Who’s in After the Fed Cut ?
Chart of the Week:
U.S. Government Shutdown Unlikely to Impact Asset Performance, History Shows
The current U S federal shutdown threat stems from Congress’s failure to pass annual
appropriations or a stopgap bill before the new fiscal year on Oct 1 As of Sept 30 Democrats and Republicans remain deadlocked, causing funding lapses that could halt some federal services and
furlough hundreds of thousands of employees.
Market Recap 1:
Government Shutdown Fails to Derail Rally; Drug Pricing Deal Lifts Healthcare
Despite the U.S. government shutdown, equities and tech stocks extended gains. CoreWeave—7% owned by Nvidia—plans to expand AI server capacity and signed a $14.2bn computing contract with Meta. Intel and AMD discussed foundry collaboration, while OpenAI is in talks with a major Korean partner under the Stargate initiative, boosting related supply-chain names. A drug price reform deal between Trump and Pfizer fueled a healthcare-led rally. The Sept ISM Manufacturing PMI rose to 49.1, beating expectations (49.0) and hitting a new high since Feb 2025. U.S. market volatility remains low, though investors are watching for shutdown fallout.
Market Recap 2:
Soft Labor Data Reinforces Rate-Cut Outlook; Bonds, Gold, and Bitcoin Benefit
The U.S. Senate rejected both temporary funding bills, triggering another shutdown. ADP employment fell 32k in September, well below expectations (+50k), and nonfarm payroll data may be delayed. Markets now price a 97% chance of an October Fed cut and two more by year-end, driving Treasury yields and rate volatility lower, supporting IG bonds. Eurozone inflation rose to 2.2% from 2.0%, in line with forecasts, reinforcing the ECB’s steady stance. ECB President Lagarde said the economy remains resilient and inflation is near target, signaling no rush for further moves.
What’s Trending:
Japan’s Tight Leadership Race; Political Clarity May Revive Equity Uptrend
The LDP will hold another leadership election on Oct 4. Although the ruling coalition lacks a majority in both chambers, opposition parties remain fragmented, making the new LDP leader almost certain to become prime minister. Current front-runners are Shinjiro Koizumi and Sanae Takaichi. Koizumi’s centrist stance suggests limited market impact, while Takaichi’s support for aggressive fiscal and monetary expansion could weaken the yen and lift equities. With political uncertainty likely to ease, Japan’s market focus should return to fundamentals.
In Focus 1:
Fed’s Rate Cuts Favor Quality Non-USD Bonds with FX Upside Potential
As expected, the Fed delivered a preemptive rate cut in September amid continued labor market softness, with the 2025 median rate projection aligning closer to market pricing. The ECB kept policy unchanged as inflation remains subdued, signaling the easing cycle is nearing its end. The BOE and BOJ also held rates steady, underscoring the policy divergence between the U.S. and major non-USD economies.
In Focus 2:
Eurozone Corporate Credit Fundamentals Stronger than U.S.; Top Pick for Non-USD Bond Allocation
ECB rate cuts have fueled a rebound in corporate profitability, with Eurozone investment-grade firms’ average EBITDA margin rising to 21% in 2Q25 from a 2024 trough of 19.3%. Both A-rated and BBB-rated companies have seen leverage improve, now notably lower than U.S. peers. This has driven tighter credit spreads and stronger euro-denominated bond issuance. Over the past 12 months, 24% of European corporate debt was issued in USD and about 70% in EUR. Demand remains robust—average oversubscription for EUR IG bonds reached 3.6x in the past three months, with BBB-rated issues at 3.7x, versus only 2x for BB-rated bonds, reflecting investor confidence in a soft-landing scenario.
