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The initial reaction to the shutdown by the financial markets was rather blasé, but investors hanging on to long positions in anticipation of a quick shutdown are starting to be ground out of the market, with apparently no imminent resolution to the budget stalemate on the cards.
A significant worry is that the lack of progress in Washington may have a knock-on effect on subsequent talks regarding an increase to the debt ceiling. The Treasury has warned that unless the ceiling is raised by 17 October, the US may be at risk of defaulting on its financial commitments, the consequences of which could be extremely damaging.
That has rocked the US stock markets today, with the Dow tumbling below 15,000 at one point today. By early afternoon in New York, the Dow was down 0.72% or 109 points at 15,024. The S&P slid a similar percentage, while the NASDAQ dropped close to 1%.
We have seen a number of economic reports delayed by the shutdown, including data on factory orders for August which should have been released earlier today. The government did manage to issue its jobless claims report, which showed a small rise to 308,000 for last week. The previous week was upwardly-revised by 2,000 to 307,000. These would normally be levels worthy of cheer, but they have been overshadowed by the events (or lack of) in Washington.
The ISM non-manufacturing index slipped from its post-recession high of 58.6 in August to 54.4 in September. Pulling back from such a strong level but remaining at an expansionary level is not necessarily a big negative, especially considering that new orders are still robust, but it has not helped the markets in the current environment.
As well as depressing share prices, the shutdown worries are pressuring the US dollar. The euro gained 0.3% against the dollar, although it was well off the day’s high by the afternoon in New York.