Markets, rejoice! The U.S. Government shutdown, the longest in history, has finally come to an end. An optimist might assume the funding deal will avert a similar crisis—perhaps until the next administration, or for a couple of years at least? Not so. The countdown is already on, and the clock is set to 78 days.
TL;DR
- The U.S. Government shutdown has ended, but a new one could occur in about 10 weeks.
- The funding bill extended appropriations for some agencies through September, but most departments only through January 30.
- The shutdown caused flight disruptions, reduced consumer spending, and delayed crucial economic data releases.
- The lack of economic data complicates decisions for the Federal Open Market Committee.
President Donald Trump enacted a funding measure yesterday, concluding the 43-day stalemate on Capitol Hill. This bill included appropriations for agencies such as SNAP food assistance, the Department of Agriculture, Congress, and veterans' affairs, extending through September of the following year. However, most federal departments saw their budgets authorized only until January 30.
Although Wall Street typically navigates Washington's fiscal disputes without much disruption, the prolonged nature of a shutdown increases the likelihood of negative economic consequences. The grounding of certain flights occurred because Federal Aviation Administration (FAA) personnel were not compensated during the shutdown, and a broader impact was seen as furloughed employees reduced their expenditures, uncertain about their next payday.
Investors' primary concern might have been the void of data during the shutdown. The Bureau of Labor Statistics' failure to release its eagerly awaited jobs market data fueled anxieties that the employment sector is decelerating more rapidly.
Additionally, inflation figures were not published. Consequently, worries about price increases stemming from tariffs (or shops covertly raising their prices during a data void) might have gradually materialized without detection, potentially resulting in future repercussions.
The Federal Open Market Committee (FOMC), responsible for setting the base rate based on 2% inflation and full, stable employment metrics, faces a distinct challenge due to the absence of both inflation and labor data. This lack of crucial information for The Fed's market-impacting decision-making amplified concerns about the real economy's condition amidst internal political disputes in Washington.
Jim Reid of Deutsche Bank informed clients on Thursday morning that the relief from such uncertainty might be temporary. “We could be on the verge of another shutdown in just over 10 weeks’ time, not least if tensions over health care subsidies that Democrats had pushed for escalate between now and then. But for now, the end of the shutdown has boosted the market mood.”
This morning, markets are showing little movement. Yesterday, prior to the New York opening, the S&P 500 saw slight increases, and the Dow Jones climbed by 0.68%. The Nasdaq and Russell 2000 experienced small drops. In early European trading, both Germany's DAX and the FTSE 100 fell by 0.4%, whereas France's CAC 40 experienced a modest rise of 0.69%. Asian markets, however, were strong: the Nikkei 225 climbed 0.43%, the Shanghai Stock Exchange grew by 0.73%, and the Hang Seng Index moved up 0.56%.
Setting the tone for January
By finalizing the agreement, President Trump also established the direction for subsequent discussions: “We’re sending a clear message that we will never give in to extortion,” he said.
The White House also indicated that October's economic figures might not be published. “All of that economic data released will be permanently impaired, leaving our policymakers at the Fed, flying blind at a critical period,” Karoline Leavitt, the White House press secretary told reporters.
UBS indicated that alternative assets are expected to perform strongly during volatile times. The prominent financial institution stated in a client advisory on Monday: “Political uncertainty should continue to support gold.”
It explained: “Partial shutdown remains a possibility after 30 January if Congress does not pass another continuing resolution or make progress on funding for other federal departments. Additionally, uncertainty around the Supreme Court’s ruling over the legality of tariffs based on the International Emergency Economic Powers Act (IEEPA) should provide ongoing support for gold.”
Here’s a snapshot of the markets ahead of the opening bell in New York this morning:
- S&P 500 futures are down fractionally by 0.021%.
- STOXX Europe 600 was up a touch by 0.079% in early trading.
- The U.K.’s FTSE 100 is down 0.40%.
- Japan’s Nikkei 225 was up 0.43%.
- China’s CSI 300 is up 1.21%.
- India’s NIFTY 50 is flat.
- Bitcoin is at $103K.