The mood in the air this time around is vastly different to the shutdown we saw at the end of last year. That is because this latest episode is widely expected to end swiftly and also it does not include the whole of the US government.
For some context, the funding process had been moving along just fine up with a bipartisan agreement on the cards. All that before the shooting death of civilian, Alex Pretti, by federal agents in Minneapolis. And that changed the whole dynamic as Democrats did not want to agree to funding for the Department of Homeland Security (DHS) especially.
After some last-minute talks though, lawmakers managed to work out a deal again. And the Senate passed it with a bipartisan 71-29 vote on Friday. However, the House is out of session and could not vote on this version of the bill. Hence, leading to the partial shutdown we're seeing.
The latest version of the bill includes a a two-week temporary extension for DHS funding, providing lawmakers with an extra half-a-month to negotiate specific reforms to ICE and Border Patrol conduct.
So, this is the version that the House has to vote on next. The vote is widely expected to come either on late Monday evening or Tuesday morning. And House speaker, Mike Johnson, has said that he has the votes to put an end to the shutdown.
Barring any major drama, we should see this all resolved some time on Tuesday. As such, that should not impact the Department of Labour and allow for no hiccups in markets or economic data releases like what we saw in the fall.
But let's say that there is some plot twist before the end, how will that impact markets?
For one, risk sentiment will continue to be shaken up more so than it already is right now. But if the shutdown drags on until later this week, that could result in delays to key economic data releases once again.
As a reminder, it is US non-farm payrolls data week. So, it is a big one for markets.
If the shutdown drags on to Wednesday, we are still likely on track to keep to the Friday schedule for the US jobs report this week. The BLS typically has a 2–3 days of lead time in having to finalise massive data sets, run quality assurance checks, and brief the White House before any public release.
So, this lead time is what is going to be the key thing to watch out for.
The good news is that the data for the upcoming January report was likely already collected in the middle of last month. As such, it's not a case of data collection but more so an operational issue for the BLS in releasing the data. That means that this sort of kink in the sheet can be easily ironed out in time for the Friday release schedule.
However, what happens if the shutdown drags on to Thursday or Friday?
In all likelihood, that will result in a delay to the non-farm payrolls data and that is where markets will once again be unsettled. A one or two-week delay might not seem like much, but it's testament to the shaky and uncertain nature of the US administrative policy at the moment. And that will have its own sentiment knock on the way investors view the US outlook.
The main concern of any prolonged drag to the shutdown is if it goes on to the middle of the month, where it starts to interfere with the collection of February data. But I guess we'll cross that bridge when we come to it.
