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Wall Street Responds To The Government Shutdown

Tyler Durden's picture




 

No, we are not talking the stock market reaction, which is driven purely by trillions in excess global, fungible liquidity sloshing around and as a result stocks are up on government shutdown day in a complete mockery of, well, everything. Instead, this is what Wall Street sellside strategists believe will be the impact of the shutdown (and how it ties in with the far more important debt ceiling negotiation). It should not be at all surprising that to virtually everyone, the shutdown (or any other negative development) is a "buying opportunity" which makes sense: after all the person who is truly in charge of the "wealth effect" will be up and running uninterrupted and there is no risk today's $2.75 - $3.50 billion POMO will be even modestly delayed.

GOLDMAN: Modest Effects

A shutdown would have modest macroeconomic effects. We estimate a two-day shutdown would reduce growth in Q4 at an annualized rate by 0.1pp, while a week-long shutdown would be worth -0.3pp. The reasons the effects would not be greater, despite the size of the federal government, are that a) only activities funded by congressional appropriations (so-called "discretionary spending") are affected; this represents about one-third of total federal spending, b) a little over half of activities within that category of spending are likely to be deemed critical and thus exempt; and c) in the areas that are not exempt, employee salaries would be cancelled during the shutdown, but most other procurement of goods and services would be made up shortly after the shutdown ends. The upshot is that as many as 800k federal employees would probably not work and would not be paid during the shutdown. For comparison, in July 2013 nearly 700k Department of Defense civilian employees were furloughed without pay for 3.5 days as a result of sequestration.

IHS: $300 Million per day in lost output

A partial shutdown of the federal government would cost the U.S. at least $300 million a day in lost economic output at the start, according to IHS Inc.  Lexington, Massachusetts-based IHS, a global market research firm, estimates that its forecast for 2.2 percent annualized growth in the fourth quarter will be reduced 0.2 percentage point in a weeklong shutdown. A 21-day closing like the one in 1995-96 could cut growth by 0.9 to 1.4 percentage point, according to Guy LeBas, chief fixed income strategist at Janney Montgomery Scott LLC in Philadelphia.  “Government spending touches every aspect of the economy, and disruption of spending, more than the direct loss of income, threatens to damage investor and business confidence in ways that can seriously harm economic growth,” LeBas said yesterday in an interview.

RABOBANK: US Government Shutdown Could Boost Markets

“The failure to avert the shutdown does not bode well for an agreement being reached to raise the debt ceiling. In addition the shutdown also means that the release of the nonfarm payrolls number on Friday will be delayed. All this suggests that the Fed is likely to have more caution in its QE tapering than was even recently expected and so, in the perverse world of central bank liquidity driven markets, we could well see a bid for both USTs and equities.”

FIDELITY WORLDWIDE INVESTMENT: Stock market weakness presents a buying opportunity

Trevor Greetham, director of asset allocation: “The dispute has the power to depress economic activity temporarily and it will play havoc with the economic release calendar. But the U.S. is four years into a steady, self-sustaining recovery and the Federal Reserve stands ready to offset any marginal fiscal tightening that may come out of the negotiations. We do not expect the fiscal standoff in Washington to have a lasting impact… When the smoke clears we will see a global expansion that is strengthening and broadening with monetary policy set to stay loose in every major economy. An equity-friendly backdrop.”

SOCIETE GENERALE: Context matters

Kit Juckes, macro strategist: “There have been 17 Federal shutdowns since 1970. The S&P has fallen on 9 of these occasions and has fallen in the week after the shutdown on 11 occasions. The early shutdowns in the Ford and Carter Presidencies came against a backdrop of rising bond yields, falling stocks and weakening dollar. Maybe we can fear a return to the dark period of the late 1970s but on Jimmy Carter’s 89th birthday I am inclined to believe he just got dealt an awful economic hand. Likewise the very short stops in the Reagan years tell us little. Yields were going up until Q3 1984 and have basically been falling ever since. The two shutdowns in 1995 were ‘good’ for the dollar, the equity market and for 10-year Notes. But, the economy was in better shape than it is now and this came after the 1994 spike in yields.

“The context of the shutdown matters more than the event itself. A modest economic recovery is fragile enough that we have seen some softer data in interest rate sensitive sectors since ‘taper’ entered the market lexicon in May. A shutdown won’t help economic sentiment. So the front end of the U.S. curve will probably see rate hike expectations pushed even further out.”

MORGAN STANLEY: Market reaction is that this is not such a big a deal

Ted Wieseman: At least the initial market reaction appeared to be that a short government shutdown itself is probably not that big a deal and that if the fight over a continuing resolution to fund the government at the start of fiscal year 2014 on Tuesday becomes the central fiscal policy fight, then chances of a debacle with the debt ceiling, which will have to be raised by the end of October, may be lessened.” Mr Wieseman said it’ll become clear in the coming weeks whether the market was right to assume these latest fiscal fights would end up getting resolved before there is “much serious, lasting damage, like the others”.

UNICREDIT: This stopped out our trade against the euro

Armin Mekelburg, FX strategist: “We were stopped out at 08:39 (CET) today in our short euro trade against the dollar in the wake of a broad dollar selloff. We opened this short-term tactical trade at 1.3481 on 24 September as most currency pairs had rather swiftly given back their post-FOMC gains, while EUR/USD had lagged in this correction phase and we felt that this gap was likely to close… We had to close our short EUR-USD trade recommendation for a spot loss of -0.66%.”

NOMURA: A way forward can be found

Analysts: “The shutdown could take a week or more to resolve, and the next real deadline is the debt limit, which is expected to become binding around 17 October. We expect popular opposition to the shutdown to build over time, which should generate added public pressure to find a way to overcome both the impasse on spending and raise the debt limit. We believe a way forward can be found before the debt limit becomes binding.”

BNP PARIBAS: We didn’t think it would come to this

FX analyst, Steven Saywell: “The outcome was not our base case scenario and should result in downward pressure for the dollar against core, low-yielding currencies, but gain against the commodity bloc and emerging market currencies via the risk-off channel.”

BARCLAYS: It’s the debt ceiling that matters

Nick Verdi, Joseph Abate: “We expect foreign exchange markets to trade mildly ‘risk-off’ in the coming days. The dollar should rally primarily versus US growth-linked currencies, such as the Canadian dollar and Mexican peso, and is likely to remain under pressure against other ‘safe-haven’ currencies, including the yen and the Swiss franc. The bigger market risk event remains a breach of the debt ceiling. We expect such an event to be more broadly risk negative. A higher risk of a US sovereign default should lead to a flight to liquidity and, ironically, a stronger dollar, except against the most liquid/safest-haven ones: euro, yen, the sterling and the Swiss franc.”

h/t WSJ

 

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Tue, 10/01/2013 - 08:02 | 4009111 Enslavethechild...
EnslavethechildrenforBen's picture

Counterfeiters.

Tue, 10/01/2013 - 08:05 | 4009114 GetZeeGold
GetZeeGold's picture

 

 

I was expecting anarchists.....that's a new one.

Tue, 10/01/2013 - 08:08 | 4009128 Looney
Looney's picture

Who is John Gal... Gallstone?  ;-)

Looney

Tue, 10/01/2013 - 08:13 | 4009134 dryam
dryam's picture

The markets will also go up when the debt ceiling is passed, and then there will be articles placing meaning to that.

Tue, 10/01/2013 - 08:13 | 4009141 Enslavethechild...
EnslavethechildrenforBen's picture

How can there be a National Debt if the nation did not borrow any Silver or Gold?

There can be no debt in a Monopoly game. All you have to do is print more monopoly money and start over.

Tue, 10/01/2013 - 08:19 | 4009153 AlaricBalth
AlaricBalth's picture

Getting sick of the phrase "government shutdown". It's a partial shutdown and those government personnel who can do the most damage are still at their posts.

Tue, 10/01/2013 - 08:39 | 4009236 CaptainObvious
CaptainObvious's picture

+100  It's not the National Park rangers who are spending like addicts, dragging us into wars on brown people, and groping my dick at the airport.

Tue, 10/01/2013 - 08:16 | 4009129 Enslavethechild...
EnslavethechildrenforBen's picture

The Anarchist's are the good guys in this battle. Go ahead and down arrow me you troll bastards.

Tue, 10/01/2013 - 08:17 | 4009142 Looney
Looney's picture

.Counterfeiters

 

CunterFitters is a bad word. I think?  ;-)

My keybroad's missin' a buncha keys...

 

Looney

 

Tue, 10/01/2013 - 08:04 | 4009113 achmachat
achmachat's picture

from how the metals are behaving right now, I can see that CFTC is also not working today.. not that it would make any kind of difference...

Tue, 10/01/2013 - 08:05 | 4009124 GetZeeGold
GetZeeGold's picture

 

 

Only because it appears disaster can be averted.

Tue, 10/01/2013 - 08:06 | 4009119 rogeliokh
rogeliokh's picture

GOLD dropping like a rock now. JPM and GOLDMAN all over it now.

US Default is bad for GOLD, I get it.

Tue, 10/01/2013 - 08:13 | 4009140 sudzee
sudzee's picture

Ease the US$ down by selling paper gold.

Tue, 10/01/2013 - 08:07 | 4009125 Grande Tetons
Grande Tetons's picture

Where is JP Morgan?

Found it..

 

JP MORGAN "NOTHING CHANGES, WE ARE STILL CALLING ALL THE PLAYS" 

Tue, 10/01/2013 - 08:07 | 4009127 stant
stant's picture

i remember the last shut down,no one cared. i went to a race that weekend and could afford the gas to tow  the thing up the damn interstate

Tue, 10/01/2013 - 08:09 | 4009132 Mototard at Large
Mototard at Large's picture

QUOTE But the U.S. is four years into a steady, self-sustaining recovery END QUOTE

You have to wonder what Trevor Greetham at Fidelity is thinking when he says this.  If the 'recovery' is self sustaining, then why do Ben carry on with QE4ever?  And BTW, is there a recovery?

Investing with Fidelity might be a bad idea if this guy is any indication...

Tue, 10/01/2013 - 08:15 | 4009146 Apostate2
Apostate2's picture

Fidelity is a guaranteed to be wrong and a loss if you are foolish to invest with them.

Tue, 10/01/2013 - 08:12 | 4009135 venturen
venturen's picture

Just think...they have their own money printer(BEF FED PRINTER)...even the treasury isn't working. No more prosecutions(no DOJ... no pesky SEC).... This is a a Wall STreet dream come true. COMPLETE CONTROL!

Tue, 10/01/2013 - 08:21 | 4009169 Enslavethechild...
EnslavethechildrenforBen's picture

They can keep their paper if I can keep my GOLD.

Tue, 10/01/2013 - 09:43 | 4009469 Vendetta
Vendetta's picture

Wall street has had DC in their back pocket all along and already had COMPLETE CONTROL, what the shutdown means is business as usual

Tue, 10/01/2013 - 08:14 | 4009143 The Duke of Skiatook
The Duke of Skiatook's picture

Shut it down, burn it down, and bury the ashes.  Good riddance government bitchez!

Tue, 10/01/2013 - 08:18 | 4009157 CaptainObvious
CaptainObvious's picture

+1776 Agreed wholeheartedly.

Was it really wrong of me to perform a touchdown victory dance in my living room at 12:00:01 this morning?

Tue, 10/01/2013 - 08:25 | 4009186 J Pancreas
J Pancreas's picture

I was doing my hip-thrust victory dance as well.

Tue, 10/01/2013 - 09:47 | 4009494 FreeNewEnergy
FreeNewEnergy's picture

I'm throwing a huge party if this lasts more than two weeks. Booze, weed, steaks, strippers, the works.

Tue, 10/01/2013 - 08:15 | 4009144 saulysw
saulysw's picture

This is a significant event. The world is watching and shaking its head...

Tue, 10/01/2013 - 08:16 | 4009148 GetZeeGold
GetZeeGold's picture

 

 

They didn't believe the first revolution either.

 

We may have a couple tricks left.

Tue, 10/01/2013 - 08:17 | 4009150 Enslavethechild...
EnslavethechildrenforBen's picture

Seriously, the Gov. Is losing control.

Tue, 10/01/2013 - 08:24 | 4009178 GetZeeGold
GetZeeGold's picture

 

 

Stop teasing us.

Tue, 10/01/2013 - 08:38 | 4009235 Enslavethechild...
EnslavethechildrenforBen's picture

They can't agree on who it's ok to steal from and who it's not.
Worst case scenario for the Military Banking Complex.

Tue, 10/01/2013 - 08:21 | 4009156 Zer0head
Zer0head's picture

Bloomberg today

ahh no big deal except for the panda-cam - we never thought it would be a big deal - what we really need to be worried about is the debt ceiling, ya the debt ceiling that's the elephant in the room - the shut down phfft it's happened before no big deal- but the debt ceiling that's very serious (memo to production department please prepare the debt ceiling clock)

 

Bloomberg yesterday

countdown clock to the shutdown - what will happen - could be bad - it's the republican terrorists will they back down - very serious - unprecedented - markets could be roiled

 

Tue, 10/01/2013 - 08:24 | 4009175 CaptainObvious
CaptainObvious's picture

Pfft.  Typical MSM spin.  I'm gonna go take a nice, steaming corn shit now and wipe my ass with a MSM newspaper, especially the article about how we're all doomed to the lowest fathoms of hell if we don't agree to sign away our grandkids' futures to MOAR spending today.  I'm undecided, should I mail my used newspaper to the White House, or should I merely take a photo of said used newspaper and post it on the interwebs?

Tue, 10/01/2013 - 08:23 | 4009161 Billy Shears
Billy Shears's picture

The criminal federal Reserve's destruction of the private sector, and the economy in general, continues apace. Get to work Mr. Chairman! 

Tue, 10/01/2013 - 08:22 | 4009166 youngman
youngman's picture

I think most people will not notice a thing....what is bad is when they finally go back to work they will be paid for all their time off....the President will make sure of that...so it really is a paid holiday for them....and they get alot of those....our socialist in charge will take care of his sheeple....where they really should be put out to pasture for good...now is a good time to cut employees that do nothing and there are thousands in the government...hundreds of thousands...just think if we could eliminate an EPA or something right now....or an education department

Tue, 10/01/2013 - 08:30 | 4009204 J Pancreas
J Pancreas's picture

I thought you lived in Columbia (a fact that I admired because I thought you expatriated the police state). /confused

Tue, 10/01/2013 - 08:34 | 4009218 youngman
youngman's picture

I do....still keep in touch on what is going on in the ole USA though...

Tue, 10/01/2013 - 08:27 | 4009191 DOT
DOT's picture

Need Moar Shutdown!

Gobbling up some metal today.......nom, nom, nom

Tue, 10/01/2013 - 08:28 | 4009203 wagthetails
wagthetails's picture

with the NSA computers and drones, who needs gov't employees anyway.  i'm sure the gov welcomed this test of project AutoReign. 

Tue, 10/01/2013 - 08:31 | 4009206 NDXTrader
NDXTrader's picture

Pretty simple - this does away with taper talk

Tue, 10/01/2013 - 08:30 | 4009207 SIOP
SIOP's picture

My niece, who is 21 yrs old and just starting her first "real" job as a dental technical something (in a lab, not the clinic office) is opening her first self funded Roth IRA at Scottrade today with $500.

She was ready to do it about 2 weeks ago and I told her to wait for the market to drop close to the gov shut down date, then do it. She thought I was crazy! I told her, "it's like you want some new shoes, you just wait for them to go on sale!" I think I saw the light go on in her head with that and maybe she learned a lesson about buying when everone else isnt. So she held on and listened to us old farts. Even though the market isnt tanking(pre-open) like expected this morning due to the "new normal", something good may have come from this fiasco.

Tue, 10/01/2013 - 08:35 | 4009221 CaptainObvious
CaptainObvious's picture

Why didn't you tell your niece to self-fund her retirement with Au and Ag?  Sooner or later, all private retirement accounts are going to be nationalized (or Polandized, whichever term you prefer) and your niece is going to be ass raped. 

Tue, 10/01/2013 - 08:34 | 4009216 eddiebe
eddiebe's picture

Idiots!

Tue, 10/01/2013 - 08:44 | 4009264 Lotionboy
Lotionboy's picture

I see JPM and GS are using the POMO proceeds to whack a mole Gold and Silver this morning with naked shorting

Tue, 10/01/2013 - 09:27 | 4009403 ptoemmes
ptoemmes's picture

Yeah, it's not like the laws permitting the looting have been shutdown.  The minor annoyances of regulators may be.  But the bought "boyz and girlz" on The Hill are still hard at work - essential government employees that they are.

 

Do I need a sarc sign?

Tue, 10/01/2013 - 09:33 | 4009425 notadouche
notadouche's picture

Never fails, anytime there is a potential major market moving event in play I somehow can't seem to get access to my online accounts.  I'm sure it purely coincidental.  I'm the idiot for having an account I suppose.

Tue, 10/01/2013 - 11:18 | 4009909 optimator
optimator's picture

One day you won't be able to access your accounts for weks and your telephone will just get a busy signal.  But the Schmardt money will be able to 'trade'.

Tue, 10/01/2013 - 10:38 | 4009712 kenezen
kenezen's picture

Well! here we are in shutdown.  From What? A HealthCare program that is really PeasantCare after all favored people are relieved of the need to belong. Gold's down, I like that (Buy Gold soon) S&P is up and I've predicted, on August first on my Blog, also sideways movement for this year until the very end or into next year then! A serious pullback. But, it's cool to see gold down and S&P up the day after this "Crisis"!!

This is probably seen as a spending constraint although it's probably not. Who's paper trading the Gold down? Is it still Goldman? Thank them for me!!

 

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