Page One
Briefing.com Summary:
*A government shutdown as of midnight looks highly likely based on reports of an impasse between Republican and Democratic leaders.
*A shutdown will prevent the release of key government data, like the September employment report.
*Policy uncertainty will increase with a shutdown that is extended.
The equity futures market is exhibiting some modest weakness ahead of the opening bell on this last day of the third quarter. That is setting the stage for a modestly lower start for the major indices.
Currently, the S&P 500 futures are down six points and are trading 0.1% below fair value, the Nasdaq 100 futures are down seven points and are trading fractionally below fair value; and the Dow Jones Industrial Average futures are down 55 points and are trading 0.1% below fair value.
The easy excuse for the soft disposition is worries that the U.S. government is headed for a shutdown as of midnight based on reports that Democratic and Republican leaders are still far apart on agreeing to the passage of a clean continuing resolution. The impasse, reportedly, revolves around Democratic leaders wanting an extension of the Obamacare tax credits that will expire at the end of the year to be part of the continuing resolution.
We are labeling this as an "excuse" because the market has been well aware for enough time now that this impasse was very likely to come to pass, and yet it traded higher yesterday and continues to linger on the doorstep of record highs.
Now, a government shutdown could become a bigger issue if it carries on for an extended period. The immediate consideration for the market is that a shutdown will stand in the way of government agencies releasing important economic data, such as the weekly initial jobless claims report and the September Employment Situation Report.
That means the market and the Fed will be flying somewhat blind when trying to get a better feel for economic conditions that will determine the course of monetary policy. It boils down to policy uncertainty, which can be an irritant for market participants.
Another explanation for the market's soft disposition includes a qualification that there will be a 10% tariff on lumber imports, a 25% tariff on certain upholstered products, and a 25% tariff on kitchen cabinets and vanities starting October 14, with higher rates starting on January 1 for countries that have not negotiated new trade deals with the U.S.
Tariff matters are like a festering wound for a market anxious to be healed of tariff maladies that also contribute to market uncertainty.
Beyond these clear-cut excuses, there is the possibility that the tape is being painted by nothing more than quarter-end dynamics, meaning one shouldn't read much into the shutdown and tariff headlines. Both have been part of the narrative for a long enough time now that neither is particularly surprising.
