Republican and Democrat lawmakers have failed to agree on a deal on how the government should be funded for the upcoming fiscal year, which has led to a suspension of some government services and 750,000 federal employees put on unpaid leave. For a new bill to pass in the Senate, 60% of votes are required, which means there will need to be some cross-party support.
The potential economic impact. Similar historical episodes provide a useful guide, with previous shutdowns suggesting that the permanent economic drag is limited, even if the shutdown lasts for a month (figure 1). This has been reflected in the asset price reaction so far, with moves in U.S. equities, U.S. equity volatility, bonds, and the U.S. dollar all relatively limited. Gold has been a notable beneficiary with the gold price at $4,065 (8 Oct).
Japan's political transition marks a shift in policy direction. The Liberal Democratic Party's selection of Sanae Takaichi as leader introduces a platform that favors fiscal expansion and resists premature monetary tightening. Markets have repriced their outlook for the Bank of Japan's rate path a little lower, with the yen weakening, and long-end government bond yields rising.
First, Takaichi's pro-growth stance may support domestic risk assets, particularly equities and infrastructure-linked sectors. Second, with inflation running above target, an acceleration in fiscal stimulus may still require higher interest rates, which would attract capital inflows, and support the yen.
France continues to grapple with political instability. Prime Minister Sébastien Lecornu's resignation - less than a month into his tenure - underscores the institutional instability facing President Macron's administration. With no clear parliamentary majority, Macron must choose between dissolving parliament or negotiating a fragile coalition. Investors have responded by pricing-in a higher French government bond yield spread over German bonds, reflecting concerns over the future management of France's high government deficit.
French budget negotiations – we expect France's bond risk premium to rise further.
The European Commission has proposed significant changes to its steel import policy, cutting tariff-free quotas and raising duties to 50% on excess volumes.
The ripple effects from US protectionist policy on other countries, e.g., countries protecting themselves from global overcapacity, new industrial strategies, etc.
| Title | File Type | File Size |
|---|---|---|
| Global Markets Overview: October 2025 | .4 MB |
David is the Global Head of Asset Research at WTW, responsible for economic and capital market research. He also is a member of the Investment Assumptions Committee, who help guide investment policy globally.
