Amidst a big day for global markets, the US government shut down for the first time in the past 6 years after Congress failed to vote in favour of a spending bill. According to an estimate from the ‘Congressional Budget Office,’ around 750,000 federal workers will be taking unpaid leave while federal workers for essential services will still come to work. There are indications that several workers will also be laid off. This shutdown will delay the release of important economic statistics such as job market data, inflation data and data on consumer spending and business investment which were due Friday, 3rd October. US stock markets were up on Wednesday as the S&P 500 moved up by about a third of a percent touching its all time high. Meanwhile, the Dow Jones Industrial Average was up by about 0.09% whereas the Nasdaq composite index was up by about a half of a percent. This was mainly due to the market pricing in expectations of another rate cut which became imminent after the shutdown. Analysts on Wall Street anticipate another rate cut as the shutdown might trigger more layoffs and lead to higher labour market uncertainties. This probably led to the 10 year treasury bond yield closing lower at 4.1%, down about 1.3% while the 2 year treasury bond yield closed at 3.535%, down about 2.27%. The dollar index weakened for the 4th consecutive day as it fell by about 0.09%. Precious metals like gold and silver were up by about 0.18% and 1.32% respectively. Copper prices were up by 0.36% while WTI Crude was down by 1.01%.

On the other hand, Indian markets ended on a positive note after a 9-day losing streak as RBI held the policy repo rate constant at 5.5% with a dovish outlook. Annual growth estimates were revised upwards from 6.5% to 6.8% while annual inflation estimates were also lowered from 3.1% to 2.6%. RBI governor, Sanjay Malhotra indicated that H2 might see lower growth due to a slowdown in exports amid tariff and geopolitical uncertainties despite fiscal stimulus being provided by the government. Markets reacted positively as the Nifty 500 edged up by about 0.85% and the Nifty 50 was up by 0.92%. Simultaneously, the rupee gained against the dollar as the dollar weakened to 88.65, down about 0.16%. Should the dollar continue to lose value, Indian equity markets might see an increase in inflow of investment from FIIs potentially bringing the markets out of a 1 year time correction. Valuations remain around historical averages with the Nifty 50 PE ratio touching 22 while the Nifty 500 PE ratio is at 24 slightly below the median of 24.5. Valuations falling further below historical averages may signal increased FII investment into the equity markets.

Disclaimer: This article is for informational purposes only and must not be construed as investment advice.