Tags: shutdown | credit | rating | investors

Lingering Shutdown Threatens US Credit Rating

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Monday, 14 January 2019 11:16 AM Current | Bio | Archive

For now, the partial government shutdown remains firmly in place for its 24th day, which makes it the longest ever in U.S. history.

President Donald Trump is standing by his demand for a wall at the U.S.-Mexico border.

In the meantime, the BBC reports that Senator Lindsey Graham said he had urged the President on Sunday to temporarily reopen government “for like three weeks” to see if a deal with the Democrats is doable, before he pulls the plug. If we can't at the end of three weeks, then all bets are off.

We’ll see if Graham’s proposal could bear fruit, but as things stand, it doesn’t look we’re heading that way.

For investors, it might be helpful to recall the global head of Fitch Ratings, which is one of the Big Three credit rating agencies along with Moody's and Standard & Poor's, has warned of a possible cut to the U.S. triple-A sovereign credit rating if the government shutdown leads to the U.S. hitting its debt ceiling, which for Fitch is the main negative factor.

Besides that, the shutdown has serious negative impacts on all those people that don’t get their paychecks, but also on the daily flood of data from federal agencies, which affects everyone from investors and farmers to researchers and journalists.

Brexit

The interminably tedious process of the UK exiting from the European Union (EU) will get a lot of attention this week, with of course tomorrow’s vote in Parliament on the government's withdrawal agreement with the EU.

It might be interesting to take note that on Sunday, the British Daily “The Guardian” reported that the European Union is preparing to “delay” Brexit until at least July after having concluded that Prime Minister May very little chance, for no saying no chance getting her deal through Parliament.

In this context, Brussels is expecting a request from London to extend article 50 in the coming weeks.

A special EU leaders’ summit to push back Brexit day is expected to be convened by the European council President, Donald Tusk, once a UK request is received.

An EU official said: “Should Prime Minister May survive and inform us that she needs more time to win round Parliament to a deal, a technical extension up to July will be offered.”

Senior EU sources said that a further, lengthier extension could be offered at a later date should a general election or a second referendum be called.

The refusal of EU leaders at the December summit last year to give May a 2021 deadline for the end of talks on a future trade deal was grounded in a belief that she had yet to offer a compelling vision that could get through parliament.

No, the Brexit saga isn’t over yet. You can be sure of that.

In the meantime, we see the British pound got a somewhat firmer undertone.

China December Trade Data

The South China Morning Post reported that the China December trade data that came in overnight were “bad” and are likely to get worse this year.

Exports fell the most in two years and imports posted the largest drop since July 2016 amid growing disruptions from:

  1. The still ongoing trade war with the U.S.
  2. Slowing global growth.

For investors, the numbers can look somewhat confusing.

For the full year of 2018, China posted a trade surplus of $351.76 billion, the lowest since 2013, notwithstanding exports increased 9.9 percent, its strongest performance in seven years, while imports were up 15.8 percent.

The trade surplus with the U.S. reached a record high, boosted by strong gains in the first half of the year and the effects of order front-loading in the second half.

Investors could do well keeping in mind that the trade results this year could be quite different, depending on whether China and the U.S. are able to reach a trade deal that rolls back tariffs, the South China Morning Post reported.

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

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For investors it might be helpful to recall that last Wednesday, the global head of Fitch Ratings, which is one of the Big Three credit rating agencies, the other two being Moody's and Standard & Poor's, has warned of a possible cut to the U.S. triple-A sovereign credit rating later this year.
shutdown, credit, rating, investors
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2019-16-14
Monday, 14 January 2019 11:16 AM
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