The US government entered a shutdown on Wednesday, sparking broad debate across global markets as investors assess the potential repercussions for the wider economy.

Although government shutdowns typically have only a modest impact on capital markets, the timing of this one is critical. The release of US jobs data scheduled for Friday will be delayed — casting a shadow over the Federal Reserve’s outlook just weeks ahead of its next meeting. President Donald Trump also threatened to use the shutdown to carry out a “large number” of public-sector job cuts.

With no clear path to an agreement, there is no visibility on how long federal offices will remain closed. During Trump’s first term, the country experienced what became the longest partial shutdown in history.

On Wednesday, US risk assets were affected. Gold — traditionally viewed as a safe haven during economic or geopolitical turmoil — rose to set its 39th record high this year. European equities gained in midday trading after a muted open, while Asian equities delivered a mixed performance. In global bond markets, activity eased after European government bond yields rose early in the session, while the 10-year US Treasury yield fell 4 basis points after a surprise dip in private payroll data.

Concerns Over “American Dysfunction” Push Investors Toward Alternatives

Luke Bartholomew, Deputy Chief Economist at abrdn, said the shutdown adds to concerns about the credibility of US institutions, fiscal stability, and political “dysfunction.”

Speaking to CNBC’s Squawk Box Europe, he noted: “What strikes me is how much political capital the Trump administration seems willing to spend in an attempt to ‘reform,’ if you will, the Federal Reserve and exert influence.”

He added: “The Fed is ultimately the cornerstone institution of global capital markets. That puts the entire long-term yield curve under pressure, and I expect this to continue. That said, I would be surprised if markets did not eventually look through it.”

Neil Birrell, CIO at UK-based Premier Miton, said a prolonged shutdown could dent risk sentiment in global markets.

“With bond markets reacting to excessive government borrowing needs, tight credit spreads, and equities at stretched valuations, it’s no surprise investors move into safe assets when hit by a negative shock like a US shutdown,” he explained.

He added: “Investors have been complacent about the risks we face, and negative surprises will trigger reactions. Any form of diversification now looks attractive — including silver, cryptocurrencies, and potentially other commodities.”

Impact on Foreign Exchange

Joe Brusuelas, Chief Economist at RSM US, noted that the most immediate impact of the shutdown may be increased pressure on the US dollar or influence on the Fed’s October rate decision.

He wrote in an email to CNBC on Wednesday: “In most cases, US government shutdowns lead to a modest wave of speculative behavior among global investors around rates and currencies. This version of America’s fiscal drama is no different.”

“For there to be a more significant impact on global markets, the shutdown would need to last the entire month and approach the record set in 2018–2019. If that happens, it would likely influence the Fed’s policy decision later this month, which in turn would affect global capital flows, interest rates, and currency values.”

He also warned that widespread federal layoffs “could further depress the dollar, prompting capital flows into the euro and yen.”

Brusuelas added that such layoffs could indirectly hurt European industry:

“Demand for European exports such as automobiles would fall significantly, adding pressure to Germany’s industrial sector.”

UBS: Investors Should “Look Past Shutdown Fears”

Still, Swiss bank UBS said in a Tuesday note that it does not view the shutdown as a major market risk, while acknowledging it is not a welcome development for global investors.

UBS analysts wrote: “Previous shutdowns have had only limited effects on markets. Historically, they caused minor and short-lived volatility in equities and bonds, as investors understand the economic impact tends to be small and temporary… Treasury auctions and payments will continue as normal, and while IPO activity and some regulatory functions may pause, we do not view these as posing systemic risk to market stability.”

They added that any temporary delays in economic data “will not derail the Fed’s ongoing easing cycle.”

“The shutdown will halt the collection and publication of most government data and will affect revisions to past labor market figures, which have recently gained importance… This means the Fed may have to decide in October without updated labor data, but we do not think that will prevent another 25-basis-point cut.”

According to CME’s FedWatch tool, money markets are strongly pricing in a 25-basis-point rate cut at the Fed’s October 29 meeting.

UBS concluded: “We advise investors to look past shutdown concerns and focus on other market drivers — continued Fed easing, strong corporate earnings, AI investments, and their growing returns.”

Copper prices recorded a slight increase on Wednesday, supported by ongoing supply disruptions from major mines and a weaker dollar, as the US government entered a shutdown.

The three-month copper contract on the London Metal Exchange rose 0.4% to $10,307 per metric ton in official trading. Meanwhile, Chinese markets, the world’s largest consumer of metals, remain closed from October 1 to 8 for the National Day holiday.

Sucden Financial noted in a memo that the absence of Chinese participants “could lead to heightened volatility in the coming days, with an upward bias in market appetite.”

The firm added that last week’s force majeure declaration by Freeport-McMoRan at the Grasberg mine in Indonesia provided the spark to break out of a tight trading range. However, any major upward move is likely to face strong resistance near $10,500 per ton.

In a further development that could compound Grasberg’s impact, the supervisors’ union at Antofagasta’s Los Pelambres copper mine in Chile rejected a new contract offer, paving the way for a potential strike, according to a union leader on Tuesday.

Chile, the world’s largest copper producer, saw output decline 9.9% year-on-year in August, marking the sharpest drop in over two years, following an incident at Codelco’s flagship mine at the end of July.

Base metals also found additional support from the weaker dollar, which fell to its lowest level in a week against major currencies on Wednesday after the US government shutdown rattled markets. A weaker dollar makes metals more attractive to holders of other currencies.

As for other base metals: aluminum rose 0.3% to $2,687.50 per ton, zinc gained 0.2% to $2,966.50, and lead added 0.3% to $1,994.50. Nickel slipped 0.5% to $15,160, while tin climbed 1.5% to $35,950 after touching $36,090 earlier, its highest level since April 4.

Bitcoin moved in a narrow range on Wednesday, but resumed a short rally that surpassed $116,000, despite investors turning cautious amid the start of the US government shutdown and uncertainty about the timing of key economic data releases.

The world’s largest cryptocurrency rose by 0.5% to trade at $116,714.6 by 01:27 GMT, nearing its highest level in ten days.

Bitcoin had seen a strong rebound earlier in the week driven by buying from large investors (whales), after suffering sharp losses in the previous week due to selling pressure and broad liquidations.

US government shutdown begins; concerns rise over jobs data

The US federal government began a partial shutdown at 04:00 GMT after lawmakers failed to reach an agreement on a temporary funding bill.

The Senate late Tuesday rejected a Republican bill by a 55–45 vote, short of the 60 votes needed to pass, leaving federal agencies without funding.

President Donald Trump defended the shutdown, arguing it would give his administration scope to take “irreversible” actions, including shutting down some federal programs and cutting spending. His remarks signaled a prolonged political standoff that could deepen the economic impact.

The shutdown added uncertainty over the release of the US nonfarm payrolls report scheduled for Friday. Any delay or disruption to this report would further cloud labor market expectations and complicate the Federal Reserve’s upcoming monetary policy decisions.

Bitcoin had climbed in the previous session, supported by seasonal optimism linked to October — known as “Uptober” — but the rally stalled amid broader caution.

Cryptocurrencies, often viewed as high-risk assets, remain under pressure due to uncertainty tied to US fiscal policy and expectations for the monetary policy outlook.

Oil prices steadied on Wednesday after falling for two consecutive days, as investors weighed OPEC+ plans for a larger production increase next month against data from the United States and Asia showing signs of weakening demand.

Brent crude futures for December delivery fell 4 cents to $65.99 a barrel by 10:37 GMT. US West Texas Intermediate crude declined 5 cents to $62.32 a barrel. Both contracts had dropped about 1% earlier in a volatile trading session.

On Monday, both Brent and WTI closed down more than 3% in their biggest daily loss since August 1, before extending the decline on Tuesday with an additional 1.5% drop each.

Genev Shah, analyst at Rystad, said that the drop in oil prices reflects market expectations of a similar increase in OPEC+ output during November, at a time when demand indicators in the United States and Asia have started to weaken. He added: “The pace of drawdowns in US inventories has slowed, which could change the previous upward trend.”

According to three sources familiar with the talks, OPEC+ could agree to raise production by as much as 500,000 barrels per day in November, three times the planned increase for October, as Saudi Arabia seeks to regain market share.

However, OPEC denied in a post on X (formerly Twitter) the accuracy of media reports about plans to raise production by 500,000 barrels per day, calling them misleading.

In the United States, an industry report showed that crude inventories fell, while gasoline and distillate stocks rose in the week ending September 26, according to market sources citing American Petroleum Institute estimates on Tuesday.

In Asia, the world’s largest oil-consuming region, data showed a contraction in manufacturing activity in most major economies during September, raising concerns about weakening fuel demand.

Record levels of US oil production, anticipation ahead of the OPEC+ meeting scheduled this week, and market caution due to the US government shutdown also pressured prices, according to UBS analyst Giovanni Staunovo.

The US government shut down most of its activities on Wednesday after deep partisan divisions prevented Congress and the White House from reaching a budget funding agreement, which government agencies warned would halt the release of the September jobs report along with other critical economic data.

In the same context, Tamas Varga, analyst at PVM Oil Associates, said that attention is also turning to Russian supply and export disruptions caused by ongoing and successful Ukrainian attacks.