Morning light hits the U.S. Capitol hours ahead of a press conference to discuss the Epstein Files Transparency bill, directing the release of the remaining files related to the investigations into Jeffrey Epstein and Ghislaine Maxwell, on Capitol Hill in Washington, D.C., U.S., September 3, 2025.
Jonathan Ernst | Reuters
The U.S. government entered a shutdown on Wednesday, sparking conversation across global markets as investors weighed the potential impact on the wider economy.
Although government shutdowns typically have a negligible impact on capital markets, the timing of this one is significant.
U.S. jobs data due to be published on Friday will be delayed by the move — clouding the outlook for the Federal Reserve just weeks ahead of its next meeting. President Donald Trump has also threatened to use the shutdown to enact “a lot” of job cuts in the public sector.
With no clear path toward a deal, it’s also unclear how long the impasse will keep federal offices closed. During Trump’s first term in office, a partial shutdown took hold — the longest in history.
Average market changes over recent shutdowns
| Shutdown period | Full days | Type of shutdown | S&P 500 (%) net change | VIX points net change | DXY net change | 10-year net change |
|---|---|---|---|---|---|---|
| 12/22/18-1/25/19 | 35 | Partial | 6 | -8 | -2 | -17 |
| 1/20/18-1/22/18 | 3 | Partial | 2 | 4 | -2 | 15 |
| 10/1/13-10/17/13 | 16 | Full | 3 | -1 | -2 | -14 |
| 12/16/95-1/6/96 | 21 | Full | -3 | 4 | 0 | 1 |
| 11/14/95-11/19/95 | 5 | Full | 3 | -1 | 1 | -10 |
| 10/5/90-10/9/90 | 3 | Partial | -5 | 3 | -3 | 2 |
| Average | 1 | 0 | -1 | -4 |
Source: Bank of America
U.S. risk assets were shaky on Wednesday. Gold — typically viewed as a safe haven asset in times of economic or geopolitical turbulence — hit its 39th record high this year. European stocks edged higher in late morning trade, gaining momentum after a lackluster open, and shares listed in Asia were mixed in Wednesday’s session. Meanwhile, global government bonds cooled after yields on bonds issued by European government ticked higher in early trade. However, the U.S. 10-year Treasury yield traded 4 basis points lower after a surprise decline in private payrolls.
Investors may look elsewhere amid U.S. ‘dysfunction’
The shutdown adds to concerns over U.S. institutional credibility, fiscal position and “dysfunction,” according to Luke Bartholomew, deputy chief economist at Aberdeen.
“I’m certainly struck by how much political capital the Trump administration seems to be willing to spend on reforming, if I can put it that way, the Federal Reserve, influencing the Federal Reserve,” he told CNBC’s “Squawk Box Europe” on Wednesday.
“The Fed is ultimately the bedrock institution for global capital markets. So, the long-end term premium is all under pressure, and I would expect that theme to continue,” he added — but he noted that he “would be surprised if the market doesn’t ultimately shrug this off.”
Neil Birrell, chief investment officer at U.K. investment firm Premier Miton, said that a prolonged shutdown was likely to dampen risk-on sentiment across global markets.
“With bond markets reacting to extreme government borrowing requirements, credit spreads being tight and equity markets near highs with unforgiving valuations, it is hardly surprising to see investors move to perceived safe haven assets when a negative event such as a U.S. government shutdown comes to town,” he told CNBC.
“Investors have been complacent over the risks we face, and negative surprises will provoke a reaction. Any form of diversification looks appealing, including other metals such as silver, crypto and maybe other commodities as well.”
FX impact
Joe Brusuelas, chief economist at RSM U.S., noted that the biggest outcome for markets could be further pressure on the greenback or an impact on the Fed’s October rates decision.
“For the most part US government shutdowns tend to result in a modest bout of speculative behavior by global investors around rates and currencies. This edition of the American fiscal follies is no different,” he told CNBC via email on Wednesday.
“For there to be a greater impact on global markets the U.S. government shutdown will need to be extended throughout the month approaching the 2018-2019 record shutdown. Should that occur, that would likely impact the Federal Reserve policy decision at the end of the month which would likely impact global mass flows, interest rates and foreign exchange values.”
Brusuelas noted that mass firings of federal workers “would likely result in further declines in the value of the dollar resulting in capital flows into the euro and yen.”
Dollar index
Widespread layoffs could also have a knock-on effect on European industry, Brusuelas told CNBC.
“Demand for European exports such as autos will decline notably which would add to the pressure felt by German industrials,” he said.
Investors should ‘look past shutdown fears’
However, in a note on Tuesday, analysts at Swiss investment bank UBS said they did not see the shutdown as a major risk event, despite conceding that it was not a welcome development for global investors.
“Shutdowns have historically had only a muted market impact,” they explained. “Past government shutdowns have typically caused modest and short-lived volatility in equity and bond markets because investors understand that the economic impact is also typically quite modest and short-lived … Treasury auctions and payments would continue as normal, and while IPO activity and some regulatory processes may pause, we think neither poses a meaningful risk of market dislocation.”
UBS also argued that any temporary data delays were unlikely to throw the Fed’s easing cycle off course.
“A shutdown would suspend the collection and release of most government economic data,” they said. “It would also affect revisions of past labor data, which has taken on more importance recently … This does mean the Fed could go into its October policy decision without the benefit of updated labor market data, but we do not see this preventing it from proceeding with a further 25bps rate cut.”
Money markets are overwhelmingly pricing in a 25-basis-points cut to the Fed’s key interest rate at its Oct. 29 meeting, according to the CME’s FedWatch tool.
“We advise investors to look past shutdown fears and focus on other market drivers, such as the mix of continued Fed rate cuts, strong corporate earnings, and robust AI capex and monetization,” UBS’ team added in their note on Wednesday.
