Tags: Trump Administration | government | shutdown | investors | economy

Shutdown Is Just an 'Inconvenience' for Investors

Shutdown Is Just an 'Inconvenience' for Investors
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By    |   Monday, 22 January 2018 08:55 AM

The United States government has gone into shutdown and in the meantime it’s dragging into “day 3.”

On Sunday evening, Senate Majority Leader Mitch McConnell has announced that the chamber would vote on a plan at noon today, Monday, to fund the government through February 8, but the vote is expected to fail if things remain as they are at the moment of this writing.

Minority Leader Chuck Schumer commented: “Talks will continue, but we have yet to reach an agreement on a path forward that would be acceptable for both sides.”

For investors it could be helpful to remember that the economic consequences of this shutdown in the near term remain pretty minimal. Only if there is a prolonged shutdown does the disruption start to have wider consequences for the U.S. economy. One could say that for the time being, it is just an inconvenience.

More important to the effect of the shutdown is perhaps will be “Who is blamed for the shutdown?”

The Trump Twitter feed has not been shut down. The Trump Twitter feed has been rather more active than usual as if it is trying to replace all government activity. The Trump Twitter feed has started to blame the minority Democrats.

However, a CNN – SSRS opinion poll that was released on Friday afternoon suggests that 55 percent of the respondents to the poll, which was done by telephone, disapprove the way the whole shutdown subject is handled by the President and 76 percent disapprove how Congress handles it.

Is this enough to impact the November midterm elections?

It’s doubtful whether the American electorate collective memory lasts that long, but it is possible that the shutdown sets the tone that could have political implications.

American markets are subject to more political risk in a way that European markets are not because American markets are more exposed to international investors, and international investors tend to overreact to political risk.

On the subject of European political risk, the German Social Democratic Party (SPD) conference that was held on Sunday on whether or not to discuss having a “grand coalition government” together with German Chancellor Angela Merkel's Christian Democratic Union Party (CDU) has agreed, with caution (!), that detailed talks can commence. The process now creeps on to the next stage, which is the detailed talk part followed by a vote by the whole SPD on whether the conclusion of those talks will be acceptable.

German political crises have all the drama and excitement of “paint drying” very slowly.

Of course, while this political drama is playing out with such enthralling interest, the German government is not shut dawn. The German government is happily carrying on.

In the meantime, the U.S. government shutdown means that we do not get any decent U.S. economic data being released and there is a general lack of data from anywhere else as well.

This leaves markets at the mercy of what the media will inform us about the World Economic Forum (WEF) in Davos, Switzerland that runs from tomorrow January 23 till Friday January 26.

The Senate’s failure to reach a deal to reopen the federal government on Sunday night threw President Trump’s planned trip to Davos in doubt.

We’ll have to wait and see what comes out.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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For investors it could be helpful to remember that the economic consequences of this shutdown in the near term remain pretty minimal.
government, shutdown, investors, economy
Monday, 22 January 2018 08:55 AM
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