Key takeaways

• The US government began its shutdown on 1 October as Congress failed to reach a funding agreement before midnight of 30 September. The last shutdown took place in 2018.
• While essential services like the military, border security, Social Security checks, and air traffic control would keep operating, non-essential services would pause, and many agencies would furlough staff, and key government reports like jobs and inflation data could be delayed. The economy would feel the impact as each week of shutdown could reduce quarterly GDP by about 0.1-0.2%.
• The politics and uncertainty surrounding a government shutdown have typically created volatility and have resulted in equity markets recalibrating. However, this potential short-term weakness is usually overcome by the longer-term fundamentals, which remain positive for the US market. For fixed income investors, uncertainty can cause some short-term volatility but often also adds to the safety appeal of US Treasuries. In addition, the shutdown does not change our view that the Fed will cut rates in October and December, which should support bonds. The US dollar could see some weakness in the short term, but it may easily reverse should the conflicts resolve.

Please refer to the full report for details about the event and our investment view.

https://www.hsbc.com.my/wealth/insights/market-outlook/special-coverage/us-government-shutdown-could-raise-volatility/