What’s the Impact of US Government Shutdown on Markets & Stocks?

From the current situation in the US to oil and gambling stocks, Rebecca O’Keeffe, Head of Investment at interactive investor, shares some thoughts on this week’s news.

The huge importance of politics to equity markets might have led one to conclude that the US shutdown would be a negative factor for markets, but the bullet-proof nature of current markets, combined with limited economic impact on stocks that a shutdown delivers, has seen global markets shrug off any major concerns. The last US government shutdown in 2013 lasted sixteen days, during which the S&P 500 rallied 3.1% and the two prior shutdowns to that in 1996 and 1995 also resulted in gains for equity markets, so there is certainly precedent for investors to ignore these events. It is only if a protracted shutdown starts to impact consumer confidence and spending that investors are likely to sit up and take notice.

Gambling stocks have tumbled in early trade, after the weekend press suggested that the current government consultation might cut the fixed odds betting limit to just £2. Gambling companies have made hundreds of millions of pounds a year from fixed odds betting terminals and were hoping that the minimum stake would be towards the middle of the £2 and £50 consultation range. Although the consultation does not end until tomorrow, the suggestion that the response to the survey has been overwhelmingly in support of a cut to the minimum £2 means that this is indeed a significant threat to bookmakers.

In Germany, it looks like the stalemate that has afflicted German politics since September may finally be reaching a resolution, after the SPD voted to engage in coalition talks with Angela Merkel and her party. This vote will hopefully ensure that a repeat election can be avoided and should allow Chancellor Merkel to retain her place as a key lynchpin of the European Union and a major player in any Brexit talks.

Oil prices are on the rise this morning, as Opec and Russia have signalled their intent to co-operate on supply beyond the current deal terms. However, OPEC and Russia are just one half of the supply story, as producers in the US, Canada and Brazil are all expected to ramp up output in response to higher oil prices. With these new dynamics in the oil market, the possibility of higher supply is a major downside risk for the oil price.