US government reopens after longest shutdown in modern history
All eyes were on the US Monday morning, as the federal government reopened following the longest shutdown in American history.
President Donald Trump had ordered a partial shutdown of government after Congress refused him $5.7bn to build a wall on the US border with Mexico.
But on Friday, 35 days into the shutdown, Trump caved in to mounting pressure and agreed to lift the closure temporarily, bringing relief to hundreds of thousands of furloughed employees who have not been paid. Federal facilities started coming back online over the weekend, with more opening on Monday and Tuesday in a planned staggered reopening.
It coincides with a busy week for US markets, which will see a raft of corporate results – including quarterly numbers from Apple, Facebook, Amazon and Exxon Mobil – and the Federal Reserve’s Open Market Committee meeting to discuss interest rates.
Talks will also start between the Republicans and Democrats over the ongoing border funding issues.
But analysts remain unconvinced, not least because Trump has made it clear he will shut the government down again “if we don’t get a fair deal from Congress” before 15 February. He has also not ruled out declaring a state of emergency.
Rabobank analysts noted that Friday’s stop-gap funding bill was signed without any progress in terms of securing the necessary Democrat support for a US-Mexico wall. "It is tempting to conclude that mounting public disaffection – and the country’s increasingly dysfunctional state, with LaGuardia Airport having to close briefly on Friday – forced the president to relinquish his leverage and allow the government to reopen.
“Irrespective of how this saga pays out, the fact that it is ongoing highlights the paralysis at the heart of US policymaking and, as clearly evidenced in the UK, the fact that populist agendas are resulting in gridlock on the part of polarised decision makers.”
US 10-year Treasury yields rose four basis points on Friday and remained flat on Monday, with Rabobank's analysts seeing a reversal as likely: “The pall this casts over the outlook for growth, not least owing to the confidence-sapping nature of this policy stasis, and the challenge to market sentiment implicit in the current populist bent to developed world politics tilt the odds firmly in favour of lower US yields.”
Lee Hardman, currency analyst at MUFG Bank, said: “US economists estimate that GDP could have been hit by between 0.2 to 0.5 percentage points [by the shutdown]. A further government shutdown would be an unwelcome development for the US economy, especially at a time when financial markets have been signalling heightened downside risks to the outlook.
“President Trump’s decision to bring [an] end to the shutdown has brought little relief for the US dollar so far. Fears over another imminent shutdown could still be placing a dampener on the US dollar.”
Monex agreed, arguing in a note: “The real effects to the economy are yet to be realised. However, with a global set to begin slowing own, the signs for the US dollar remains negative.”