Stocks rise, dollar dips, gold surges as possible US government shutdown looms

By Amanda Cooper and Koh Gui Qing

NEW YORK/LONDON (Reuters) -Global stocks rose on Monday while the dollar retreated as investors prepared for a possible shutdown of the U.S. government, which could delay publication of the September payrolls report and a raft of other key data due this week.

Gold roared to another high, powered by the dip in the dollar and by investor concerns about the possible ramifications of a U.S. government shutdown.

President Donald Trump will meet with top Democratic and Republican leaders in Congress later on Monday to discuss extending government funding. Without a deal, a shutdown would begin from Wednesday, the same day when new U.S. tariffs go into effect on heavy trucks, patented drugs and other items.

Perhaps owing to memories of the shallow declines in equity markets during the last U.S. government shutdown, the S&P 500 added 0.3%, the Nasdaq Composite Index rose 0.6%, and the Dow Jones Industrial Average was flat.

That helped the MSCI All-World index to gain 0.4%, while in Europe, the STOXX 600 rose 0.2%, heading for a gain of 1.1% in September, marking its third straight month of increases.

"Over the last 30 years, the government has shut down only five times due to funding issues, the longest (34 days) was under Trump's first administration. In that event, the S&P 500 initially fell by 2.1% and then recovered," said Nicole Inui, head of equity strategy, Americas, and Alastair Pinder, head of emerging markets and global equity strategist at HSBC Global Investment Research.

A protracted closure, however, could leave the Federal Reserve flying blind on the economy when it meets on October 29.

"If the shutdown lasts beyond the Fed meeting, the Fed will rely on private data for its policy decisions," analysts at BofA wrote in a note. "On the margin, we think this may lower the likelihood of an October cut, but only marginally."

Markets imply a 90% chance of a Fed cut in October, with around a 65% probability of another in December.

The BofA analysts estimated a shutdown would subtract only 0.1 percentage point from economic growth for every week it lasted, while noting the impact on financial markets had been minimal in the past. 

They cautioned that should the government use the closure to lay off workers permanently, then it could have a more meaningful impact on payrolls and consumer confidence.

There is also much uncertainty about what might happen at a meeting of U.S. generals and admirals in Quantico, Virginia, on Tuesday, called by Defense Secretary Pete Hegseth, which Trump will reportedly attend.

Q4 USUALLY GOOD FOR STOCKS

Otherwise, analysts expected equities to be supported by buying for the new quarter, which historically tends to be a positive one for stocks.

In bond markets, 10-year Treasury yields dipped, falling 4.6 basis points to 4.1406%, having been pressured last week by a run of upbeat U.S. economic data that led investors to pare back expectations for how low Fed rates might ultimately go.

A host of central bank speakers are on the diary this week, with at least five from the Fed and the European Central Bank appearing on Monday alone.

The dollar index slipped 0.22% to 97.91, having benefited last week from the batch of better economic news.

"Our forecast for the U.S. dollar to weaken further heading into year-end is built on the assumption the Fed will deliver two further 25-basis-point cuts by the end of this year as the labour market remains weak," MUFG strategist Lee Hardman said.

The euro rose 0.2% to $1.1729 but was still in the lower half of its recent $1.1646 to $1.1918 range.

The dollar fell 0.6% to 148.6 yen, after rallying just over 1% last week and pulling away from the September low around 145.50.

In commodity markets, gold shot up by as much as 1.8% to an all-time high at $3,831.19 an ounce.

Oil prices fell as crude started to flow through a pipeline from the semi-autonomous Kurdistan region in northern Iraq to Turkey for the first time in 2-1/2 years. 

Reuters reported OPEC+ will likely approve another oil production increase of at least 137,000 barrels per day at its meeting next Sunday.

Brent dropped 3.3% to $67.83 a barrel, while U.S. crude fell 3.7% to $63.32 per barrel.

(Additional reporting by Wayne Cole in Sydney; Editing by Shri Navaratnam, Jamie Freed and Edmund Klamann)