Wall St takes shutdown in its stride
Hong Kong shares rebound as investors shrug off US worries for now
Wrangling in the United States between US president Barack Obama and congressional Republicans has forced the first government shutdown in 17 years. Photograph: Kevin Lamarque/Reuters
US stocks kicked off a new month and a new quarter with gains, and global shares rose modestly on hopes that the US government shutdown may not last long.
Hong Kong shares rebounded off a three-week low today, but strength in defensive shares pointed at underlying caution. At midday, the Hang Seng Index, which closed on Monday at its lowest since September 9th, was up 1.1 per cent at 23,106.7 points. The China Enterprises Index of the top Chinese listings in Hong Kong climbed 1 per cent.
Hong Kong markets were shut yesterday for China’s National Day holiday. Those in the mainland will stay closed until next Tuesday.
“Flows are still quite cautious,” said Jackson Wong, vice president for equity sales at Tanrich Securities. “But I think people expect Washington to come to a form of compromise sooner rather than later.”
Wall Street took the partial shutdown of the US government in stride but market analysts expected investor patience to run out if the shutdown lasts more than about a week as a more worrisome battle looms in Congress over the federal debt ceiling.
After more than a week of declining stock prices over worries that political gridlock would result in a shutdown, investors bid up stock prices yesterday at the reality and took in stride closures that threw hundreds of thousands of federal employees out of work.
Opinions over when the political standoff over the budget might end and the extent of potential damage to the economy varied, but most commentators agreed around the idea that the impasse would keep the government closed for about a week. Previous government shutdowns have generally been brief - usually just a few days - and the memory of a late agreement to avert the fiscal cliff in 2012 explains to some extent the sanguine response thus far.
But if the shutdown lasts longer and the date when the US debt limit approaches, markets will be unsettled as the need to raise the federal debt limit could make negotiations more divisive.
Eric Lascelles, chief economist at RBC Global Asset Management in Toronto, estimated that every week the shutdown continued would shave one-tenth of a percentage point off gross domestic product in the fourth quarter.
“It’s a material hit but certainly one that can be absorbed. The question will be whether it lasts longer than the market expects and starts to bleed into confidence,” he said.
Investors figure the shutdown will hurt financial markets eventually and that consequence might be a catalyst for compromise. Yesterday’s rally on Wall Street did not give Democrats or Republicans a reason to budge.