Shutdown talks go to the wire as Q3 ends

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What matters in U.S. and global markets today

By Mike Dolan, Editor-At-Large, Financial Industry and Financial Markets, Reuters Open Interest

A looming U.S. government shutdown is casting a shadow over the final day of a stellar third quarter for most world markets. However, there appears to be little trepidation apart from fretting over a data vacuum that could be left by the likely postponement of the monthly jobs report.

U.S. President Donald Trump and his Democratic opponents appeared to make little progress at a White House meeting aimed at heading off a government shutdown that could disrupt a wide range of services as soon as Wednesday - with Trump also sidetracked by the announcement of a peace plan for Gaza. "I think we're headed to a shutdown," Vice President JD Vance said.

Budget standoffs have become relatively routine in Washington over the past 15 years and are often resolved at the last minute. But Trump's willingness to override or ignore spending laws passed by Congress has injected more uncertainty.

After another record high on Monday, Wall Street stock futures pulled back a little ahead of Tuesday's bell and Treasury yields drifted lower as a funding hiatus undercuts government spending at the margin and Fed easing hopes rest on other labor market data this week. The dollar edged down, but gold fell back too. Quarter-end book squaring may have as much to do with the day's moves, with Japan's yen a big gainer ahead of October's possible interest rate rise and the Aussie dollar up as the Reserve Bank of Australia left rates unchanged.

China's markets headed into the start of Golden Week holidays there tomorrow in an upbeat mood, despite another downbeat official business survey for September. Factory activity there shrank for a sixth month in September, suggesting producers are waiting for further stimulus to boost domestic demand and investors are now awaiting China's Communist Party meeting October 20–23 for details on the next five-year economic plan.
Markets are also digesting fallout from President Trump's framework peace plan for Gaza - with gold and oil prices down slightly on the proposals that have yet to get agreement on all sides. While the direct market impact remains limited for now, any escalation could affect energy prices and risk sentiment, especially as oil trades lower on OPEC+ supply expectations.
European markets also took a step back on the quarter end, with German states' inflation numbers coming in a little hotter than last month and jobless totals there falling back. The euro was firmer, while Spanish debt spreads to Germany's tightened after last week's credit rating upgrades there - basking in the glow of the fastest economic growth of the big euro zone economies and a falling debt/GDP ratio.

In today's column, I discuss how the U.S. economy can be growing at nearly 4% when job creation appears to be waning and ask whether AI is the missing link.

I'd love to hear from you, so please reach out to me at mike.dolan@thomsonreuters.com.

Data refreshes every time you open this email. For more U.S. market news, click here. Please send any feedback to morningbid@thomsonreuters.com.

Today's Market Minute

President Trump and his Democratic opponents appeared to make little progress at a White House meeting aimed at heading off a government shutdown that could disrupt a wide range of services as soon as Wednesday.
Trump said on Monday he would impose a 100% tariff on all films produced overseas that are then sent into the U.S., repeating a threat made in May that would upend Hollywood's global business model.
China's manufacturing activity shrank for a sixth month in September, an official survey showed on Tuesday, suggesting producers are waiting for further stimulus to boost domestic demand, as well as clarity on a U.S. trade deal.
While energy companies are retrenching in the face of a bleak near-term outlook for oil and gas, their investment plans suggest they believe the environment will shift dramatically by the end of the decade, writes ROI energy columnist Ron Bousso.
How often should companies report their financial performance? This debate is back in the headlines, but Income Securities Advisor publisher Marty Fridson argues that the current discussion fails to highlight one key problem that reducing the frequency of reporting could magnify.

How to explain 4% growth and no jobs

As we enter the final quarter of a turbulent 2025, one of the biggest puzzles of the moment is how the U.S. economy is growing at almost 4% without creating any jobs. The answer may lie in artificial intelligence, but proving that will be a challenge.

While U.S. markets suffered a near heart attack over President Donald Trump's tariff plans in April, they have since roared back, with the S&P 500 rallying by a whopping 33% from its lows. Meanwhile, the U.S. economy is on track for 3.9% annualized GDP growth as the third quarter comes to a close.

Graphics are produced by Reuters.

On top of this, the Federal Reserve has resumed easing, even in the face of the loosest financial conditions in almost four years. Why? Because Chair Jerome Powell and team are worried about the labor market.

So why is the labor market ostensibly so weak when the economy is booming, corporate capital expenditures are soaring and the stock market is racing to record highs?

While Q3 tallies for different cuts of stocks, bonds and even the dollar all showed positive plain sailing through the quarter, the eye-popping 60% rise in the so-called "Magnificent Seven" big tech megacaps from this year's low returns us to a familiar culprit.

JPMorgan economists recently highlighted the 11% annualized capex growth through the first half of 2025, noting that this growth remained strong in the third quarter even as labor demand seemed to evaporate.

U.S. payroll growth - which will be updated with September data on Friday - has softened considerably to an average of only 29,000 jobs per month in the three months through August, compared with 82,000 during the same period in 2024.

"Accelerating capex amid a stall in job growth is hard to incorporate into the outlook," JPM wrote late last week in a note titled "The odd decouple". "Such a juxtaposition is not evident over any U.S. expansion in the past 60 years."

Read the full column

Today's key chart

Graphics are produced by Reuters.

The combination of Federal worker cuts and this week's possible government shutdown make for a rough year for public sector employees, but their share of the overall workforce has been waning for decades.

Today's events to watch

U.S. July house prices (9:00 AM EDT) Chicago September business surveys (09:45 AM EDT) US Sept consumer confidence (10:00 AM EDT) August job openings (10:00 AM EDT) Dallas Federal Reserve September service sector survey (10:30 AM EDT)
Federal Reserve Vice Chair Philip Jefferson, Dallas President Lorie Logan, Chicago Fed boss Austan Goolsbee and Boston Fed chief Susan Collins all speak; European Central Bank board members Piero Cipollone and Frank Elderson speak; Bank of England Deputy Governors Clare Lombardelli and Sarah Breeden and BoE policymaker Catherine Mann all speak
U.S. corporate earnings: Nike, Paychex, Lamb Weston

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