Gloom never looked so good

The US government remains shut, which means the BLS will likely not release the September jobs report this Friday. Yesterday’s ADP numbers, however, injected a strong dose of dovishness to keep investors going for a few days longer. The data showed the US economy didn’t add jobs in September, but instead lost 32’000. Part of this was due to an adjustment tied to government-sourced figures, but taken together with other data, the trend is clear: the US labour market is weakening. And that’s before factoring in the political noise — Donald Trump is already threatening to fire thousands of federal employees if Washington fails to break the shutdown impasse.

But voila, the picture is gloomy for workers, but not for investors. Markets cheered the sight of 32’000 job losses, as it gave solid support to dovish Federal Reserve (Fed) expectations. The US 2-year yield — the best gauge of Fed bets — fell sharply, while the 10-year yield slipped to 4.10%, helped by safe-haven inflows into Treasuries. Risk appetite, though, showed no sign of being hit by the shutdown drama. On the contrary — the S&P 500 and Nasdaq both closed at fresh record highs. Big Tech led again, with AI still the dominant narrative. Reports of new deals in the AI cloud space kept enthusiasm alive, while Google and Apple unveiled new smart home devices. The Magnificent Seven climbed 0.57%. Some argue that the “Mag 7” is outdated, given it excludes this year’s AI darlings like Oracle, but the principle holds: Big Tech continues to shoulder the rally despite lofty valuations, while prospects of lower rates only add fuel.

Fed doves, AI appetite help fuel gains in Asian tech, as well. Alibaba jumped another 4% in Hong Kong after JPMorgan hiked its price target by 45% to $245 per share, following a similar move from Jefferies earlier this week. Lofty? Perhaps. But at today’s levels, Alibaba is still worth only half of what it was in 2021. If US Big Tech is a buy at record highs, then Alibaba at a 50% discount looks tempting. Granted, the stock has now entered overbought territory and a short-term pullback is likely. But any correction will likely attract dip buyers — and I believe it’s only a matter of time before Alibaba pushes above 200.

In FX, the dollar remains under pressure from both the shutdown and dovish Fed expectations. News that Lisa Cook will stay on the Fed board offered a touch of reassurance on central bank independence, but not enough to reverse the bearish tone. If the shutdown drags on, the dollar’s weakness will likely deepen. On Polymarket, the odds of the shutdown lasting more than two weeks stand near 40% — which would make it one of the longest in history. That backdrop could give the EURUSD bulls the momentum to test 1.18 resistance and extend gains to 1.20 earlier than previously expected. On the data front, early September inflation data from the eurozone showed a slight uptick in headline CPI, from 2.0% to 2.2%, cementing the idea that the European Central Bank (ECB) won’t be rushing into further rate cuts this year. Christine Lagarde herself said inflation is “quite contained in both directions” — another way of saying “we’re on hold.” That steadiness leaves the door open for the euro to grind higher.

Sterling, meanwhile, looks set to consolidate near 1.35, but conviction is weaker. UK fiscal dynamics are front and center as the Autumn Budget looms. Higher borrowing costs are narrowing fiscal headroom, raising the risk of tax hikes, spending cuts — or both. That prospect doesn’t exactly bolster appetite for the pound.

Elsewhere, safe havens remained in demand. The USDJPY tested the 100-DMA to the downside – near 146.50, and should be in a position to extend its move to 145, while the USDCHF consolidates just below the 80 cents level. If the franc is not gaining more than that, it’s certainly because of the news – earlier this week – that the Swiss National Bank (SNB) made its first meaningful franc sales in 3 years to soften the currency. The intervention remained softer than the ones we saw back in 2020, but the fact that the SNB started playing beyond rates to soften the franc means that it’s had enough with the franc’s strength, and that it has no other option than to provide francs to the market whether it pleases the US or not. As such, there will likely be more incentive to intervene through direct FX interventions in the coming months than cutting rates below zero – to avoid the negative side effects of below-zero rates on the Swiss economy. The latter means that gains in Swiss franc will hopefully remain limited during the US shutdown, and other safe haven assets like yen and gold look more appetizing.