Daily Insight Threat of a US government shutdown
Group Economics Macro & Financial Markets Research Maritza Cabezas, Peter de Bruin, +31 20 343 5619
23 September 2015
We expect Republicans and Democrats to reach an agreement and avoid a US government shutdown A less likely scenario is that US Congress passes a continuous resolution to extend funding Turkey’s central bank keeps monetary policy tight, though policy in Hungary stays extremely loose
New deadline approaching for a US government shutdown Democrats and Republicans have longstanding differences on
Turkish Central Bank has pushed up interbank rates
spending priorities. Despite the Republican majority, Republicans lack the votes to pass the spending bill they want in the Senate. If an agreement is not reached by September 30
%
14
when the Federal spending authority expires, then they will
12
need to pass a continuous resolution to avoid a government
10
shutdown. This allows funding to be extended at current levels and removes the urgency of Congress to resolve the differences for a set amount of time.
8 6 4
One of the major issues in debate is Planned Parenthood and
11 12 Benchmark repurchase rate
its funding. Republicans want to strip federal funding from this
One-week interbank rate
Issues in debate that could potentially cause a shutdown
10
13 14 15 Overnight lending rate
program, which Democrats support. On top of this, there are the usual differences, democrats want to increase the cap on
Source: Thomson Reuters Datastream
spending in domestic programs for unemployment benefits and other welfare payments as well as education, infrastructure
Turkey’s central bank keeps monetary policy tight
and environmental protection. Meanwhile Republicans are
Turkey’s central bank (CBT) kept its monetary policy rates
opposed to more domestic spending.
unchanged and maintained a tight liquidity stance during its meeting. In response to the slide in the lira and high inflation, it
Economic impact of a shutdown
has pushed interbank rates to the upper bound of its interest
A less likely scenario of a shutdown of government agencies
rate corridor. We think that the CBT will continue this policy,
will cause some uncertainty, but we expect it to be short lived.
though expect policy rates to be raised as well when the Fed
In 1995 and in 2013, the economic impact of the shutdowns
starts its tightening cycle and pressure on the lira intensifies.
was not meaningful and was rapidly reversed in the next months. The major costs are related to the interruptions to
Policy in Hungary and the Czech Republic extremely loose
business as federal employees that are not considered
The Hungarian Central Bank (MNB) kept its policy constant
“essential” stayed away from work, for instance National Park
too. But, at 1.35%, policy is extremely loose. Inflation has
Services. Moreover, in contrast to 2013, there is no risk of an
started to pick up, but should remain below the central bank’s
overlap with the debt ceiling. Overall, the fiscal viability is more
target for an extended period. Policy tightening will therefore
solid now than during the previous episodes and a shutdown is
most likely have to wait until 2016H2. The situation is more or
more likely to be avoided.
less similar in the Czech Republic. The CNB is likely to keep policy also constant during this Thursday’s meeting. However,
Fed’s rate decisions not influenced by shutdown threat
given the renewed fall in inflation, the CNB-board is likely to
Chair Yellen mentioned during the press conference after the
send a dovish message. In addition, it may discuss introducing
FOMC meeting last week that the threat of a shutdown “played
negative policy rates to alleviate pressure on the FX floor and
no role” in the central bank’s decision to delay the rate hike.
lessen the current sharp pace of FX reserve accumulation.
We think that this will not be a concern for the upcoming
That said, the sound economic performance should help
December FOMC meeting, since we expect Republicans and
inflation over time to pick up, and we would be surprised if the
Democrats to reach an agreement beforehand.
CNB opts for more stimulus.
2
Threat of a US government shutdown – 23 September 2015
Financial markets Currency markets
Close
Change 1 day
Change 5 days
Change YTD
EUR/USD USD/JPY
1.1118
-0.0180
-1.5235
120.13
-0.0166
-0.3649
-8.1005 0.2922
AUD/USD
0.7079
-0.1411
-1.6396
-13.4067
USD/CHF
0.9756
0.0513
0.4530
-1.8807
NZD/USD
0.6288
-0.0953
-1.2408
-19.3536
GBP/USD
1.5352
-0.0846
-0.9101
-1.4444
USD/SGD
1.4180
0.0918
1.5250
6.9785
USD/CAD
1.3275
0.0226
0.7820
14.2329
Bond markets
Close
Change 1 day
Change 5 days
Change YTD
2-year German Govt Bond yield
-0.2620
-0.0280
-0.0320
10-year German Govt Bond yield
0.5900
-0.0940
-0.1530
-0.1640 0.0490
Yield curve Germany
0.8520
-0.0660
-0.1210
0.2130
2-year US Treasury Bond yield
0.6738
-0.0324
-0.1286
0.0093
10-year US Treasury Bond yield
2.1337
-0.0675
-0.1530
-0.0375
Yield curve US
1.4599
-0.0351
-0.0244
-0.0468
US 2-year sw ap rates
0.7680
-0.0174
-0.1346
-0.1263
US 10-year sw ap rates
2.1396
0.0093
-0.1527
-0.1465
US sw ap curve
1.3716
0.0267
-0.0181
-0.0202
EU 2-year sw ap rates
0.0473
0.0023
-0.0327
-0.1277
EU 10-year sw ap rates
0.9730
-0.0640
-0.1120
0.1610
EU sw ap curve
0.9257
-0.0663
-0.0793
0.2887
-0.0390
-0.0010
-0.0030
-0.1170
0.3260
0.0068
-0.0095
0.0704
JPMorgan EMBI Plus Sovereign S
422.9900
18.6800
18.9500
35.5500
Equity markets
Close
Euribor 3 Month ACT/360 ICE LIBOR USD 3 Month
Change 1 day % Change 5 days %Change YTD%
Nikkei 225
18,070
-1.96
-1.06
3.55
Hang Seng Index
21,797
0.18
1.59
-7.66
Hang Seng China Enterprises Index
9,835
-0.65
1.35
-17.93
Australian Stock Exchange S&P/ASX 200 Index
5,074
-0.57
-0.48
-6.22
Singapore Straits Times Index
2,868
-0.48
0.93
-14.76
Euro Stoxx 50 Index
3,076
-3.41
-4.10
-2.24
S&P 500 Index
1,943
-1.23
-1.79
-5.64
MSCI World Daily Total Return Gross USD
725
-1.65
-1.80
-5.55
AEX Index
420
-2.96
-2.82
-1.06
22
11.42
-0.44
16.88
Chicago Board Options Exchange Volatility Index
Commodity markets Reuters/Jefferies CRB Total Return Gold spot USD/Oz Generic first NYMEX Crude Light future Generic first Brent Crude Oil future LME Copper 3 Months Rolling Forw ard Generic first Wheat future Chicago Board of Trade Source: Bloomberg
Close
Change 1 day % Change 5 days %Change YTD%
195
-1.03
-0.61
1,124
-0.09
0.38
-15.26 -5.16
46
0.04
-1.63
-12.93
49
0.33
5.25
-14.39
5,078
-3.62
-5.03
-19.40
496
-0.25
0.15
-15.98
3
Threat of a US government shutdown – 23 September 2015
Day
Date
Time
Country
Monday Monday Monday
21/09/2015 21/09/2015 21/09/2015
15:45:00 16:00:00 20:00:00
EC US MX
Tuesday Tuesday Tuesday
22/09/2015 22/09/2015 22/09/2015
13:00:00 14:00:00 15:00:00
Wednesday Wednesday Wednesday Wednesday Wednesday
23/09/2015 23/09/2015 23/09/2015 23/09/2015 23/09/2015
Thursday Thursday Thursday Thursday Thursday Thursday Thursday Friday Friday Friday Friday
Key Economic Indicators and Events
Period
Latest outcome
Consensus
ABN AMRO
ECB announces weekly QE details Existing home sales - % mom Policy rate - %
Aug Sep 21
-4.8 3.0
-1.2 3.1
-0.8
TR HU US
Repo rate - % Base rate -% FHFA house price index - % mom
Sep 22 Sep 22 Jul
7.5 1.4 0.6
1.4 0.5
0.4
03:45:00 10:00:00 10:00:00 10:00:00 15:45:00
CN EC EC EC US
PMI manufacturing - index (Caixin) - flash PMI services - index Composite PMI output PMI manufacturing - index Markit - Flash PMI
Sep P Sep P Sep P Sep P Sep P
47.3 54.4 54.3 52.3 53.0
47.8 54.2 54.1 52.2
54.5 54.2 51.8
24/09/2015 24/09/2015 24/09/2015 24/09/2015 24/09/2015 24/09/2015 24/09/2015
06:30:00 10:00:00 10:00:00 11:10:00 13:00:00 14:30:00 16:00:00
NL DE NO EZ CZ US US
Producer confidence manufacturing - index Ifo - business climate - index Policy rate - % ECB allotment TLTRO-5 - EUR bn Repo rate - % New durable goods orders - % mom New homes sold - % mom
Sep Sep Sep 24
107.9
3.0 108.1
Sep 24 Aug Aug
3.5 108.3 1.0 73.8 0.1 2.2 5.4
0.1 -2.2 1.5
-2.0 1.4
25/09/2015 25/09/2015 25/09/2015 25/09/2015
01:30:00 10:00:00 14:30:00 16:00:00
JP EC US US
CPI - % yoy M3 growth - % yoy GDP - % qoq annualised Univ. of Michigan cons. confidence - index
Aug Aug 2Q T Sep F
0.2 5.3 3.7 85.7
0.1 5.4 3.7 87.6
5.5 3.7 85.0
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
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