U.S. stock exchanges and other securities markets enter choppy, uncharted waters this coming week as the political stalemate continues in Washington with Republicans and Democrats at loggerheads over urgent budget and debt ceiling deals. Early Monday, stocks in Asia tumbled amid the chaos in the Capitol, with the benchmark Nikkei index down more than 2% at one stage.
We are getting awfully close to the edge
U.S. stock index futures fell on Sunday as the uncertainty over funding for the U.S. Government affected confidence.
If Republicans and Democrats do not reach agreement on an emergency budget by midnight on Monday, much of the federal Government will shut down.
The sticking point is Republican opposition to the funding of the Affordable Care Act, President Barack Obama's health care reform. The Republicans want the law delayed for a year and amended.
While stock markets have survived previous Government shutdowns, this time it is, well, more complicated.
Because after Monday's midnight deadline comes the even more important deadline of October 17, by which time Congress must agree to raise the United States' $16.7 trillion debt ceiling so America can avoid a default.
U.S. Treasury Secretary Jack Lew has warned that the United States will exhaust its current borrowing limit no later than October 17, when it would have only $30 billion cash on hand.
The S&P 500 stock index has climbed almost 19% so far this year. Valuations of stocks are high. Given those facts, it would not be surprising if investors took a break from stocks until the pantomime in Washington has played out.
If no deal is reached to fund the Government by midnight Monday, many stock investors may be tempted to take profits in the short term and who can blame them? Then again, if a last-minute deal is done, equities may even get a boost.
In the past week, the S&P 500 fell 1.1% and the Dow Jones index dropped 1.3% amid the jitters.
The threat of a government shutdown or a default on the federal debt reminds many investors of 2011 when a similar stand-off in Washington led to the United States losing its AAA credit rating and helped prompt a stock market correction.
This coming week also sees some key economic indicators that stock markets watch closely. Nothing is certain if the Government shuts down, but the September jobs report is scheduled for Friday.
The Chicago Purchasing Managers Index and the Dallas Fed Manufacturing Survey are currently scheduled for Monday. Manufacturing and construction spending reports are due on Tuesday, then a key private-sector employment report is scheduled for Wednesday.
Jobless benefits claims data is scheduled to be released on Thursday.
There is also a lot of company news and earnings data this coming week.
On Tuesday, Ford Motor Ford Motor and General Motors release their latest sales figures, and Rite Aid will announce sales numbers on Thursday.
If the Government does shut down and the debt ceiling is not raised soon, one unknown is how the international holders of U.S. Treasury debt — like Asian central banks — will respond.
On Friday, President Obama addressed the possibility that Congress might not raise the debt ceiling.
"We know it would have a profound destabilizing effect on the entire economy — on the world economy — because America is the bedrock of world investment," said the President.
No comments:
Post a Comment