Financial markets are taking the first government shutdown in
the United States for 17 years in their stride, in the
expectation the political standoff will be short-lived,
Craigs Investment Partners broker Chris Timms says.
US President Barack Obama and congressional Republicans
became no closer yesterday to ending the standoff which has
thrown about 800,000 government employees out of work. Mr
Obama accused Republicans of taking the Government hostage in
order to sabotage his signature healthcare law.
Republicans in the House view the Affordable Care Act as a
dangerous extension of government power. The
Democratic-controlled Senate has repeatedly rejected
Republican efforts to cut government funding.
Mr Timms said investors remained confident a deal could be
The Standard & Poor's 500 index closed up 0.8% and the
technology-rich Nasdaq closed up 1.2%.
The impact of the the two back-to-back shutdowns in 1995-96,
lasting a total of four weeks, during the Clinton
administration, was relatively limited, cutting just 0.25%
from the fourth-quarter economic activity, as measured by
Historically, the market impact has been relatively limited.
In the 10 days before the 17 previous shutdowns over 40
years, the S&P had a median performance of -0.3%.
The S&P was down 1% in the past 10 days, suggesting a
short-term shutdown might already be reflected in market
pricing, he said.
''The standoff has removed some uncertainty. Something has
happened. They did nothing but at least the markets now know
what they are dealing with.
The markets took a hit earlier in the week, and there has
been some bounce back from that.''
The NZX-50 started the day flat but became stronger as the
day progressed and the Australian and Asian markets gathered
strength, Mr Timms said.
The US Treasury was forced to pay the highest interest rates
in about 10 months on its short-term debt as many investors
avoided bonds that would be due later this month when the
Government was due to exhaust its borrowing capacity.
If Congress could agree to a new funding bill soon, the
shutdown would have little impact on the world's largest
economy, he said.
A week-long shutdown would slow US economic growth by about
0.3%, according to Goldman Sachs, but a longer disruption
could weigh on the economy more heavily as furloughed workers
scaled back personal spending.
The 1995-96 shutdown cost taxpayers $US1.4 billion ($NZ1.7
billion), according to congressional researchers.
Failure to raise the Government's $US16.7 trillion debt
ceiling would force the country to default on its
obligations, dealing a blow to the economy and sending
shockwaves around global markets.
A 2011 standoff over the debt ceiling hammered consumer
confidence and prompted the first downgrade of the United
States' credit rating.
Analysts told Reuters this time it could be worse. Lawmakers
back then were fighting over how best to reduce
trillion-dollar budget deficits.
This time, they are at loggerheads over an issue that did not
lend itself to compromise as easily - an expansion of
government-supported health benefits to millions of uninsured
Republicans had voted more than 40 times to repeal or delay
''Obamacare'' but they failed to block the launch of its
online insurance marketplaces on Tuesday.
At a glance
The political crisis raises fresh concerns about whether
Congress can meet a crucial mid-October deadline to raise the
Government's $US16.7 trillion ($NZ20.3 trillion) debt
ceiling. Some Republicans see the vote as another opportunity
to undercut US President Barack Obama's healthcare law.