The US government shutdown continues. Stocks rally on extreme Fed dovish bets. Yen weakens on the leadership vote. WTI crude sees a rebound.
Nikkei 225 rallied with soft JPY ahead of the LDP leadership vote, WTI on track for worst weekly loss since June
Key takeaways
- US politics & shutdown: The US government entered its second day of shutdown, with President Trump escalating pressure by threatening mass federal job cuts.
- Markets & Fed outlook: US equities hit fresh record highs as investors focused on expectations of Fed rate cuts, with a 98% chance of easing in October and 90% in December.
- FX & Japan politics: The US Dollar Index steadied, while the yen weakened ahead of Japan’s LDP leadership vote, boosting the Nikkei 225 near record highs.
- Commodities: WTI crude rebounded slightly but remains on track for its steepest weekly drop since June, with OPEC+ expected to ramp up output in November
The US government entered its second day of shutdown, with US President Trump ratcheting up pressure on the Democrats to end the shutdown by threatening to slash “thousands” of federal jobs.
The US stock market brushed aside potential economic headwinds, instead focusing on growing expectations of a more dovish Federal Reserve, which propelled the S&P 500 and Nasdaq 100 to fresh record highs on Thursday, 2 October, with gains of 0.1% and 0.4%, respectively. The top performer was the small-cap Russell 2000, which rallied by 0.7% while the Dow Jones Industrial Average added 0.2%.
Based on the latest data from the CME FedWatch tool, the Fed funds futures market is pricing a 98% probability of a 25-basis-point Fed rate cut at the upcoming 29 October 2025 FOMC meeting. Expectations for a third 25-basis-point cut in 2025 have also strengthened, with odds rising to 90% for the 10 December meeting, which would lower the Fed funds rate to a range of 2.75%–3.00%.
The US Dollar Index managed to snap its prior four days of decline and posted a modest gain of 0.2% on Thursday, 2 October, and was capped by its 50-day moving average, which is acting as an intermediate resistance at around 98.05 at the time of writing.
In today’s Asia session, the US Dollar Index is trading almost unchanged, and the outlier is the Japanese yen, which underperformed among the major currencies and shed -0.2% against the greenback.
The current pace of JPY weakening against the US dollar is likely due to some unwinding of this week’s JPY bullish positioning ahead of this Saturday, 4 October, Japan’s ruling Liberal Democratic Party leadership vote to select the next Japanese Prime Minister.
Opinion polls are split between the two leading contenders: reformist Shinjiro Koizumi (boosting wages for Japanese employees) and right-leaning Sanae Takaichi (an advocate of monetary easing).
The Japanese stock market has reacted positively so far, with the Nikkei 225 rallying for the second consecutive session with an intraday gain of 1.85% on Friday, 3 October, to close at 45,769, just a whisker below its recent all-time high of 45,853 printed on 19 September 2025.
West Texas crude oil has managed to stage an intraday rebound of 0.7% today after its prior five sessions of consecutive losses. WTI crude is on track for its biggest weekly decline of 6.3% at the time of writing since late June 2025, ahead of an OPEC+ meeting this Sunday, 5 October.
Media outlets have reported that OPEC+ is poised to increase production by a higher magnitude of 500,000 barrels per day in November, triple the increase for October, as Saudi Arabia seeks to reclaim market share.
Our YouTube video above contains the latest intraday technical analysis on the US Wall Street 30, US Nas 100, US SPX 500, Hong Kong 33, Japan 225, Germany 30, EUR/USD, GBP/USD, AUD/USD, USD/JPY, Gold (XAU/USD), and West Texas Oil.
