US Government Moves Towards Reopening

The US Senate has taken steps to potentially end the US government shutdown this week, bolstered by improving relations with China, which could potentially support the Nasdaq.

The Latest Developments

• The US Senate has advanced a test vote that could end the longest US government shutdown in history.
• Nasdaq could stand to gain after a week of declines amid uncertainty and concerns over the valuations of tech stocks.
• US-China trade relations improved as both countries pulled back restrictions that were implemented in October, signalling further de-escalation of tensions.

The First Breakthrough on the Shutdown

There was a flurry of activity in the US Capitol over the weekend, which has resulted in the first step towards ending the now record-long US government shutdown. The first hints came on Saturday, when Senate Majority Leader John Thune expressed optimism about reaching a deal. Late on Sunday, that optimism proved correct as a small detachment of moderate Democrats broke ranks to , and practically end the shutdown. The main obstacle was securing 60 votes in the Senate, which were needed to initiate procedural votes on the bills; however, this does not guarantee passage of the spending legislation. The group of moderate Democrats agreed on the condition that the vote to fund expiring ACA tax credits would be held. Democrats, who are trying to use the shutdown as leverage to force through funding of ACA (also known as Obamacare), could still slow the process by several days before the final bill has to return to the fractious US House. Speaker Mike Johnson has promised a 36-hour advance notice before calling a vote on spending, giving Representatives a chance to review the legislation. That implies that the earliest the shutdown could end is on Wednesday, but it could still be several more days, depending on the political situation.

Other Events Moving the Markets

One of the more vulnerable indices to the government shutdown could be the Nasdaq, which has been underperforming since the start of the month and . That's because amid the uncertainty generated by the government shutdown, traders are becoming increasingly concerned about valuations. Q3 earnings season is winding down, but there are still many companies yet to report, including the king of the AI-tech stocks: Nvidia. The lack of official government data could keep traders from taking risks in the tech-heavy Nasdaq. Additionally, recent data releases have left markets nervous, including the highest Challenger job cuts since 2003 (the dot-com bust) last week and a decline in US consumer sentiment on Friday. American shoppers are unsettled amid all the coverage of the government shutdown, not to mention the more than a million government employees who are waiting for paychecks and presumably holding back on spending. 

However, the news about the shutdown could help reignite risk appetite this week. It comes combined with news of , as the latter suspended export restrictions of several rare earth elements. The US also ended its investigation into Chinese shipping fees, which prompted China to rescind its own fees.

Nasdaq Bounces at 25k, But Can It Hold?

Nasdaq erased its Friday losses to return back above the major trendline connecting the April and October bottoms, forming a pinbar above the 25k handle. If the buy-the-dip paradigm continues, the tech index could revisit record territories, given 25680 and the prior record of 26280 open the door to 26500 and beyond. However, RSI divergence on the daily remains a concern. The bounce could be a simple correction to 25500-26000. If bears manage to push the price under 25k and the swing support of 24600, the next support zone lies at 24000-24200. A break below would expose 23000 and 22650.

Source: SpreadEx | US Tech 100, daily