European markets opened with a subdued performance Wednesday, as the German DAX index began trading slightly down. Around 9:30 AM, the benchmark index was calculated at approximately 23,770 points, representing a 0.5% decrease from the previous day’s closing level.
Investor attention is largely focused on Washington D.C., where a government shutdown has taken effect. This marks the 22nd such occurrence since the 1970s, historically averaging a duration of eight days, though ranging from one to 34 days. While US markets have shown a slight pullback in response, significant fluctuations have been notably absent. The DAX is experiencing downward pressure influenced by these US market trends.
Despite the current volatility, historical data suggests a counterintuitive pattern. In twelve out of twenty-one previous shutdowns, the S&P 500 on Wall Street has registered gains, albeit modest, averaging 0.1%. Long-term investors who remained in the market since the first shutdown in 1957 have witnessed substantial returns, potentially transforming an initial $1,000 investment into approximately $83,000. This historical context encourages a perspective of relative indifference to the shutdown’s immediate impact.
A potential consequence of the government closure is a delay in the release of the keenly anticipated jobs report scheduled for Friday. This report is of particular interest to investors in New York and Frankfurt, given the high expectations surrounding potential Federal Reserve interest rate adjustments. The disruption of this data flow introduces uncertainty into the market, frequently manifesting as increased volatility.
Technical analysts are currently observing two overlapping trading ranges influencing the DAX’s performance: a lower range established in September and a higher range from July and August. The market’s preference between these ranges is a critical factor. Having previously exited the lower range, a sustained support level around 23,800 points will be crucial. A subsequent breach of the 23,950-point mark could propel the index into the higher range, potentially resulting in an increase of approximately 450 points.
The euro strengthened slightly Wednesday morning, trading at $1.1777, with a dollar fetching €0.8491.