Dow Jones & Nasdaq 100 Climb as Japanese Politics Fuels Yen Carry Trade

US Government Shutdown Adds to Market Volatility

The yen’s slump against the greenback coincided with a potentially lengthy US government shutdown, raising expectations for aggressive Fed rate cuts. Kalshi currently predicts a 21.3-day shutdown, with 63% odds of surpassing 15 days and 52% for exceeding 20 days.

21.3 days would be the second-longest shutdown, trailing the 35-day shutdown in 2018-2019, during Trump’s first term. Economists estimated the 35-day shutdown shaved 0.4% off GDP. Fast forward to Trump’s current second term, and the impact could be more severe given the rapidly cooling labor market.

Notably, an extended shutdown would delay the release of critical economic data. Nevertheless, markets are betting on October and December Fed rate cuts, boosting demand for US stock futures.

According to the CME FedWatch Tool, the chances of back-to-back 25-basis point rate cuts in October and December are 94.6% and 83.0%, respectively.

How Are US Stock Futures Reacting to the Shutdown and Political News?

US stock futures began the week on a strong footing. The Dow Jones E-mini rose 57 points, and is eyeing a seven-day winning streak. Meanwhile, the Nasdaq 100 E-mini gained 83 points, and the S&P 500 E-mini advanced 15 points, recovering from Friday’s pullback.

Later today, traders should closely monitor events on Capitol Hill and Fed speeches. Bipartisan support for a stopgap funding bill could ease concerns about the potential impact of a shutdown on the economy. A reopening would likely shift market focus to looming US labor market data, including the delayed US jobs report.