The MSCI All-Country World Index, which tracks stocks across 47 countries, hit fresh peaks following overnight records in both Wall Street and European markets. It capped its best week since April, buoyed by expectations that the U.S. Federal Reserve will resume rate cuts this month.
Payroll Data Missing, but Fed Cut Still Expected
With the shutdown halting the release of labour market figures, investors have turned to alternative public and private datasets, which suggest a slowing U.S. jobs market. That has reinforced forecasts of a 25 basis point Fed rate cut, with markets almost fully pricing in at least four cuts through 2026.
Christopher Hodge, U.S. economist at Natixis, said the lack of official data has not unsettled markets:
“The baseline (of a rate cut) is the default in the absence of new information,” he noted. “Markets have also had plenty of practice now with dealing with U.S. shutdowns. The only thing that could be different this time is that we are in an economic and policy cycle that is a lot more ambiguous.”
Bond yields edged higher in the U.S. and eurozone, but fell in the UK after disappointing PMI data. For the week, yields across all three markets were lower, reflecting expectations of looser monetary policy.
Europe, Asia Add Momentum
In Europe, services sector PMIs strengthened to an eight-month high, led by moderate growth in Germany, Italy, and Spain. The euro ticked up on the news, although political jitters in France limited gains.
Asian equities joined the rally, with the MSCI Asia-Pacific index climbing 2.3% for the week and up 23% year-to-date. Japan’s Nikkei jumped 1.5%, ahead of a crucial weekend leadership vote, while Taiwan notched a new record high. Trading was thinner than usual due to holidays in parts of Asia, including China.
Wall Street’s AI Fever Continues
In the U.S., all three major indices—the S&P 500, Dow Jones, and Nasdaq—closed at record highs on Thursday, fueled by investor enthusiasm for artificial intelligence stocks. Futures pointed to further gains on Friday, suggesting the rally has more room to run despite political gridlock in Washington.
Weiheng Chen, global investment strategist at J.P. Morgan Private Bank, said investors remain patient for now:
“For now, investors remain more focused on the potential impacts of the Fed’s rate-cutting cycle, trade and immigration policy, economic data, and corporate earnings,” he explained. “A prolonged shutdown, however, could eventually begin to weigh on sentiment.”
Currency and Commodity Moves
The U.S. dollar index was on track for its sharpest weekly drop since August, weighed down by weaker labour indicators and rate cut bets. The Japanese yen gained ground earlier in the week but slipped back on Friday to 147.74 per dollar after Bank of Japan Governor Kazuo Ueda refrained from giving clear guidance on future rate hikes.
In commodities, oil prices edged higher on Friday but remained set for their steepest weekly decline in more than three months, with Brent crude at $64.81 and U.S. WTI at $61.30.
Gold, meanwhile, extended its meteoric rise. The precious metal was heading for its seventh consecutive weekly gain, trading at $3,860 an ounce after hitting a record $3,896 on Thursday. Its 47% surge this year has cemented gold’s role as the safe-haven asset of choice.
Greg Hirt, global CIO for multi-asset at AllianzGI, said the shift reflects a deeper trend:
“As the U.S. dollar’s status as the global reserve currency is tested, gold is emerging as the pre-eminent safe haven. We continue to view it as the ultimate diversifier.”