Government Downsizing Worries Dampen AI Enthusiasm After Equities Reached Fresh Records: Oct. 2, 2025

Stocks reached fresh all-time highs on AI optimism before retreating to their flatlines as concerns of a prolonged government shutdown hampered sentiment. OpenAI completed a $6.6 billion offering with the company valued at $500 billion, earning it the top spot amongst the most valuable startups. The deal is strengthening faith that we remain in the early innings of the revolution. But Capitol Hill worries resurfaced after President Trump pulled back $18 billion in infrastructure dollars for the Big Apple’s Hudson Tunnel Project and the Second Avenue Subway Line. Meanwhile, the commander in chief appears committed to permanently laying off thousands of federal workers in a downsizing effort. The possible terminations are a significant deviation from previous funding halts, as civil servants traditionally return to their jobs and recover delayed paychecks, which contains a negative economic impact. On the data front, outplacement firm Challenger, Gray & Christmas reflected softer hiring plans alongside lighter firing intentions last month, making the weakest September for potential roster expansions since 2011 amidst the lowest year-to-date numbers for new employees since 2009. Additionally, Revelio Labs signaled a 38k payroll gain in tomorrow’s suspended nonfarm payrolls report, as education, healthcare and retail gained, while leisure/hospitality and business services declined. Economists are expecting an increase of 50k. In capital markets, the major domestic equity benchmarks are nearly unchanged minus the Nasdaq 100, which is still meaningfully higher against the backdrop of poor sector breadth with only technology and materials in the green. Treasuries are losing steam, however, as the yield curve ascends in bear-flattening fashion led north by the short-end, a result of fixed-income watchers easing rate cut enthusiasm that flourished yesterday. Today’s heavier borrowing costs are propelling the greenback, while volatility protection instruments also catch bids. The commodity complex is largely bearish. Natural gas and copper are exceptions.

Shutdown Could Improve Washington’s Finances

A silver lining to potential government downsizing is an improving fiscal situation. Lower federal labor expenses would reduce Washington’s sizeable deficit, which together with tariff incomes, could bridge the gap between the Treasury’s revenues and outlays. That would help to further suppress term premiums, which have benefited from trade levies imposed by the current administration and have sparked the ongoing fixed-income rally, which is entering its fourth quarter. Lighter yields are terrific for equity-market valuations and for corporate debt servicing costs; however, the possible reduction in stimulus amidst weaker consumer spending from some of the nation’s highest paid workers is a risk to short-run economic prospects. Animal spirits amongst investors suggest that softer rates are the motivator at the moment, as participants remained unfazed by the chance of a slowdown.

International Roundup

Unemployment Rate Climbs in Europe

The unemployment rate among countries that use the euro climbed from 6.2% in July to 6.3%, exceeding the economist consensus expectation for an unchanged result. These countries, which are collectively referred to as the euro area, experienced an increase of 11k out-of-work individuals during August. The total number of idle individuals, however, was 15k lower year over year (y/y). France, Spain and Germany, with numbers of unemployed individuals climbing 2,573, 2,384 and 1,657, reported the worst results.

Consumer Spending Increases Again in Hong Kong

Retail sales in Hong Kong climbed 3.8% y/y in August after growing only 1.8% in July, according to the special administrative region’s Census and Statistics Department. It was the fourth consecutive month of increases and points to the retailing sector rebounding from 14 straight releases showing declines during the period that ended in May of this year. Nevertheless, the value of retail sales year to date as of the end of August was down 1.9% relative to the first eight months of 2024.

The following categories and the extent of their changes grew the most y/y:

• Jewelry, watches, clocks, and valuable gifts, 16.4%
• Consumer goods not elsewhere classified, 14.2%
• Optical shops, 5.7%
• Medicines and cosmetics, 5.0%
• Wearing apparel 3.1%

The weakest sectors and the rate of their y/y declines were as follows:

• Fuels, 11.4%
• Motor vehicles and parts, 8.9%
• Furniture and fixtures, 3.9%
• Food, alcoholic drinks and tobacco, 3.6%
• Books, newspapers, stationery and gifts, 1.3%

Singapore’s Manufacturing Enters Growth Territory

Manufacturing in Singapore crept into expansion territory last month with the Purchasing Managers Index (PMI) climbing from the contraction-expansion threshold of 50 in August to 50.1.

The stronger reading was driven by new exports, factory output and input purchases, according to the Singapore Institute of Purchasing and Materials Management, which provides the PMI. The gauge for electronics, a sector that accounts for approximately a third of Singapore’s manufacturing, jumped from 50.4 in August to 50.7. The recent headline improvement implies that the island nation may be working through the challenges of the US imposing a baseline tariff of 10% on Singapore products. More recently, President Trump implemented a 100% tariff on pharmaceutical products that would apply to countries that don’t build manufacturing facilities in the US. The product category represents 15% of Singapore’s exports to the world’s largest economy.

And Housing Price Gains Accelerate

Private home prices jumped 1.2% quarter over quarter (q/q) from July through September compared to the 1% during the preceding three-month interval, according to the Urban Redevelopment Authority’s Residential Property Price Index. It was the fastest increase since the final quarter of 2024, when buyers saw a 2.3% q/q ascent in shelter costs. Prices for non-landed properties, which are typically apartment units, climbed 1.1%. In the second quarter, the housing category was up 0.7%. After experiencing a 2.2% q/q price jump for other types of homes in the second quarter, price gains for the segment eased to 1.1% in the most recent reporting period. 

Australia’s Exports Fall as Gold Luster Dims

Australia’s trade surplus plunged from AUD 6.6 billion in July to AUD 1.8 billion in August, a result of 47% m/m drop in exports of non-monetary gold, according to the Australian Bureau of Statistics.

The value of total shipments abroad slipped 7.8% m/m after climbing 2.5% in July while imports were 3.2% higher m/m following a 2.4% July decline.