Government shutdowns are a recurring feature of US politics, caused by partisan standoffs about government spending priorities. The latest shutdown, the first in nearly seven years and the third across US President Donald Trump’s two terms, started on 1 October after Congress failed to pass a stopgap funding bill.
The stopgap bill failed to pass because Republicans have rejected Democrats’ demands to extend Affordable Care Act (ACA) premium subsidies and reverse Medicaid funding cuts. Democrats also sought new restrictions on Trump’s ability to refuse to spend money appropriated by Congress.
During a shutdown, non-essential federal government functions are suspended, and many federal employees are furloughed. Essential services, such as those related to law enforcement and public safety, continue, but essential employees work without pay until the shutdown ends.
According to Congressional Budget Office estimates, some 750,000 employees will be furloughed at a cost per day of $400 million in lost compensation during the current shutdown. Entitlement programmes such as Social Security and Medicare are considered mandatory spending and continue to run.
Government shutdowns are not unusual. There have been 15 since 1981, ranging in duration from a single day to a 35-day shutdown which occurred between December 2018 and January 2019. Shutdowns generally end when the two parties reach a compromise or one of them blinks. Traders on prediction markets are betting that the current shutdown could last for nearly two weeks.
As has historically been the case, equities markets have so far shrugged off the shutdown. The S&P 500 posted yet another record high this week, supported by strong corporate earnings, momentum in AI-related stocks, and weak jobs data that suggests the Fed has room to cut interest rates in its October meeting.
Looking back at history, Dow Jones Market Data shows that markets have averaged a 0.05% gain across 20 government shutdowns since 1976. Long shutdowns can weigh on businesses, but the economy typically makes up for lost ground once the government reopens and employees get their back pay.
Investors tend to treat shutdowns as political theatre and remain focused on Fed policy, corporate performance, and broader macroeconomic trends. The record 35-day closure in late 2018 is a case in point. It failed to derail equities, which gained more than 10% because investors were anticipating a dovish pivot from the Fed.
In the Trump 2.0 world, the question is whether things will be different this time. Trump has threatened to dismiss many federal workers rather than furlough them if the shutdown continues. This would remove income from hundreds of thousands of households and exacerbate weakness in the labour market.
Furthermore, if the shutdown drags out, markets and policymakers will not have access to the economic data they need to make informed decisions. With the Bureau of Labor Statistics closed, the September jobs report has already been postponed. Upcoming inflation and retail sales figures could also be delayed if the impasse is not resolved soon.
The base case is that the shutdown will be resolved before lasting damage is done. But with Washington locked in confrontation, there is a possibility that this shutdown will be more painful than those of the past. Indeed, a weaker dollar and a firmer gold price suggest that some traders are hedging against potential turbulence.
“Government shutdowns are inconvenient and messy, but there is little evidence that they have a significant impact on the economy.”
– Scott Helfstein, head of investment strategy at investment firm Global X ETFs
Global News
- The US federal government shut down on 1 October after Congress failed to agree on either a Republican or Democrat-backed funding resolution, leaving major policy disputes, particularly over extending Affordable Care Act (ACA) subsidies, unresolved. It is the first shutdown in nearly seven years and the third under the Trump administration, with the deadlock highlighting deep partisan rifts over federal spending and health-care policy, with no clear path to reopening.
- On the second day of the shutdown, President Trump intensified the standoff, freezing around $18 billion in federal funds, particularly for Democratic-led states, and threatening permanent layoffs of federal workers, a departure from traditional shutdown tactics. Bloomberg analysts warn that this aggressive strategy could lead to widespread disruption of public services, legal battles over the authority to carry out terminations during a funding lapse and heightened political backlash amid growing economic risks.
- In past US government shutdowns, markets have generally shown limited, short-lived reactions, with average post-shutdown gains in the S&P 500 of 1.2% after one month and 2.9% after three months, a pattern that gives some confidence to investors that the 2025 shutdown may similarly pose only transitory risk. According to CNN, those historical shutdowns typically produced mild volatility and were overshadowed by corporate earnings and macro fundamentals. However, the current shutdown carries additional risk as delays in economic data releases may cloud investors’ view of the economy, potentially amplifying market sensitivity beyond prior norms.
- The Fed faces heightened uncertainty as the government shutdown threatens to block key economic data releases, including jobs and inflation reports, just as policymakers are divided over how aggressively to cut interest rates. With Fed officials split on the “neutral” rate, some warning against moving too quickly and others urging urgent relief, the lack of official data during the shutdown makes it harder to judge whether the economy is slowing modestly or facing deeper risks, leaving the central bank in a perilous position ahead of its next decision.
- The US Treasury’s gold reserves have surpassed a market value of $1 trillion for the first time on Wednesday, following a record rally in gold prices of nearly 45% this year, with spot prices climbing above $3,824.50 an ounce. This surge has dramatically widened the gap between the reserves’ current market value and their official book value of $11 billion, which is still based on a fixed 1973 price of $42.22 per ounce. The rally reflects investors’ growing appetite for safe-haven assets amid heightened global uncertainty, including trade tensions, fiscal challenges, and geopolitical risks. Gold’s performance has also been bolstered by strong demand from central banks and investors seeking protection against inflation and market volatility, pushing the value of America’s reserves to unprecedented levels.
- Citigroup has raised its outlook for AI-related infrastructure spending by major tech companies, projecting a 21% increase through 2029, driven by early hyperscaler investments and growing enterprise demand. Capital expenditure on AI by Data centre operators – or hyperscalers such as Microsoft, Amazon, and Alphabet is expected to climb 17% to $490 billion by 2026, with analysts anticipating this trend will be reflected in third-quarter earnings guidance. Citi further estimates that meeting global AI computing needs will require $2.8 trillion in additional investment, including $1.4 trillion in the US alone, to expand power supply.
- Taiwan will resist Washington’s demand to relocate half its semiconductor production to the US, with Vice Premier Cheng Li-chiun saying on Wednesday the island “will not agree”. The US has become increasingly worried about its reliance on Taiwan, where TSMC dominates global advanced chip supply to companies like Apple and Nvidia. Many people in self-ruled Taiwan see semiconductors as a “silicon shield,” a strategic asset deterring Chinese aggression while securing international support for the island’s security.
- Alphabet shares gained 38% this quarter, its biggest such gain since mid-2005, as investors grow more confident in its AI strategy. The move brings Alphabet’s year-to-date gain to nearly 30%, compared with a 17% rise in the Nasdaq 100 Index. Gains followed an antitrust ruling that avoided punitive measures, including a potential sale of Chrome, and strong second-quarter earnings showing AI-driven sales growth. Alphabet is rolling out visual search in AI mode, and Meta has discussed using Google’s AI models to enhance its advertising business.
- OpenAI has reached a $500 billion valuation after employees and ex-staff sold about $6.6 billion in shares to investors, including Thrive Capital, SoftBank, Dragoneer, Abu Dhabi’s MGX, and T. Rowe Price, a source told Reuters yesterday. The deal lifts its valuation from $300 billion, reflecting strong user and revenue growth, and follows SoftBank’s earlier participation in OpenAI’s $40 billion primary funding round.
- Pfizer secured a reprieve from Trump’s threatened pharmaceutical tariffs on Tuesday by agreeing to cut some drug prices by up to 85% and sell directly to Americans. The company will match prices offered in other countries and launch new medicines at parity, addressing Trump’s concern that US patients face the world’s highest medical costs. In return, Pfizer gained a three-year grace period from anticipated tariffs. Other major drugmakers are expected to follow suit.
- Investors in Novo Nordisk hope an experimental Alzheimer’s treatment could revive the stock. The Danish drugmaker will release results this year from late-stage trials using a pill form of semaglutide, the active ingredient in Ozempic and Wegovy. Morgan Stanley analysts say a successful outcome could lift shares 15%, while failure could see a 10% drop. They have assigned a one-in-four chance of trial success. Novo Nordisk shares have fallen more than 20% in four of the past five quarters amid profit downgrades, a CEO change, competition from Eli Lilly, and cheaper copycat drugs.
- Nike reported a surprise rise in first-quarter revenue and beat profit forecasts on Tuesday, despite weakness in China and tariffs pressuring margins. Shares rose over 3% on Wednesday as the company cleared inventory and wholesale sales returned to growth, signalling progress under CEO Elliott Hill’s turnaround plan. Nike now expects $1.5 billion in tariff costs this year. Recovery remains uneven, with China, its third-largest market, lagging. The company forecasts single-digit revenue decline in the second quarter and wholesale growth in fiscal 2026.
- Electronic Arts (EA) agreed to a $55 billion leveraged buyout, the largest on record, by investors including Jared Kushner’s Affinity Partners and Saudi Arabia’s Public Investment Fund, along with Silver Lake Management. The deal values EA at $210 per share, a 25% premium to pre-announcement trading. JPMorgan Chase will provide $20 billion in debt, the largest ever for a buyout. The acquisition reflects Saudi Arabia’s push to diversify beyond oil into sports and gaming, a sector central to global youth culture.
- Elon Musk became the first person to reach a net worth of $500 billion on Wednesday, according to Forbes, fuelled by a rebound in Tesla’s share price and rising valuations of his other ventures. Musk owns more than 12.4% of Tesla, whose stock has climbed over 14% this year and rose 3.3% on the day, adding $6 billion to his fortune. However, on Thursday, Tesla shares fell 3.6% after the company reported a record quarter of vehicle sales that will be difficult to repeat following the expiration of federal electric vehicle subsidies.
- As at Thursday’s close, the S&P 500 was 1.08% up for the week.
Local News
- Foreign investors sold R165 billion worth of South African equities in the first eight months of 2025, almost double the amount recorded over the same period in 2024, the South African Reserve Bank said in its Quarterly Review published on Tuesday. The sell-off reflects both global and domestic pressures, including weak economic growth prospects, sluggish company earnings, and heightened uncertainty from Trump’s trade tariffs, which have raised risks for export-linked JSE-listed firms. The central bank said the outflows were largely driven by Anglo American’s Valterra Platinum demerger and share sale, marking its full exit and highlighting risks from major corporate restructurings.
- Momentum Investments’ head of asset allocation, Herman van Papendorp, said on Wednesday that South African assets are poised for further growth after a stellar year in which the ALSI broke new ground consistently, breaching the 100,000-point mark for the first time in the JSE’s 137-year history. The ALSI hit a record high of 108,852 index points during intraday trading on Wednesday. The equity market was up 14.7% in the first six months of this year, the strongest first-half performance since the 17.4% growth in the first half of 2006.
- South Africa and Nigeria are set to exit the Financial Action Task Force’s “grey list” as soon as this month after assessors noted significant progress on tackling illicit financial flows. The Financial Action Task Force plenary meeting to finalise decisions is on 24 October. The move would boost sentiment and confirm that reforms are effective, though the market impact may be modest. South Africa’s FTSE/JSE Banks Index rose 0.2% after the news on Tuesday.
- Trade Industry, and Competition Minister Parks Tau said he remains optimistic about renewing the African Growth and Opportunity Act (AGOA) after meetings in Washington and New York. Tau said bipartisan support endures in Congress, though questions remain on the renewal period, timing, and legislative process. The Trump administration backs a one-year extension of AGOA, a White House official said on Monday.
- The DA has criticised the ANC for South Africa’s loss of formal sector jobs, citing Statistics South Africa data showing a drop of 229,000 jobs year-on-year to June 2025. The DA argues that rigid and punitive labour laws under ANC governance are discouraging businesses from hiring full-time employees, and it has proposed a six-point plan that includes reforms to labour regulations and the removal of race-based laws like BEE and the Employment Equity Act, to stimulate growth and employment. Total employment fell 2.1% year-on-year to 10.51 million, with full-time jobs down 55,000 and part-time positions down 36,000.
- French prosecutors have launched an investigation into the death of South Africa’s ambassador to France, Nkosinathi Emmanuel “Nathi” Mthethwa, who reportedly fell from a high-rise hotel in Paris on Monday. Mthethwa, 58, had been scheduled to testify before the Madlanga Commission of Inquiry regarding claims of political interference during his tenure as police minister. He was appointed ambassador to France in December 2023, following his roles as police minister and later minister of sports, arts, and culture.
- National Treasury is proposing a binding fiscal rule to stabilise the country’s debt trajectory and restore investor confidence, signalling a sharper break from past lax discipline, it said on Tuesday. With public debt mounting and borrowing costs rising, the new rule would act as an anchor to constrain spending and borrowing, reinforcing the message that the government is serious about fiscal sustainability. If implemented credibly, it could ease pressure on interest rates and underpin sovereign creditworthiness, though much will depend on the rule’s design, enforcement, and the ability to navigate political resistance.
- The South African Revenue Service (SARS) is falling short of its goal to collect an additional R35 billion, having raised about R39.3 billion so far this fiscal year, surpassing its baseline target but missing the R49.3 billion needed for the more ambitious revenue aim. On Tuesday, Finance Minister Enoch Godongwana warned that if SARS does not meet these elevated targets, spending cuts may be inevitable, and that reaching the higher target could have allowed the government to avoid R20 billion in planned tax increases for 2026/27. He will present the Medium-Term Budget Policy Statement in November.
- Eskom CEO Dan Marokane cautioned on Tuesday that rising municipal debt, up 27% to R94.6 billion in the year to March, is holding back the unbundling of its distribution business, though the utility is working on a new agreement with municipalities to curb losses. Municipal arrears have been climbing at an average rate of 26% a year from 2021 to 2025. Despite this, Eskom posted a R16 billion profit, its first in eight years, after reducing overall debt by nearly 10%, though auditors still flagged concerns about its long-term financial viability.
- Joburg’s City Power has filed an urgent court application to set aside the “intrusive and defective” search warrant the Hawks used to raid its offices on 17 September, BusinessLIVE reported yesterday. The raid relates to a 2024 probe into a R67 million transformer purchase order from 2023, allegedly paid for but undelivered. In March, City Power announced turnaround plans after losing R4.9 billion, or 30%, in electricity bought from Eskom in 2023/24, with the auditor-general warning on its viability.
- Napers’ five-to-one stock split took effect on Wednesday, cutting its share price from R6,254 to R1,242. While the split leaves the company’s market value and investor holdings unchanged, each old share now equals five at 20% of the original price. Such moves, common among global tech giants like Apple, aim to make shares more affordable and boost retail participation. However, analysts told News24 the change is unlikely to materially increase demand for Africa’s biggest listed company’s shares
- Capitec Bank posted a 26% rise in headline earnings to R8 billion for the six months to end-August, it said on Wednesday, and it declared an interim dividend of R26.20. Active clients reached 25 million, reinforcing its position as South Africa’s largest bank by customer numbers. More clients earning above R50,000 a month are now banking with it, showing its appeal is growing across income groups. The number of Apple Pay, Garmin Pay, Google Pay, and Samsung Pay users grew from 700,000 in 2024 to 1.4 million.
- Non-manufacturing automotive group, Motus, admitted it was slow to introduce Chinese vehicle brands, which have gained traction with cost-conscious consumers. CEO Ockert Janse van Rensburg told shareholders yesterday it was a mistake to delay their entry, leaving the group playing catch-up in a competitive market. Motus, valued at R18.5 billion on the JSE, generated nearly R50 billion in new-vehicle sales in 2025, holding a dominant local position through exclusive import rights for Hyundai, Renault, Kia, Mitsubishi, and Tata.
- Discovery Health Medical Scheme will return R1.5 billion to members by deferring its 2026 contribution increase for three months, a move last seen during COVID-19. Contributions will rise 7.2% from April, below the 9.3% hike this past January, it said on Tuesday. Chief commercial officer Deon Kotze said excess solvency enabled the deferral, echoing steps taken during the pandemic when schemes built up reserves as claims fell.
- As at the time of writing, the rand was 0.5% stronger against the dollar, and the ALSI was 2.3% up for the week.
Sources: Reuters, Bloomberg, CNN, BusinessLIVE, News24, NYT, IOL Business, Business Report, BusinessTech, ITWeb, Daily Maverick, etc.
