mandate. In this environment, investors have made up their minds that the Fed will very likely cut rates twice more this year and probably another 50bp in 2026.
The ongoing AI rally has pushed equity markets to fresh record highs. Big headline news last week saw that OpenAI being given a valuation of close to $500bn in its latest funding round – compared to $300bn earlier this year. Meanwhile, Jeff Bezos, Amazon’s founder, recently hailed the AI boom as a ‘good’ kind of bubble, delivering lasting benefits for society, even if share prices collapse as dramatically as his ecommerce company did 25 years ago. In the meantime, any ‘wall of worry’ that we mentioned last week is being looked through as investors position themselves into year-end and returns of 5%+.
Initial headlines in the week will focus on Japan and the victory of Takaichi in the LDP leadership election, which means she is poised to become the country’s first-ever female PM. This defied pre-vote polling so JGBs and the yen will see some initial volatility, as she has been a monetary and fiscal dove, and favoured a rise in government funding.