News of the week summary - 05/10/2025

U.S. government enters shutdown 

The United States entered a government shutdown this week, a situation that occurs when Congress fails to agree on a federal budget or temporary funding bill. Without new legislation, government agencies lose the authority to spend money, which forces them to halt many operations and furlough (send home without pay) hundreds of thousands of federal workers. Essential services, such as military operations or airport security, usually continue, but a prolonged shutdown can weigh on the economy by reducing government spending, delaying infrastructure projects, and disrupting household incomes.

In this context, President Donald Trump has suggested that the shutdown presents an opportunity not just to pause spending but to make permanent cuts to parts of the federal government. On his Truth Social account, Trump said he was consulting with budget director Russ Vought on which agencies to eliminate or reduce, highlighting programs he sees as politically biased or inefficient. The administration has already closed the US Agency for International Development and announced plans to scale back others, such as the Consumer Financial Protection Bureau.

The White House has also moved to suspend $18 billion in infrastructure funding for New York City and cancel $8 billion in clean energy projects. Officials argue these programs were tied to policy goals they oppose, including diversity and climate initiatives, and say the cuts reflect a broader effort to rein in what they consider unnecessary spending.

Critics, mostly from the Democratic Party, contend that the shutdown is being used as a pretext to push a long-standing conservative agenda of reducing the size and scope of the federal government. They warn that pausing infrastructure and clean energy projects could slow economic growth and hurt local communities that rely on federal support.

Treasury Secretary Scott Bessent acknowledged that the shutdown could weigh on the economy, potentially lowering GDP and affecting working Americans, though he defended the president’s approach as a legitimate use of executive power during a budget impasse.

The economic impact is already surfacing. Private-sector employers cut 32,000 jobs in September, the steepest monthly drop in over two years, according to payroll firm ADP. This figure sharply disappointed economists, who had expected job growth, and raised concerns that the labor market is cooling more quickly than anticipated. Compounding the problem, the government shutdown has halted the release of official employment data from the Bureau of Labor Statistics, depriving markets of their most reliable labor gauge. Investors are now relying on private data, such as ADP reports, even though these are typically less accurate predictors of overall job creation.

The weak employment figures triggered a rally in US Treasuries, as investors bet that the Federal Reserve will be forced to cut interest rates further in response to a slowing labor market. Treasury yields, which move inversely to prices, dropped following the report, reflecting expectations of a more accommodative monetary policy. Although some economic indicators, such as manufacturing activity, remain stable, Wall Street analysts warn that labor market momentum is turning negative.

Gold price keeps rising to new records

Gold prices have surged nearly 50 percent this year, crossing $3,800 per troy ounce, in what has become the metal’s most powerful rally since the late 1970s. What began as a rush into safe assets during increase in U.S. tariffs and weakening of the dollar has transformed into a broader and more enduring phenomenon. The metal’s popularity is now being fueled not only by fears of inflation and market volatility but also by a “fear of missing out” among investors who feel compelled to include gold in their portfolios.

Exchange-traded funds (ETFs), which make gold ownership cheaper and easier, have been central to this rally. These vehicles, popular with both professional asset managers and retail investors, attracted over $60 billion in inflows so far this year, pushing holdings to more than 3,800 tonnes. This level is comparable to the heights seen during the Covid-19 pandemic, when investors scrambled for havens.

The appeal of gold is also expanding beyond its traditional role as a crisis hedge. Major banks and pension funds hold more and more gold in addition to stocks and bonds.
Behind this shift is frustration with bonds. Fixed-income assets have traditionally acted as the stabilizing counterweight to equities, but in today’s environment of volatile yields, they no longer provide the same insurance. Gold, which produces no income but tends to hold its value during turbulence, is filling that gap.

The dollar’s weakness has added further momentum. Some investors are betting against the US currency but remain unsure which foreign currency to buy, leaving gold as the most attractive alternative. This dynamic reinforces gold’s role as a universal store of value, detached from the risks tied to any single economy.

Europe moves toward tariffs on Chinese steel

The European Union is preparing to sharply tighten restrictions on cheap steel imports, following the lead of the United States and Canada. Brussels has announced plans to cut foreign steel import quotas by nearly half and raise tariffs to as much as 50 percent, a move aimed primarily at Chinese producers who are accused of flooding global markets with subsidized exports at artificially low prices.

The EU’s industry commissioner, Stéphane Séjourné, told steel executives and trade unions that Europe must not be “naive” in the face of Chinese overcapacity. Beijing’s large state subsidies allow its producers to sell steel at prices other countries see as unfairly low, a practice often referred to as “dumping.” By restricting imports and raising duties, Brussels hopes both to protect European producers and to reassure Washington that it is taking concrete steps to curb Chinese metal flows. In return, the EU hopes to secure lower tariffs on European steel exports to the US.

The proposal marks a significant departure from the EU’s current “safeguard regime,” which imposes a 25 percent tariff and is set to expire next year. The new measures would be longer-lasting, with no built-in end date, though they still require approval from the European Parliament and a majority of member states.

The move, however, is not without controversy inside Europe. Countries such as France strongly back the initiative, but others worry it could push up costs for industries that rely heavily on steel, especially automakers. The European car lobby, ACEA, has already warned that higher input costs could undermine competitiveness and fuel inflation. They are calling for the policy to be temporary and subject to review.

For the US, the key concern is ensuring that Europe is not used as a backdoor for Chinese steel. Washington wants strict rules of origin, meaning that only steel fully produced in Europe would qualify for any tariff relief in US trade agreements. This reflects a broader trend: both the Trump administration in the US and Ottawa in Canada have already moved to impose steep tariffs as part of efforts to reindustrialize and protect domestic jobs.

Europe imported about 28 million tonnes of steel last year, roughly one-quarter of its consumption. By shrinking quotas and raising tariffs, Brussels is signaling that it is willing to prioritize shielding its steelmakers from global competition, even if it means higher costs for downstream industries. The outcome will hinge not only on domestic debates within the EU but also on delicate negotiations with Washington over trade cooperation in an increasingly protectionist global environment.

Lagarde signals possible further rate cuts

European Central Bank President Christine Lagarde has left the door open to further rate cuts, stressing that monetary policy in the euro area must remain flexible in the face of shifting risks. Speaking in Helsinki, Lagarde underlined that the ECB cannot “pre-commit” to any specific path and must stay “agile” in responding to incoming data.

The ECB’s key deposit rate currently stands at 2 percent, unchanged for two consecutive meetings after several earlier cuts. Investors, however, are increasingly skeptical that the central bank will ease further. Market data now puts the likelihood of another small cut by April at only around 30 percent, and some analysts even expect the next move could be a rate hike instead.

Lagarde’s comments reflect the delicate balance facing policymakers. Inflation in the eurozone, which surged between 2022 and 2024 due to energy shocks and supply chain disruptions, has now largely subsided. Euro area inflation was at the ECB’s 2 percent target in August, though September is expected to come in slightly above, at around 2.2 percent. In Germany, the bloc’s largest economy, inflation rose to 2.4 percent in September, also above forecasts. Despite these short-term upticks, ECB staff projections suggest inflation will remain below target for six consecutive quarters from early 2026, before gradually rising back to 2 percent in 2027.

The challenge is that while inflation risks now appear contained, economic growth remains fragile. The euro area has so far absorbed the impact of President Trump’s tariffs on European exports better than expected, with only moderate effects on growth and little impact on inflation. Still, trade uncertainty, alongside sluggish domestic demand, weighs on the outlook.

For investors, Lagarde’s message is that the ECB is not locked into either further easing or tightening. Instead, rates could move in either direction depending on how inflation and growth evolve. The immediate implication is that markets should expect a period of uncertainty, where central bank action will hinge on each new set of data.

In practice, this stance buys the ECB time. With inflation near target but growth soft, policymakers can avoid rushing decisions, allowing them to adjust policy only if the economy veers too far off course in either direction. The signal to markets is clear: the ECB is not done, but it is in no hurry.