Morning Bid: Who Really Needs a Government?

Wayne Cole takes a look at the day ahead in European and global markets.

Treasury yields and the dollar are slipping, while most Asian equity markets are edging higher as investors wait to see whether last-minute talks can avert a U.S. government shutdown from Wednesday.

When President Trump meets top Democratic and Republican leaders in Congress on Monday, expectations of a deal are low. Both sides appear to see political advantage in letting the government shut down.

BofA analysts estimate that a shutdown would shave 0.1% off GDP each week, though the loss would be recouped once the government reopens. Historically, shutdowns have had little lasting impact on financial markets—likely because investors assume public pressure will eventually force a compromise.

Markets face an unusual complication: a shutdown could delay Friday’s September payrolls report, while a prolonged closure might still have little effect on the Federal Reserve’s October 29 meeting. For now, investors see no reason for the Fed to loosen policy, with odds of a rate cut sitting at 89%.

Adding to the uncertainty, Trump is set to impose new tariffs Wednesday on large trucks, patented drugs, and other goods—though confusion remains about what will actually take effect, or whether existing country-specific deals will take precedence. Reuters reported that the administration is even considering tariffs on foreign electronics based on the number of chips inside each device, though how such a scheme would work in practice is anyone’s guess.

Trade partners may well be wondering what value there is in striking agreements with Trump when he can suddenly slap fresh tariffs on virtually anything.

It is shaping up to be a busy week for the president, who on Tuesday is expected to attend a meeting of top U.S. military officials hastily convened last week by Defense Secretary Hegseth.

“I want to tell the generals that we love them. They are our beloved leaders, and they must be strong, tough, smart, and kind,” Trump told Reuters in an interview, making the purpose of the gathering somewhat clearer.

Social media is awash with speculation—from suggestions that Hegseth wants to instill a “warrior culture” among generals, to rumors that military leaders might be asked to personally swear loyalty to Trump. There is even chatter that the White House is preparing to scale back U.S. military presence in Europe and Asia to refocus solely on America.

For investors, the hope is that nothing derails what is typically a strong fourth quarter for equities. The Nasdaq has historically gained more than 6% on average during the December quarter. Global equities are already up 17% this year, adding some $15 trillion in market value. Gold and Chinese tech stocks have been the standout performers, both rising nearly 40%.

Key events shaping markets on Monday:

• EU consumer and business sentiment surveys; September CPI reports from several EU countries.
• ECB speakers: Madis Müller, Martins Kazaks, Piero Cipollone, Isabel Schnabel, Philip Lane.
• Fed speakers: Christopher Waller, Beth Hammack, John Williams, Alberto Musalem, Raphael Bostic.