{"id":111587,"date":"2017-08-24T06:52:43","date_gmt":"2017-08-24T10:52:43","guid":{"rendered":"http:\/\/countingpips.com\/?p=111587"},"modified":"2017-08-24T06:52:43","modified_gmt":"2017-08-24T10:52:43","slug":"what-does-a-government-shutdown-mean-for-the-u-s-markets","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2017\/08\/what-does-a-government-shutdown-mean-for-the-u-s-markets\/","title":{"rendered":"What does a government shutdown mean for the U.S. markets?"},"content":{"rendered":"
August 24, 2017<\/div>
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Article by ForexTime<\/a><\/p>\n

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\u201cIf we have to close down our government, we\u2019re building that wall\u201d \u00a0<\/em>Donald Trump<\/strong><\/p>\n

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After stocks and the dollar surged on Tuesday following a Politico report that Trump\u2019s team have made a significant step on tax reforms, the President\u2019s threats on Tuesday night, to shut down the government and terminate the NAFTA agreement, were not well received by investors, who responded by dragging both equities and the dollar lower.<\/p>\n

History reveals that markets have experienced modest weakness during shutdowns, with the S&P 500 falling an average of 0.6% over the period of closure. Markets don\u2019t always drop. Equities gained eight times out of the 18 shutdowns from 1976 to 2013, the largest recorded rally was during Obama\u2019s era in 2013 with gains exceeding 3%. However, when one party controlled the Presidency, Senate, and the House, it looked different. From 1977 until 1979, when Democrats lead by Jimmy Carter, controlled all three branches, the government was shut down five times, \u00a0markets dropped on four of these occasions, with average losses of 2.7%. If a shutdown can\u2019t be avoided, investors hope it looks more like an Obama than a Carter era.<\/p>\n

A shutdown isn\u2019t the biggest threat right now, the more pressing issue is the timing of the delivery of a detailed plan on tax reforms. The longer such reforms are delayed, the more anxiety will be felt in financial markets, thus expect to see further weakness in U.S. equities in September.<\/p>\n

Investors in wait-and-see mode<\/strong><\/p>\n

Financial assets, whether it\u2019s equities, currencies, or fixed income, are trading in very tight ranges early Thursday, and I expect such moves to continue throughout the day. With the lack of tier one economic data, investors are bracing for some hints from the annual central bank gathering at Jackson Hole, which kicks off today.<\/p>\n

ECB\u2019s Mario Draghi refrained from giving any indications on future policy when he delivered a speech at a conference in Germany yesterday. It seems he is trying to avoid commenting on monetary policy after the Euro surged by more than 12% on expectations of QE getting closer to an end. I believe Euro bulls will also be disappointed when Draghi speaks on Friday, as he\u2019ll continue to shy away from any specific timing on tapering bond purchases. However, given the strength in economic activity and diminishing outstanding bonds available to purchase, the ECB has no alternative but to begin the normalization process, and any pull back in the Euro will be seen as an opportunity to get in.<\/p>\n

Fed Chair Janet Yellen will also be speaking Friday on financial stability. Her speech is of great importance, given the recent warnings from the Fed on vulnerabilities associated with asset valuations. Few disagree that the global easy monetary policies have created overstretched valuations. Whether it\u2019s stocks, fixed income, real estate, or bitcoins, there is a bubble somewhere. Sooner or later some sort of significant correction in prices should occur, but central bankers want to make sure that economic stability won\u2019t be impacted and this isn\u2019t an easy task.<\/p>\n<\/div>\n<\/div>\n<\/div>\n

Disclaimer:\u00a0<\/strong>The content in this article comprises personal opinions and should not be construed as containing personal and\/or other investment advice and\/or an offer of and\/or solicitation for any transactions in financial instruments and\/or a guarantee and\/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.<\/em><\/p>\n

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\"Forex-Time-Logo\"Article by ForexTime<\/a><\/span><\/strong><\/p>\n

ForexTime Ltd (FXTM)<\/strong> is an award winning international online forex broker regulated by CySEC 185\/12 www.forextime.com<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Article by ForexTime \u201cIf we have to close down our government, we\u2019re building that wall\u201d \u00a0Donald Trump   After stocks and the dollar surged on Tuesday following a Politico report that Trump\u2019s team have made a significant step on tax reforms, the President\u2019s threats on Tuesday night, to shut down the government and terminate the […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-111587","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/111587","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=111587"}],"version-history":[{"count":3,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/111587\/revisions"}],"predecessor-version":[{"id":111596,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/111587\/revisions\/111596"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=111587"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=111587"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=111587"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}