Cryptocurrencies, including Bitcoin, rallied as bets grew that the record-long U.S. government shutdown would soon end. The expectation of a resolution boosted risk appetite across global markets and enabled officials to resume the release of critical economic data, providing more clarity on the state of the U.S. economy.
The U.S. Senate moved forward on Sunday on a measure to end the shutdown, now in its 41st day, which has sidelined federal workers, delayed food aid, snarled air travel, and paused the release of government economic data. Earlier that day, White House economic adviser Kevin Hassett said in an interview that fourth-quarter gross domestic product could be negative if the shutdown continued.
If the Senate passes the bill, which would fund the government until January 30 and include a package of three full-year appropriations bills, it must then be approved by the House of Representatives and sent to President Donald Trump, a process that could take several days.
S&P 500
The S&P 500 closed slightly higher on Friday on signs of progress in Washington. It had declined earlier in the day following a report that U.S. consumer sentiment slumped to a nearly 3-1/2-year low on worries about the economic fallout.
“There’s an increased willingness to take on additional risk because there’s a possibility the government could reopen some time this week,” said Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut. “Right now it’s a bit of a relief rally.”
Pavlik said investors have been concerned by anecdotal evidence of “people staying home and not spending as much” and are anxious for the resumption of official economic reports for “hard evidence.”
“We’ve had this void for so long that it felt like it was starting to really weigh on investors’ minds and people were focusing more and more on valuations,” he said.
The overall positive sentiment was reflected across other asset classes as well.
U.S. labor market
While last week’s non-government data stoked worries about a weakening U.S. labor market, a slew of Federal Reserve officials reiterated their preference for going slow on further rate cuts. Traders are pricing in a roughly 62% probability that the central bank will cut rates by 25 basis points next month, according to CME Group’s FedWatch tool.
Fed Governor Stephen Miran said Monday a 50 basis point rate cut would be appropriate for December, noting that inflation is falling while the unemployment rate is drifting higher. But St. Louis Federal Reserve President Alberto Musalem said that with inflation closer to 3% than the Fed’s 2% goal, the economy resilient, financial conditions accommodative, and monetary policy close to neutral, the Fed should “tread with caution” on any further interest rate cuts.
U.S. Treasury prices fell, driving yields up as investors favored riskier assets on optimism about an end to the government shutdown. The benchmark U.S. 10-year note yield rose 1.5 basis points to 4.108%, from 4.093% late on Friday. The 2-year note yield, which typically moves in step with interest rate expectations for the Fed, rose 3.2 basis points to 3.589%, from 3.557% late on Friday.
Australian dollar rose
Risk-sensitive currencies including the Australian dollar rose, while safe havens dipped against the U.S. currency, as risk sentiment was boosted by signs the U.S. government is closer to reopening. The Australian dollar strengthened 0.71% versus the greenback to $0.6538 and New Zealand’s kiwi firmed 0.34% versus the greenback to $0.5645. The Mexican peso rose 0.48% versus the dollar at 18.379. But against the Japanese yen, the dollar strengthened 0.39% to 154 and the euro down 0.03% at $1.1561.
Safe-haven gold hit its highest level in more than two weeks as investors bet on rate cuts after signs of economic softening last week while and a weaker dollar lent support. Spot gold rose 2.86% to $4,113.09 an ounce. U.S. gold futures rose 2.72% to $4,108.20 an ounce.
Oil prices settled higher on Monday after swinging between gains and losses during the session as analysts stuck to predictions that rising supply will outweigh demand in the months ahead, while hopes for a U.S. government reopening raised investors’ risk appetites. U.S. crude settled up 0.64%, or 38 cents at $60.13 per barrel and Brent settled at $64.06 a barrel, up 0.68%, or 43 cents.
