Markets waver as U.S. shutdown looms

Markets waver as U.S. shutdown looms

Investors in markets from Brazil to Beijing blinked today as the U.S. government poised to put itself on shutdown, a move economists fear will send uncertainty surging across the globe.

Markets were down almost universally today, ranging from a 0.8% intra-day decline for Brazil’s Bovespa to the Nikkei in Japan closing down 2.1%. In a lone bright spot, the Shanghai Composite index closed up 0.7%, but Hong Kong’s Hang Seng closed down 1.5%. London’s FTSE was down 0.9% as of about 9:50 a.m. Eastern today, with the DAX in Germany down 1.2% and France’s CAC 40 down 1.4%. In the U.S., the S&P 500 index slipped 0.8%.

The U.S. Senate is expected to strip a pair of provisions from a House spending bill today, sending it back to the lower chamber for a vote to approve the measure or trigger the 1st government shutdown since 1996. The House added a pair of provisions to the bill it sent to the Senate that would repeal the medical device tax and delay the implementation of Obamacare by a year. Both the White House and Senate majority leader Sen. Harry Reid (D-Nev.) immediately vowed to reject the amendments, accusing Republicans of hijacking the the issue to score ideological points.

The wavering seen so far today could metastasize if House Republicans reject the Senate’s spending bill and the federal government stops in its tracks, financial experts fear.

"We’re in a game of chicken. Once it became clear that people were willing to risk federal employee jobs, that’s when it became a real concern," said Len Blum, managing partner of Westwood Capital LLC in New York, told Reuters. "We’ve become somewhat desensitized to this kind of apocalyptical thing coming out of D.C., but as time goes on with no resolution, it will get increasingly bad."

"A shutdown is just 1 domino; if it falls, it will cause a series of unknowns, and those unknowns are impossible to quantify,"added Sarhan Capital CEO Adam Sarhan. "The immediate shock could be 200 Dow points, could be 1,000 Dow points. Those moves may be exaggerated at first, but if things aren’t resolved quickly that could just be the start."

The impact on defense spending alone will be considerable, Sarhan added.

"The defensive sector "will feel an immediate impact since its biggest customer is the U.S. government," said Sarhan. "We’re talking billions of dollars in income. If that goes away, what could replace that?" he told the news service.

Mark Zandi, chief economist of Moody’s Analytics, told the Washington Post that the worst-case scenario could trigger another recession.

"It’s corrosive on the economy," Zandi told the newspaper, saying a long shutdown leading to default on U.S. federal debt would be "the nightmare of the recession all over again."

"The simple story is it creates a tremendous amount of uncertainty,"Bank of America economist Ethan Harris added. "One of the unfortunate side effects of the brinksmanship is a message to business leaders to delay long-term commitments and wait to see whether something really bad happens."

A CNN/ORC International poll of about 800 people over the weekend found that most would blame the GOP rather than President Obama for a shutdown, with 60% saying that avoiding that should be the top priority inside the Beltway. Despite the risks, House Republicans under speaker John Boehner (R-Ohio) are under pressure from radical conservatives in the Tea Party caucus to derail part or all of Obamacare.

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