Global markets remain near highs despite the federal shutdown and economic uncertainty in the US
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By Mario Catalá
United States: mixed signals sustain market momentum
The U.S. economy continues to show mixed dynamics which, far from dampening investor appetite, are allowing markets to maintain their upward trend. The September PMIs reflect this duality: manufacturing fell slightly to 52 from 53 in August, in line with forecasts, while services corrected to 54.2, although above expectations. Economic activity, therefore, shows no signs of contraction.
The final GDP figure for the second quarter of 2025 has surprised on the upside with growth of 3.8% compared to the initial estimate of 3%. The Atlanta Federal Reserve’s forecast for the third quarter is close to +4%, consolidating the growth path after the -0.5% recorded in the first quarter. In terms of consumer confidence, there has been a slight decline in the two main indicators: The Conference Board stood at 94.2 in September, compared to 97.4 in August, and the University of Michigan indicator fell to 55.1 from 58.2 previously.
On October 1, the US federal government shut down after Democrats and Republicans failed to reach an agreement on approving government funding for the new fiscal year. This is the first government shutdown in seven years, and the Congressional Budget Office estimates that around 750,000 employees will be temporarily affected. On the other hand, thousands of employees considered essential, such as military personnel, security agents, and airport staff, continue to work without receiving a salary. Although Congress has historically approved retroactive payment of salaries once the shutdown has ended, this time there is uncertainty as to whether this practice will continue, as the Trump administration has instructed federal agencies to prepare plans for mass layoffs. According to Standard & Poor’s estimates, the shutdown could reduce U.S. GDP by between 0.1% and 0.2% per week if it continues.
In addition, the shutdown has halted the publication of key indicators such as unemployment and inflation, which will complicate (even further) decision-making by the Federal Reserve. Official employment data for September has not yet been released, but private references have been contradictory: on the one hand, job vacancies or “JOLTS” grew more than expected to 7.2 million jobs offered, but the ADP survey indicated the layoff of 32,000 workers in September and revised the August figure from +54,000 to -3,000. Overall, the number of unemployed people in the United States exceeds the number of job vacancies by more than 150,000, which is the widest gap since 2017, excluding the pandemic period.
Europe: macroeconomic stability and political surprises
Europe continues to perform well economically, with September PMIs showing an improvement on forecasts: manufacturing stood at 49.8 (three tenths above expectations) and services rose to 51.3 from 50.5 previously. Second-quarter GDP remained at 1.5%, exceeding expectations of a slight correction to 1.4%.
Investor confidence, as measured by the ZEW Institute, surprised on the upside with a reading of 26.1, up from 25.1 previously and 20.3 expected, with the unemployment rate rising slightly to 6.3%, which is the expected and usual trend after the summer months when hiring tends to rise sharply.
On the negative side, we have the political situation in France, which has generated a great deal of uncertainty following the resignation of the new prime minister just one day after his appointment, as well as the economic situation in Germany. German industrial production fell by 4.3% in August, with sectors such as the automotive industry showing particular weakness, and with order data also down, warning of weak demand that does not bode well for growth in the coming months, making the fiscal stimulus program that the government wants to implement increasingly critical.
China: slight deterioration, but growth above 5%
There have been no significant changes in China’s main macroeconomic indicators, although there has been a slight overall deterioration. Second-quarter GDP stood at 5.2% from 5.4% in the first quarter, exceeding the expected correction. The unemployment rate rose to 5.3% in August from 5.2% in July, and industrial production fell to 5.2% from 5.7% in July.
September PMIs remained stable around 50: manufacturing at 49.8 (slightly better than expected) and services at 50 (slightly below), with August CPI returning to negative territory with a reading of -0.4%, compared to the expected -0.2% and July’s 0%, reflecting that the recovery in domestic demand is still pending. In fact, domestic spending data during the “Chinese Golden Week,” a holiday period that specifically aims to stimulate domestic consumption by promoting domestic tourism, has not been good. Despite an increase in the number of trips and tourism spending, per capita spending has already fallen by 2.6% compared to pre-pandemic levels.
In foreign trade, exports in August grew by 4.5% (5% estimated) and imports by 1.3% (4.1% estimated), which has allowed for the expansion of China’s trade balance, despite lower shipments to the United States.
Monetary policy and inflation: the Fed and the ECB in wait-and-see mode
Inflation in the United States continues to pose a challenge for the Fed. The CPI rose two-tenths of a percentage point to 2.9% in August, while core inflation remained at 3.1% for the third consecutive month. Although we do not yet know the September figure, the Cleveland Fed estimates CPI at 3%. The PCE also showed inflationary pressure, rising to 2.7% in August from 2.6% in July, while core PCE remained at 2.9%.
In Europe, the provisional CPI for September rose two-tenths of a percentage point to 2.2%, and core inflation remained at 2.3% for the fifth consecutive month. The final figures will be released on October 17.
At its September meeting, the Fed lowered its benchmark interest rate by 25 basis points, bringing it to a range of 4%–4.25%. The market is discounting further cuts at the October and December meetings, depending on employment trends. The ECB, for its part, is keeping rates unchanged, with the deposit facility at 2%, although it is leaving the door open to changes if the Fed acts.