US govt shutdown beginning to impact economy

The US government shutdown, which commenced on October 1 due to disagreements over a funding agreement, has now reached its record-breaking fortieth day, marking the longest duration of government closure in American history. Although the shutdown’s effects may not be immediately visible to the public, it is gradually beginning to impact the economy and spreading its repercussions.

The most recent area to feel the effects is the US flight sector, until the last report, with the FAA implementing a 4 percent reduction in flights, resulting in the cancellation of over 1,000 flights and the delay of a significant number of domestic flights, while international flights remain unaffected for now.

While it’s difficult to assess the overall financial repercussions, various government-related sectors are likely experiencing significant stress that must be addressed promptly. Additionally, the US Bureau of Labor Statistics remains closed due to the shutdown, leaving private data as the only source of economic information.

This data partially fills the gaps but fails to provide the comprehensive insights needed.

Last week’s release of ADP data indicated that while layoffs were limited, hiring remained weak, suggesting the economic strain caused by costs and tariffs to some extent.

However, hiring did rise to 42,000 in October from 29,000 in September, although the average hiring over the past three months has declined.

In other developments concerning tariffs, initial impressions from the US Supreme Court’s oral arguments suggest that there is a chance of the tariffs being struck down. The final ruling could take weeks or even months, but regardless of the outcome, the risk associated with tariffs is likely to remain elevated.

Furthermore, the Institute for Supply Management (ISM) report on service sector employment indicated a contraction, pointing to a reduced workforce.

Last week, I shared my assessment regarding the gathering of policymakers to discuss monetary policy across G-10 nations.

The decisions made were consistent with my projections. The Bank of England (BoE) voted 5-4, compared to a previous 6-3, yet chose to maintain its stance and keep the interest rate at 4 percent.

This decision enhances the likelihood of rate cuts in the upcoming meeting as inflation has decreased to3.5 percent from 3.6 percent.

However, this will depend on economic growth and forthcoming data, which suggest a slowdown in economic activity.

Similarly, the Reserve Bank of Australia (RBA) maintained its official cash rate (OCR) at 3.6 percent. The statement provided indicated an upward revision of GDP growth, characterized a rise in inflation as temporary, and noted an increase in the unemployment rate to 4.4 percent from 4.3 percent.

Although not adopting a hawkish position, it suggests the RBA might continue to pause in December.

Norway’s Norges Bank and Sweden’s Riksbank also opted to keep their interest rates unchanged.

GOLD

Last week, gold experienced significant price fluctuations, but the market exhibited some stability overall. It is too soon to determine whether gold has reached a bottom.

With no US economic data available, the market will be influenced by news related to tariffs, geopolitical events, and investor sentiment.

While I can’t definitively predict whether gold will recover soon, I anticipate that buying interest will materialize during price dips.

Gold remains sensitive to news concerning geopolitical matters, particularly comments made by the US President.

However, statements from China regarding trade issues can also significantly impact the market and may lead to increased volatility. Additionally, the ongoing US government shutdown might also contribute to fluctuations in gold prices.

In the medium term, I believe we should monitor the US$ 3810-30 levels on the downside to gauge future trends.

Nevertheless, market participants remain uncertain about the next direction, indicating that buyers may continue to purchase on the dips, while sellers might rush to capitalize on peaks until gold closes above $ 4198.

In the meantime, there are no releases of US economic data due to the shutdown. The release of data from the other G10 countries is unlikely to be very influential and will primarily benefit traders involved with G10 currencies and associated assets.

WEEKLY OUTLOOK — NOV 10-14

GOLD @ US$ 4000— At first, it seemed that gold is poised for an upward trend. To continue climbing past US$ 4096, it needs to exceed US$ 4048. However, a drop below US$ 3920 is essential to trigger further declines. Otherwise, a recovery is likely.

EURO @ 1.15660— I still believe that the Euro will find support in the 1.1450-60 range, which should lead to a rise toward 1.1670. A breach of this level would suggest a move up to 1.720.

GBP @ 1.3161— As long as it holds 1.3020-30 range, I maintain an optimistic outlook for the Pound Sterling. A rise above 1.3225 would support a movement towards 1.3280 before a pause occurs. However, if support is broken, there is a likelihood of a decline to around the 1.2960 level.

JPY @ 153.43— The $/YEN pair may experience slight downward pressure, potentially dipping to test may get closer to the 152.50 level, but it is expected to remain above 151.90 before moving towards 154.40. A breakout above this point would likely lead to additional gains.

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