A Traders’ Weekly Playbook: Trading Through an Impending US Government Shutdown

Weekly Macro Playbook | W40_250929

Week 39 was a story consumer resurgence, as a wave of strong economic data forced the market to abandon its conviction in a US slowdown. The week began with the prevailing narrative of "moderate stagflation" seemingly intact; soft S&P PMI data on Tuesday reinforced the view that the economy was cooling and the labour market was softening, justifying the market's dovish pricing for the Fed's 2026 path. This consensus was first challenged, and then seemingly shattered, by a mid-week data deluge. The initial shock came from Wednesday's blowout New Home Sales report, and while valid scepticism around the data's volatility exists (as well as its' frequent proneness to revisions), it was a powerful sequence of corroborating evidence on Thursday that cemented this new narrative. An upward revision to Q2 GDP to 3.8%, driven by stronger consumption and business investment, and drop in initial jobless claims to a two-month low of 218k, painted a picture not of a slowing economy, but a resilient one.

Friday's Personal Income and Spending reports were the final nail in the coffin for a slowdown thesis. A 0.4% month-over-month increase in real consumer spending confirmed that the US consumer remains a powerful engine of growth. This was paired with a "Goldilocks" Core PCE reading of 0.2%, which, while still sticky above the Fed's target, showed no signs of re-accelerating, giving the Fed's cautious, data-dependent stance maximum credibility. By the end of the week, the narrative had shifted from "moderate stagflation" to a story of "US Resilience." This forced a major hawkish repricing in rates markets, sending the US dollar and front-end yields sharply higher. The burden of proof has now massively shifted; the data has, for now, vindicated the Fed's hawkish guidance over the market's dovish hopes, leaving our "moderate stagflation" thesis under pressure and the soft landing scenario significantly bolstered.