Will the Us Government Shut Down Again? What to Watch

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Will The U.Due south. Government Shut Down Again? What To Watch

Feb. 05, 2018 11:fifty AM ET TLT, SPY, QQQ, DIA, SH, IWM, TZA, SSO, TNA, VOO, SDS, IVV, SPXU, TQQQ, UPRO, PSQ, SPXL, UWM, RSP, SPXS, SQQQ, QID, DOG, QLD, DXD, UDOW, RWL-Old, SDOW, VFINX, URTY, EPS, TWM, SCHX, VV, RWM, DDM, SRTY, VTWO, QQEW, QQQE, FEX, ILCB, SPLX, EEH, EQL, SFLA-Quondam, QQXT, SPUU, IWL, FWDD, SYE, SBUS, SMLL, SPXE, PPLC, PPSC, UDPIX, JHML, OTPIX, RYARX, SPXN, USSD, HUSV, RYRSX, SCAP, SPDN, SPXT, SPXV, USWD 8 Comments

Summary

• It is not clear that some other government shutdown will be avoided.
• What works in the Business firm may not in the Senate.
• Information technology appears to be more about leverage and positioning than principle.
• The economic impact of a short shutdown is small, but the optics are poor.
• Marketplace confident of a March charge per unit hike.

The short-term solution reached concluding month to extend the US federal government'southward funding expires on Th, February viii. Leaders from both parties say they want to avoid another partial closure. Last month, parts of the federal authorities were closed for 3 days, which is well-nigh par for the course (around half of the government's 19 shutdowns since 1977 lasted three days).

The House of Representatives is planning to vote tomorrow on a continuing resolution to extended current spending plans through March 22. It is non clear at this juncture that it has the vote to pass the motion. The consensus among Republicans may be fraying. Some of the financial hawks and the conservative Freedom Conclave are balking at what would be the fifth curt-term extension since the fiscal year began on 1 October 2017.

The Democrats are not inclined to support the measure. They are trying to secure leverage to resolve the Deferred Activeness for Babyhood Arrivals (DACA) consequence. President Trump has threatened to end it on March 5. The argument is that if the Democrats were to vote for the House bill, they would weaken their negotiating position.

A federal court has blocked the effort to rescind DACA. This makes the March five deadline somewhat less pregnant. Ultimately, the Supreme Court volition likely hear the arguments, but likely not before March 5.

Turning to the Senate, the Republican leadership is not committed to the House bill. With 60 votes necessary to pass the measure, the Senate Democrats have greater leverage than in the House. The Democrats are insisting on immigration reform as a condition to supporting some other continuing resolution and appeared to have been outmaneuvered last month.

The White House has iv demands on immigration reform: 1) a pathway to citizenship for 1.8 million undocumented immigrants, 2) $25 billion for border security and a wall for more than of the border with Mexico, 3) an end to the lottery organization, and 4) end to chain migration.

Senate Democrats are balking at the bipartisan bill in the House (co-sponsored past 27 Democrats and 27 Republicans). The issue, like final month, may not be and so much nigh principle as it is positioning for November mid-term elections.

A brusk government shutdown makes for poor optics, simply the economical impact is minor and investors take come up to accept this. A longer shutdown impacts Gdp primarily through reduced work hours. It is disruptive to tourism, which is accounted for as a service export. A government shutdown does non sit well with the rating agencies.

The debt ceiling has also not been resolved. Treasury Secretary Mnuchin has indicated that the current workaround will be exhausted tardily March. The Congressional Budget Office said late concluding month drib-dead appointment may be a bit early on equally the new tax changes reduce authorities revenues. The failure to renew spending authorization leads to regime shutdowns, simply the failure to lift the debt ceiling would produce a default or the inability of the US to service its debt.

The House pecker to laissez passer a continuing resolution bill to extend the electric current spending say-so until March 22 would be sufficient to keep the government open through the March 21 FOMC meeting. It would be possible only awkward for the Federal Reserve to raise interest rates when the government was shut. The recent string of data has fanned expectations of stiff quarterly growth. The Atlanta Fed's GDPNow tracker is pointing to five.4% annualized growth in Q1, while the NY Fed'south model suggests a all the same robust 3.2% pace.

The average effective Fed funds rate has been 142 bps since the Fed hiked rates in December. There are typically exceptions at month- and quarter-stop. The Apr Fed funds futures contract is non subject to the quarter-cease distortions that of the March contract. The timing of the March meeting also makes the April contract a cleaner read.

The futures contracts settle at the average effective charge per unit for a given calendar month. A 25 bp rate hike would lift the average constructive rate to i.67% (from i.42%). Currently, the Apr contract implies 1.64%. This means that the hike is 88% disbelieve, to say the same thing, the commonage wisdom of the market assesses an 88% probability to a March hike.

This article was written by

Marc Chandler has been roofing the global majuscule markets in i manner or another for 25 years, working at economic consulting firms and global investment banks. A prolific writer and speaker he appears regularly on CNBC and has spoken for the Foreign Policy Association. In addition to being quoted in the financial press daily, Chandler has been published in the Financial Times, Foreign Diplomacy, and the Washington Post. In 2009 Chandler was named a Business Visionary past Forbes. Marc's commentary can be found at his blog (www.marctomarket.com) and twitter world wide web.twitter.com/marcmakingsense

Disclosure: I/we take no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this commodity myself, and it expresses my ain opinions. I am non receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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Source: https://seekingalpha.com/article/4143160-will-u-s-government-shut-down-again-what-to-watch

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