SIFs Trade Cautiously after End to Shutdown

STOCK INDEX FUTURES

The indexes moved lower following the reopening of the US government as markets grew cautious over a series of economic reports that could soon be released and shape expectations over Fed policy. However, White House Press Secretary Karoline Leavitt on Wednesday said the October jobs and consumer price index reports are unlikely to be released due to the shutdown.

On the earnings front, Disney slipped 4% premarket as box office revenue dropped during the recent quarter, while its “Experiences” unit, which includes its theme parks and cruises, accounted for more than half of the company’s profit last quarter. Cisco shares are up 7% in premarket trading after the company raised its fiscal 2026 guidance and reported strong demand for AI products.

Stocks rallied as the Dow reached another record high as confidence grew that the US government shutdown would end Wednesday night. The Dow rose over 320 points to finish at a record closing high of 48,254, breaking over 48,000 for the first time. The healthcare sector continued to lead gains for the second day in a row, while financial companies also helped lift the indexes higher, as buyers poured into large banks.  On the tech front, stronger guidance out of AMD saw its shares rise over 9%, helping lift other related stocks. However, gains in the Nasdaq were limited by profit-taking among megacaps.

CURRENCY FUTURES

US DOLLAR: The USD index fell overnight after President Trump signed a deal to end the government shutdown, with the dollar last hovering below 99.3. Initial optimism over the end of the shutdown turned into caution as markets are preparing for the release of economic data, despite the White House saying that the reports may not be released. The jobs report may not reflect normal data until the December report, scheduled for January, as data was never collected for the October report. Additionally, a large portion of the data for the November report was supposed to be collected this week. The shutdown itself could skew the employment figures too. The dollar was mixed on Wednesday, slipping against the euro while gaining strongly against the yen and sterling. Fed Funds futures are currently pricing a 55.6% chance of a December rate cut, down from 64.4% this time yesterday.

EURO: The euro moved higher as a weaker dollar beat out disappointing industrial production figures out of the eurozone. Industrial production rose 0.2% month-over-month in September, a rebound from a revised 1.1% decline in August, but fell short of market expectations of 0.7% growth. Declines in durable and non-durable consumer goods were responsible for the lackluster reading. Meanwhile, the unemployment rate in France rose slightly to 7.7% in the third quarter, above expectations of 7.6%, and an uptick from the previous quarter’s 7.6%. The German Council of Economic Experts cut its growth forecast for 2026 to 0.9%, down from 1.0% in May, lower than the government’s 1.3% estimate. The 2025 growth projection remains at 0.2%, heightening scrutiny around the impact of Germany’s planned fiscal spending push. Expectations of a firm policy stance from the European Central Bank have offered some underlying support for the euro. On Monday, ECB Vice President Luis de Guindos said in an interview that policy rates are currently appropriate. The ECB is enjoying a period of low unemployment and inflation, making it unlikely that it will move interest rates anytime soon, leaving it exposed to policy signals out of the Fed. Looking ahead, the second estimate of eurozone GDP for Q3, flash estimate employment data, and final October CPI figures for France and Spain are due on Friday.

BRITISH POUND: The pound moved higher on dollar weakness despite disappointing data out of the UK, which showed that the economy barely expanded. GDP grew 0.1% in the third quarter of 2025, slowing from growth of 0.3% in the second quarter. Forecasts were expecting a 0.2% rise. In September, the economy contracted by 0.1%. The sluggish reading can be owed, in part, to a cyberattack on Jaguar Land Rover, as the Office for National Statistics reported a 28.6% slowdown in production of motor vehicles in September. Motor vehicles accounted for a 17% subtraction from GDP in September and a 6% subtraction for the third quarter as a whole. Still, economic growth in the UK remains sluggish, and markets are pricing in a near 80% chance that the Bank of England will move to cut rates at its December meeting. The BoE noted it expects to see the economy rebound in the fourth quarter with a 0.3% expansion. On an annual basis, GDP increased 1.3%, slightly below forecasts of 1.4%. Elsewhere on the data front, industrial production fell by 2% in September, reversing a downwardly revised 0.3% gain in August and falling below market expectations of a 0.2% drop. Weak labor market conditions, moderating wage growth, and reduced household and business spending and investment pose downside risks to inflation.

JAPANESE YEN: The yen was little changed against the dollar as concerns that the new government will seek to influence the Bank of Japan to delay future rate hikes weighed on the currency. BoJ Governor Kazuo Ueda was also asked to report regularly to the government’s Council on Economic and Fiscal Policy. The central bank is likely to raise rates come December if certain financial conditions are met, mainly, a steady and sustainable increase in wages. Currently, markets are pricing a 22% chance of a quarter-point increase to the key rate in December. Finance Minister Satsuki Katayama said on Wednesday that it was important for currencies to move in a stable manner, reflecting fundamentals, and reiterated that the government would continue to monitor movements in the yen. Her comments did little to move the yen, suggesting that it will take an actual intervention by Japanese authorities to provide the yen some support.

AUSTRALIAN DOLLAR: The Aussie is higher against the dollar as job figures lowered bets of a December rate cut to 6%. Australia’s employment jumped by 42,200 in October, while the unemployment rate fell back to 4.3% from a four-year high of 4.5% in September. Full-time jobs grew by 55,300, while hours worked rose by a solid 0.5%. The data led to the National Australia Bank giving up its call for one final rate cut in May next year, saying it now expects the RBA to be on hold for the foreseeable future. The jobs report added to a slew of upbeat data  this week, from housing to surveys of consumer and business sentiment, which suggested there is little urgency for the RBA to ease policy in the debate over whether its policy rate is restrictive at 3.6%. Reserve Bank of Australia Deputy Governor Andrew Hauser said there was increasing debate about whether the current rate of 3.6% is restrictive enough to keep inflation in check. Hauser said the current judgment that monetary policy is mildly restrictive is central to the expectations that inflation would still slow in the economy. The central bank noted that inflation is likely to continue to move upwards well into next year.

INTEREST RATE MARKET FUTURES

Futures are lower across the curve as bets of a rate cut in December lowered to 55.6% from 64.4% at this time yesterday, as the US government finally reopens. The end of the shutdown opens the path for the release of economic data that has been withheld due to the shutdown, although the White House said it is not likely that the reports will be published as a result of the shutdown. If the reports are published, mainly the jobs report, it could stir a wave of volatility in markets as it will shape investor expectations about the Fed’s policy stance come December. Future data may also be unreliable until December’s labor report is published in early January, as data collection efforts will have been hampered by the shutdown. If the labor report is not published, it could make it harder for FOMC members to prove that the labor market did strengthen over the shutdown, potentially raising the odds of a December rate cut.

A flood of news helped Treasurys rally across the curve on Wednesday. Treasury Secretary Scott Bessent said Americans would see “substantial announcements” in coming days aimed at lowering the prices of products not grown in the US. Bessent also announced that Treasury auction sizes would remain unchanged for the next several quarters, suggesting a steady supply. The comments from Bessent were supportive of Treasurys, while concerns over labor market weakness from Tuesday’s ADP data helped underpin prices. Atlanta Fed President Raphael Bostic, a hawk, said on Wednesday he will retire at the end of his current term on February 28, 2026. He also said he favors restrictive policy until inflation gets back to the bank’s 2% target.

Bessent also expressed his desire to reform bank’s SLR, which requires banks to hold capital against their investments regardless of risk, preventing them from holding onto assets such as Treasurys. A reduction in the SLR would free up space on bank’s balance sheets for them to purchase lower-risk assets such as Treasurys, which would add demand and liquidity to the market. Despite the news not being groundbreaking, it did add to Wednesday’s momentum for Treasurys and should be of note for further policy developments.

Wednesday also saw a not-so-great 10-year note auction, where demand was underwhelming. The bid-to-cover ratio was 2.43, less than the 2.47 six-auction average. Indirect bidders, which include foreign investors, were awarded 67.0%, up from the prior 66.8%, but below the 70.1% average. Direct bids took a whopping 22.6% vs. the average of 18.6%, leaving dealers with 10.7%. That leads to today’s $25 billion auction in 30-year bonds.

The spread between the two- and 10-year yields fell to 50.30 bps from 50.90 bps on Wednesday, while the 2-year yield, which reflects interest rate expectations, rose to 3.601%.

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