The Complete Government Shutdown Summary

I say bring it to a screeching halt!

MAIN POINTS:

Today sees the Senate reconvene after yesterday saw the Republican-led House voted in favour of a modified continuing resolution (CR) which includes a one-year delay to Obamacare (the Affordable Care Act). The Senate is not scheduled to meet until 1400ET today meaning that if the new bill is rejected there is not enough time to create a new CR and pass it back to the Senate before the midnight deadline, leading to a government shutdown in which all non-essential government workers will stay at home. Expectations are now that it is likely there will be a temporary shutdown given that the White House signalled the new CR would be vetoed by President Barack Obama and Democrats in the Senate immediately said the legislation approved by the House yesterday is unacceptable.

Even if there is a government shutdown, it is expected to only last a day or two and a CR is expected to pass in Congress this week, however this shutdown could lead to a delay of Friday's release of this month's Non-Farm Payroll report. This will fund the government to at least November 15th, giving more time for Congress to create a CR which extends through the entire 2014 fiscal year. Goldmans estimate a 2-day US govt shutdown will hit Q4 GDP (annualised) by 0.1 percentage points and one week by 0.3 percentage points, however the more important issue for Congress to address will be the debt ceiling as the US is expected to exhaust borrowing capacity on October 17th.

One main concern of a delay to both a 2014 budget and raising the debt ceiling is the possibility of a credit rating downgrade of the US sovereign, although overnight Moody's said that a government shutdown wouldn't affect debt service and that a debt cap failure would lead to perceived default risk and that failure to raise the debt limit is worse than a shutdown.

It is worth bearing in mind that several members of Congress are likely to speak to the press throughout today as they arrive for discussions and the Senate vote, and as is often the case, any deal between the Senate and House is likely to be either overnight or within the next two days. Although a US government shutdown is a risk event for financial markets, many analysts have noted this week's voting is overshadowed by debt ceiling negotiations which will begin shortly after. These talks will have a much greater impact on market sentiment as a delay to increasing borrowing capacity risks a US default as the worst case scenario.


Even more at...T-Minus 15 Hours: The Complete Government Shutdown Summary | Zero Hedge
 
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