Equity index futures fall sharply, USA Government shutdown approaches as lawmakers fail to broker agreement
Concerns that the budget stalemate, at the heart of the USA government, will affect economic growth caused the Standard & Poor’s 500 Index to experience its first weekly drop since August. The index dropped 1.1 percent last week. The rate on 10-year Treasury notes fell three basis points to 2.62 percent. Equity index futures took a substantial hit immediately the market opened Sunday evening; the DJIA down 0.72% - with the critical level of 15,000 back on the radar. The SPX was down 0.79%. European equity index futures also took an immediate hit, with UK FTSE down 0.77% and the MIB down 1.25%. The dollar and the euro fell sharply in early trade on Sunday evening, the greenback falling by 0.5% versus yen. Being perceived as a safe haven yen also rose versus the euro, loonie, Aussie, sterling and the Swiss franc amongst the major peers. In a USA government shutdown, essential operations with dedicated funding would continue. A shutdown could reduce fourth-quarter economic growth by as much as 1.4 percentage points according to economists. The biggest effect would come from the output lost from temporarily laid off workers.
Sunday's developments have raised the prospect of the first government shutdown since 1996, putting as many as 800,000 federal employees out of work starting Tuesday, Oct. 1. Mail delivery, air traffic control and Social Security payments would continue, three-quarters of Obama’s staff would be sent home. A motion was unanimously passed to ensure that armed forces would be paid. Looking towards the major high impact news event of the week and past the USA government impasse, the prediction is that employers probably added more jobs in September than the prior month and the U.S. jobless rate held at the lowest level since 2008, suggesting progress in the labor market is helping to sustain growth. The predicted gain in September payrolls would still be below the average 195,000 monthly increase in the first half of 2013. Through to August 2013, the U.S. has apparently recovered 6.8 million of the 8.7 million jobs lost as a result of the 18-month recession that ended in June 2009.