With Congress back from the Thanksgiving break, latest developments will certainly intensify the risks of a government shutdown taking place when the 8th December deadline on passing a government spending bill is reached, according to Derek Halpenny, European Head of GMR at MUFG.
Key Quotes
“Tuesday was important in shaping how this proceeds with President Trump meeting the two Democrat leaders – Nancy Pelosi and Chuck Schumer. However, following a tweet by President Trump that he didn’t think a deal was possible given what the Democrats wanted, Pelosi and Schumer cancelled the meeting. In September, President Trump sided with Democrats to extend funding to the new deadline date of 8th December but it doesn’t look like anything similar will happen this time. The Democrats are insistent on the provision of legal protection for immigrant children under the Deferred Action for Childhood Arrivals (DACA) being renewed.”
“What might that mean for the markets? The last example of a government shutdown was during the Obama presidency when there was a government shutdown between 1st October and 17th October. The dollar weakened by around 1.0% (DXY basis) in the run in to the beginning of the shutdown but then reversed while the S&P 500 dropped briefly before recovering and hitting new highs by the end of the shutdown. So the financial market impact wasn’t particularly huge in 2013. Estimates on the economic impact of the shutdown varied but was certainly not insignificant. S&P estimated that the 17-day shutdown reduced annualised Q4 2013 real GDP growth by around 0.6%.”
“While we would not expect another similar sized shutdown in December to threaten the fully priced rate hike in December, we do believe it would reinforce the prospect of the Fed raising rates at a slower pace in 2018 than current guidance implies. A modest hit to Q4 real GDP growth along with the now nearly standard weakness that tends to come in calendar year first quarters, the FOMC will have ample scope to pause for six months following next month’s rate hike. That’s our assumption and it is consistent with EUR/USD breaking above the 1.2000 level over the coming months.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
AUD/USD: Next stop emerges at 0.6580
The downward bias around AUD/USD remained unabated for yet another day, motivating spot to flirt with the area of four-week lows well south of the key 0.6700 region.
EUR/USD looks cautious near 1.0900 ahead of key data
The humble advance in EUR/USD was enough to partially leave behind two consecutive sessions of marked losses, although a convincing surpass of the 1.0900 barrier was still elusive.
Gold extends slide below $2,400
Gold stays under persistent bearish pressure after breaking below the key $2,400 level and trades at its lowest level in over a week below $2,390. In the absence of fundamental drivers, technical developments seem to be causing XAU/USD to stretch lower.
Why this week could be explosive for Ethereum
Ethereum (ETH) is down nearly 1% on Monday as exchanges have begun confirming Tuesday as the launch date for ETH ETFs. Considering the ETH ETF launch and the upcoming Bitcoin Conference, this week could prove crucial for Ethereum.
What now for the Democrats?
Like many, I applaud Biden’s decision. I would have preferred that he’d made it sooner, but there’s still plenty of time for the Democrats to run a successful campaign. In fact, I wish something on the order of a two-month campaign – as opposed to a two-year campaign – were the norm and not the exception.