Markets shrug off US shutdown as manufacturing grows, Japan to raise sales tax

The US government went into partial shutdown on Tuesday but markets largely shrugged off the event, the 10-year US Treasury note rising 4 basis points to 2.65 percent and the S&P 500 rising 0.8 percent.

Helping to support markets on Tuesday were positive economic data.

The Institute for Supply Management’s manufacturing PMI rose to 56.2 in September, the strongest since April 2011, from 55.7 in August. Markit's US manufacturing PMI also showed growth in September, albeit falling to 52.8 from 53.1 in August.

Europe also reported positive economic data on Tuesday.

The eurozone unemployment rate was unchanged at 12.0 percent in August. However, a downward revision to the July rate left it lower than the 12.1 percent rate seen in June, thus marking the first decline in the eurozone unemployment rate in two years.

Meanwhile, eurozone manufacturing activity continued to expand in September. Markit's manufacturing PMI for the region fell to 51.1 last month from 51.4 in August but remained above 50 for the third consecutive month.

UK manufacturing growth also eased slightly in September. The Markit/CIPS manufacturing PMI slipped to 56.7 from 57.1 in August.

China's manufacturing expansion maintained momentum though. The National Bureau of Statistics and China Federation of Logistics and Purchasing reported on Tuesday that their manufacturing PMI rose to 51.1 in September from 51.0 in August.

However, Japanese economic data on Tuesday were mixed.

The Bank of Japan's Tankan index for large manufacturers rose to plus 12 in the three months to September from plus 4 in the preceding three months.

However, the jobless rate rose 3 percentage points to 4.1 percent in August, the first deterioration in six months, while household spending fell 1.6 percent in August from a year earlier.

Consumer spending in Japan could be hit further. Prime Minister Shinzo Abe announced on Tuesday an increase in the sales tax to 8 percent from 5 percent. To cushion the blow from the tax increase, he also announced a 5 trillion yen stimulus plan.