US shutdown and developments in Japan and France fuel a muted risk-off reactionGold and dollar rally, while euro and yen are under pressure; crypto rally pausesUS equities react calmly, supported by continued AI-related investmentsFocus today on Fedspeak and Fed minutesStress Points Multiply, Bright Spots Are AbsentThe US shutdown is continuing into a second week, as Republicans and Democrats are still putting potential political gains ahead of the need to address the key issues keeping them apart. That said, there are some tentative voices calling for a restart of negotiations to tackle the healthcare-related issues. The best-case scenario for an 11-15 day shutdown is gradually fading.Meanwhile, developments in Japan are fueling investors’ angst. Following Takaichi’s weekend win, the focus quickly shifted to the upcoming Diet vote to approve her as the new prime minister. However, the market has probably run ahead of itself, as there have been complications in the negotiations between the LDP and Komeito, the junior partner in the current minority government and LDP’s traditional ally. If this deadlock is not overcome quickly, then Takaichi’s future looks bleak, with other solutions, even in the form of a new prime minister, possibly on the cards.This extra round of uncertainty has pushed dollar/yen above the 151.93 level for the first time since February 14, with verbal interventions expected to return with a vengeance to limit the yen’s underperformance. If the LDP-Komeito negotiations prove fruitful and Takaichi is eventually approved by the Diet, there is an avenue for a reversal of the current rally in dollar/yen.French President Macron Seeks a Way Out of the Current CrisisThe political situation in France is even more challenging, as President Macron is still searching for a viable solution. If the last-minute effort by outgoing PM Lecornu to form a new cabinet fails, fresh parliamentary elections could become the baseline scenario. However, another hung parliament could only prolong the current situation. French sovereign bonds remain under pressure, with the 10-year yield trading at the same levels as the Italian equivalent, and around 85bps above the German Bund yield.This continued political unrest is also increasing the chances of snap presidential election. Macron, who cannot be a candidate at the next election scheduled for 2027, might opt to act strategically and save face in an attempt to position himself for a comeback in 2032. But this is probably a scenario that could materialize in 2026.Both Gold and Dollar RallyThe main beneficiary of the ongoing uncertainty is gold, with the precious metal climbing above the $4,000 level, reaching a new all-time high of $4,040, with the year-to-date rally reaching 53%. That said, voices of concern multiply, highlighting that when your primary safe haven asset is the best performing one, it is an indication of unhealthy market dynamics.US Dollar bulls do not seem worried though, as the greenback is posting gains across the board this week. This outperformance appears to be a typical risk-off reaction, particularly combined with the weakness seen in the cryptocurrencies.Equity Markets Take Notice, but Not in Crisis Mode YetMeanwhile, US equities are reacting calmly to the latest newsflow as the ongoing AI-related investments are easing investors’ concerns. That said, a correction in US indices remains possible, particularly as the US government shutdown persists. Interestingly, a couple of negative trading sessions could prove a powerful catalyst to get the funding bill negotiations back on track.Busier Calendar Despite the Absence of US DataWith the US shutdown depriving markets of fresh oxygen, the focus today will shift to Fedspeak and the minutes of the mid-September FOMC meeting. At least four Fed members will be on the wires today, mostly hawks, increasing the risk that a lack of dovish commentary could weigh on the current fragile risk sentiment.Interestingly, with markets assigning a 95% probability to a 25bps Fed rate cut in late October, any hawkish hints at tonight’s Fed minutes will mostly be ignored, as investors will most likely focus on the support for back-to-back rate cuts instead.