Is anyone else stunned by the farce that is once again unfolding in US government circles? Every year these negotiations go right to the wire, but it is not since 1996 that we have actually seen the process result in a government shut down – that`s right, the US government, the leaders of the free world, shutting down! Speaking for the rest of the world (!) – please grow up!
The Republican party (again) is getting the blame for this, and after the backlash they suffered in the wake of the 1996 deadlock, it makes sense to me that they see the political downside in closure, and agree a deal. That would appear from a long way away, to be the most likely outcome, but any system that allows a small group of individuals – once a year – to be able to paralyse the country, I guess is capable of an irrational conclusion.
Meanwhile, the markets react to the continued deadlock with little enthusiasm. The equity market makes a broad movement lower (but it was going that way anyway), whilst the dollar is little changed; and short of a protracted shutdown, that seems to be an appropriate reaction. Should the worst case scenario take place, ie. a government shut down for a month, then we really would start to see some downside open up both for the dollar and for equities – but surely, that seems out of the question. A resolution tonight on the other hand would be short term positive, but this is the outcome that everyone knows will happen, so any continued reaction should be muted. The markets would knee jerk lower if any closure was forced, but speculation about this being very short term would act as a brake on aggressive selling.
As far as I can see, the only merit in a closure of government is that we will be spared the publication of non-farm payroll numbers on Friday……on second thoughts, maybe a shutdown is not all bad!