PRIMER: US Government Shutdown [UPDATED]

• The Senate passed a 45-day continuing resolution (CR), which included USD 6bln in Ukraine aid, sending it to the house.


• Some House GOP's are against any CR as it endorses high government spending and they did not want Ukraine aid within the bill.


• Capitol Insights put the chance of a shutdown at 75%. 


• A shutdown would delay key economic data, potentially having implications for the Fed.

SUMMARY: If Congress fails to agree on a continuing resolution (CR) by October 1st, the government will enter a shutdown, disrupting government services with hundreds of thousands of federal workers furloughed without pay while US economic data releases will also be delayed, potentially impacting the Fed. The US Senate voted to clear a procedural hurdle of the Senate bipartisan bill to avoid a government shut down and House Speaker McCarthy said the House will consider a separate stopgap bill with border provision on Friday. The house also started the debate on the bill to fund parts of the federal government, and House Speaker McCarthy wants to pass these four appropriation bills before the stopgap bill, but these are seen as dead on arrival in the Senate and White House on disagreements regarding border security and spending cuts. The stopgap bill would keep the government open for 45 days, taking it to mid-November. However, some Republicans are against it and have vowed to vote against it as it does not include steep spending cuts, and it includes Ukraine aid. Republican House Speaker McCarthy has now said he will not allow a vote on the Senate stopgap bill. McCarthy now has to find a way for his GOP majority to vote for a stopgap bill, or rely on democratic votes. If he gets a stopgap bill the Republican house can vote for, it will be sent back to the Democratic majority Senate, and will likely not pass as it will include spending cuts, border security measures and no aid for Ukraine. Whereas if he opts to bring Democrats on board, it will put his job at risk from the right flank Republicans. He does believe however if he can pass the four appropriation bills beforehand, it will give him a better negotiating hand in talks with congressional Democrats. Note, Capitol Insights' Greg Valliere puts the odds of a shutdown at 75%. 

IMPLICATIONS

If the government were to shut down, officials have said it is likely that economic data releases will be delayed. It depends on how long the shutdown lasts, but with the September NFP jobs report due Friday 6th October, it is likely this will be released at a later date. The September CPI report is also due on 12th October, also at risk of being delayed. Depending on the new release dates, this could complicate matters for the Fed with the next meeting on November 1st, while they will be in the blackout period from the 21st of October, which could result in markets being left in the dark. 

Reuters writes for defence names (LMT, RTX, BA), any new contracts, including renewals or extensions, would not be awarded in the time frame, therefore payments to the defence names could be delayed.

On antitrust, Reuters highlights that other antitrust cases have continued through past shutdowns but it is unclear whether Google's (GOOGL) antitrust lawsuit would be disrupted. 

Meanwhile, the majority of SEC and CFTC staff would be placed on furlough, but the FDIC and OCC would continue as normal. 

27 Sep 2023 - 17:30- EquitiesEconomic Commentary- Source: Newsquawk