Wall St mixed, shutdown (almost) nixed

Making sense of the forces driving global markets

By Jamie McGeever, Reuters Open Interest Markets Columnist 

U.S. tech shares stumbled again but the Dow climbed to a new high on Wednesday as investors geared up for an end to the U.S. government shutdown, while oil prices slumped on reports that crude supply will be higher than previously thought.

More on that below. In my column today I look at why the end of the U.S. government shutdown won't lift the economic fog for some time. Indeed, some key indicators like the unemployment and CPI inflation rates for October may never be released.  

I'd love to hear from you, so please reach out to me with comments at jamie.mcgeever@thomsonreuters.com. You can also follow me at @ReutersJamie and @reutersjamie.bsky.social. 

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* AI bursting with energy

The scale of AI investment over the coming years is staggering enough when measured in dollars. It's equally staggering in terms of the power and energy required to run all these data centers. Can the demand be met? If so, what are the inflationary and economic impacts?

Take the Stargate project. According to Unicredit, it will target 10 Gigawatts of electrical power by 2029, the equivalent of ten medium-sized nuclear power plants. Morgan Stanley estimates total U.S. data center power demand through 2028 at 69 GW, but warns of a potential 44 GW shortfall, barring creative "time to power" solutions.

* When QE is not QE

It won't be long until the Fed starts buying bonds again to expand its balance sheet, says New York Fed president John Williams. The Fed skeptics and 'doomers' on financial social media say this is proof the Fed will never shake its addiction to quantitative easing, and inflation and dollar debasement are inevitable.

Not really. These purchases would be part of a technical effort to ensure bank reserves are "ample", allowing the Fed to keep control over ultra short-term interest rates and money market liquidity. It would probably involve the purchase of T-bills, not long-dated bonds, and would have no implication for monetary policy.

* Labour pains

Pressure is mounting on UK Prime Minister Kier Starmer, and speculation is rife he may soon face an internal leadership challenge. His poll ratings have sunk since the 2024 election, unemployment is the highest in nearly six years, and later this month he is expected to break a manifesto pledge not to raise income tax. 

What does this mean for markets? The FTSE 100 is at a record high but sterling is at a two and a half year-low against the euro and teetering on a break below $1.30. The government will be desperate to get the bond market onside, and avoid a return of what TS Lombard economist Dario Perkins termed the "moron risk premium" during former PM Liz Truss's short-lived tenure. 

The end of the longest-ever U.S. government shutdown is in sight, which means official economic data will soon be forthcoming. But even if investors and the Federal Reserve are breathing a sigh of relief, the signals they should soon get might not be all that reliable.

Some of the delayed figures should begin to trickle out quickly. Economists at Morgan Stanley predict the September nonfarm payrolls report will probably be released a few days after the shutdown ends, as the data has already been collected. 

It will be much longer before the October report lands, however, but when it does, it could be missing one key element: the unemployment rate.

For the first time since 1948, the "household survey," from which the unemployment rate is calculated, was not carried out last month, according to Claudia Sahm, chief economist at New Century Advisors. Unlike the "establishment survey" which determines the monthly change in payroll jobs, subsequent household surveys don't ask about prior months.

This data gap could factor into the U.S. central bank's interest rate decision in December, as Fed Chair Jerome Powell has made clear the labor market side of the central bank's dual mandate has weighed more heavily on recent policy decisions than inflation.

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