US Shutdown Escalates as Trump Targets Democrat States

The US government shutdown has deepened, with President Trump freezing $26bn in funding for Democrat-led states, including $18bn for New York transit projects and $8bn for green energy initiatives. This move leaves 750,000 federal workers furloughed or unpaid. Analysts warn the unprecedented targeting of states highlights rising political dysfunction ahead of the 2026 midterms.

Vice President JD Vance cautioned that if the impasse persists, layoffs could become permanent, adding to 300,000 planned federal job cuts by year-end.

Fed Independence Under Fire

In a historic challenge, the Supreme Court will hear arguments in January 2026 on Trump’s attempt to fire Fed Governor Lisa Cook over alleged pre-appointment mortgage fraud, which she denies. The case marks the first presidential attempt to dismiss a Fed official and could reshape the central bank’s independence under the Federal Reserve Act of 1913.

Eurozone Inflation Surprise

Eurozone inflation ticked higher to 2.2% in September, up from 2.0% in August, driven by energy base effects. However, analysts note the rise masks ongoing disinflationary trends, with services inflation momentum easing. Economists expect inflation could fall persistently below 2% from early 2026, partly due to weaker external demand from US tariffs.

South Africa: PMI Rebounds Strongly

South Africa’s ABSA PMI climbed back into expansionary territory in September, rising to 52.2 from 49.5 in August. It marked the strongest print since October 2024, boosted by domestic demand and a surge in business activity (57.9). However, employment remained weak, slipping to 42.8, while export weakness and logistical bottlenecks persisted.

Attention now turns to September vehicle sales, with August sales up 18.7% y/y, marking the strongest passenger vehicle sales since 2014. Analysts caution that resilience may not last given weak economic conditions and high living costs.

ZAR Resilient Despite Trade Risks

The rand strengthened, trading near 17.22/$, its best since November 2024. Gains were supported by a softer USD, strong demand for South African bonds, and higher gold prices. Foreign inflows reached R24.8bn in one day, the highest since 2019, after JP Morgan’s bond index adjustment.

Risks remain, however, with South Africa’s trade surplus narrowing and AGOA trade negotiations ongoing. While Trade Minister Parks Tau struck an optimistic tone, tensions with Washington could see exclusion, sparking a ZAR sell-off.

Bonds: Shutdown Drives Yields Lower

The US 10-year Treasury yield slipped to 4.10%, reflecting safe-haven demand as the shutdown clouds economic data releases. South African bonds also firmed, aided by ZAR strength and speculation over SARB’s 3% inflation target. FRA pricing reflects expectations of up to two rate cuts in the next year.

Commodities: Gold Near Record, Oil Recovers

• Gold steadied at $3,860/oz after a record rally, up 47% year-to-date, supported by Fed rate-cut bets and safe-haven demand.
• Oil edged higher, with Brent at $66, though oversupply concerns persist as OPEC+ considers raising output.
• Soybeans gained after Trump pledged to press Xi Jinping to resume Chinese purchases, offering hope to US farmers amid a record harvest.
• Tin surged to $36,000/ton, up 24% this year, as Indonesia cracked down on illegal mining, tightening supply.