US government approaching shutdown - Westpac

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Oct 21, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Delhi) – Richard Franulovich, Research Analyst at Westpac, suggests that a short term continuing resolution to fund US government operations expires 11 Dec and absent a deal, non-critical employees and functions will be furloughed.

    Key Quotes

    “Ahead of that a potentially far more consequential hard date in the form of the US Treasury debt ceiling comes into focus. The Treasury has nominated 3 Nov as the critical date but an expected cash balance of USD30bn will give the Treasury some headroom until later in the month.”

    “The Bipartisan Policy Center estimates the Treasury will exhaust its cash reserves sometime between 10-19 November. The US Treasury has almost USD220bn financial obligations between 10-30 November. Departing House Speaker Boehner is of course free to abandon the demands of his conservative wing and craft a straightforward “clean” bill to raise the debt limit with Democrat support. But, even an unencumbered Boehner, not to mention the broader Republican leadership, is likely to want to extract some concessions.”

    “A round of brinksmanship thus seems assured and risk premiums are apt to rise into the November deadline(s). In late 2013, when the US government shutdown and the debt ceiling was threatened 1mth T-bills spiked 45bp (intraday highs) while the USD index traded on the backfoot, though some weakness at the time will have been traceable to the Fed’s earlier decision to delay tapering asset purchases.”

    “US T-bills have already priced in some inconvenience/payment delay risk but it looks like it has further to run if the 2013 impasse is anything to go by. We assume the debt ceiling and funding of the US government is resolved as it ultimately always is but not without some form of grandstanding that weighs on the USD and equities.”
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