The US federal government shutdown finally ended last week, with a new funding package being signed late last Wednesday evening. The shutdown, which was the longest in US history, has weighed on the US economy, although the direct impacts of the impasse are still unclear. The Congressional Budget Office estimated that a six-week shutdown could reduce real Gross Domestic Product (GDP) growth in the current quarter by around 1.5%. More than half of this productivity loss may be restored if federal programmes can quickly resume and government employees receive backpay for the unpaid work they performed over the 43 days of the shutdown.
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US Equity Market:
The US stock market briefly rebounded after the previous week’s minor selloff, which was driven by concerns over unsustainable valuations in the technology sector. These concerns were reignited last Thursday however, which saw most technology companies firmly in the red. In recent days investors have been favouring more defensive and cheaper stocks, moving away from riskier big tech names.
Japanese investment firm SoftBank disclosed its plans to sell its entire $5.8bn stake in Nvidia to free up cash to invest in AI companies and projects. There has been talk recently whether the plans for large capital expenditures by tech firms such as Meta and Alphabet will translate into returns for investors.
At close on Friday the S&P 500 and NASDAQ Index were up 0.12% and down 0.18% respectively last week, demonstrating that the tech sector has been hit slightly harder than the broader market.
UK Equity Market:
Data released last Tuesday showed that the UK unemployment rate has risen to 5%. Excluding the pandemic period, the unemployment figure is the highest since 2016, and appears to be partly driven by the employer tax increases introduced in the 2024 Budget; payroll employment has fallen by 180,000 since this time last year.
Gross Domestic Product (GDP) figures released last Thursday morning showed that growth in the UK economy unexpectedly slowed in the third quarter. The metric – which shows the total value of all goods and services produced over a given period – rose just 0.1% in the third quarter, compared to 0.7% and 0.3% in the first and second quarters of 2025 respectively.
With GDP growth coming in lower than the 0.2% forecast by economists, pressure is mounting on Chancellor Rachel Reeves ahead of the upcoming budget. The weaker-than-expected figures, combined with rising unemployment, highlight the fragile state of the UK economy.
Inflation, Interest Rates and Bond Markets:
Derivative markets are now pricing in an over 80% chance that the Bank of England will cut interest rates at its next MPC meeting in December. This is up from around 60% at the beginning of last week, following last Tuesday’s weak employment data and Thursday’s disappointing GDP figures, with the former having the biggest impact.
In times of low unemployment, employers often increase their wages to attract and retain employees. This can flow through into higher production costs, which can translate into higher prices for goods and services – an inflationary effect. The opposite is true in times of high unemployment, bolstering the case of an interest rate cut.
With the US government shutdown coming to an end last week, investors are preparing for a wave of delayed economic data to be released. Heightened volatility can be expected in both bond and equity markets over the next few weeks, as official figures are digested by investors. With the Federal Reserve’s path for interest rate cuts unclear, these figures will likely provide more clarity on the short-term outlook. The Bureau of Labor Statistics is expected to release a calendar in the coming days; however it looks like some key pieces of data – such as October’s Consumer Price Index (CPI) inflation and labour market reports – may not be published at all. Derivatives markets are currently pricing in a roughly 50% chance of a rate cut in the upcoming Federal Reserve meeting on 10th December.
What’s on the horizon
It’s a relatively quiet week on the macro front. Japan has released its third quarter GDP figures today, and the Office for National Statistics is set to release October CPI inflation data for the UK.
Nvidia is set to release its third quarter earnings figures after market close on Wednesday. The chipmaker recently became the first company to surpass the $5tn mark, although it has since dropped back down below this mark. With the stock trading on a high valuation multiple, investors are expecting strong growth in both revenue and earnings. Any indications of weakening demand for chips would likely be poorly received by investors and could result in a sharp decline in the share price.