US Government shutdown clouds labor market outlook

The US federal government entered its first shutdown in nearly seven years after Congress missed the midnight funding deadline, the third under President Trump. Federal agencies have halted non-essential operations, affecting hundreds of thousands of workers. Critically, the Bureau of Labor Statistics will cease operations, delaying Friday’s September employment report. Economists warn a three-week shutdown could push unemployment from 4.3% to 4.7% as furloughed workers are counted as jobless.

The August JOLTS report showed continued labor market softening. Openings held at 7.23 mn while the hiring rate fell to 3.2%, the lowest since June 2024. Voluntary quits dropped to the year’s lowest level, signaling weakening worker confidence. The openings to unemployed ratio remained at 1:1, down from 2:1 in 2022’s tight market. For two consecutive months, job seekers have slightly outnumbered available positions, echoing early 2021’s post-pandemic conditions and underscoring the labor market’s ongoing deceleration.

Saudi Arabia has announced its 2026 fiscal projections, showing a deficit of 3.3% of GDP (SAR 165 bn), which is higher than the 2.9% previously estimated. The 2025 deficit is now projected at 5.3% of GDP (SAR 245 bn), significantly exceeding the earlier forecast of SAR 101 bn from last November’s budget. For 2026, the finance ministry projects total expenditure of SAR 1.31 trn and total revenue of SAR 1.14 trn. The ministry forecasts real GDP growth of 4.4% in 2025 and 4.6% in 2026, both driven primarily by non-oil sector activities. These projections are notably higher than the International Monetary Fund’s June forecast of 3.5% growth for 2025, which was itself an upward revision from 3%, supported by government-led project demand and OPEC+ production plans.

Abu Dhabi’s Department of Economic Development is leading a 100-member delegation to the US to strengthen strategic partnerships and promote investment opportunities. Led by Chairman Ahmed Jasim Al Zaabi, the delegation includes representatives from 44 government and private organizations including ADGM, ADIO, Mubadala, and Hub71. The visit features high-level meetings and the Abu Dhabi Investment Forum in New York. Bilateral trade reached USD 34.4bn in 2024, up 8.5%. The UAE has committed USD 1.4trn in US investments over the next decade, focusing on AI, infrastructure, energy, and advanced manufacturing, while attracting growing numbers of US companies to Abu Dhabi’s innovation-driven economy.

Today’s Economic Data and Events

13:00 Eurozone CPI YoY. Sep P Forecast: 2.2%

18:00 US ISM Manufacturing Sep Forecast: 49.0

Fixed Income

US Treasury yields were mixed on Tuesday. The 2-year UST declined 12 basis points to 3.6083% while the 10-year yield rose 12 basis points to 4.1503%

Bahrain mandated banks for a USD benchmark 8yr sukuk and 12y bond.

FX

The US dollar continued to decline on Tuesday, with the DXY index closing down 0.13% at 97.705. EURUSD gained 0.1% to 1.1734 while GBPUSD rose 0.1% to 1.3446. USDJPY declined 0.46% to 147.9.

Equities

On Tuesday, all three major U.S. stock indexes closed higher. The Dow Jones Industrial Average rose 0.18%, the S&P 500 gained 0.4%, and the NASDAQ Composite climbed 0.3%

Locally, DFM closed down 0.5% while ADX closed up 0.2%. Saudi Arabia’s Tadawul closed up 0.6%.

Commodities

Brent crude closed down 1.4% at USD 67.02/b and WTI closed down 1.7% at USD 62.37/b.

Gold extended its gains streak, rising 0.7% to USD 3834/troy oz.