Finally after 16 days of shutdown congress finally passed legislation to raise the debt ceiling until 2014, allowing the US government to re-open and delaying the immediate fear of default for the time being; budget negotiations have been pushed back to December 13th and government spending until January 15th 2014. Last night’s vote passed by wide margins in both the senate and the house brings a brief respite from weeks of political mudslinging and providing the government with more than cash to pay its debt. President Obama described the situation as “Raising the cloud of uncertainty”, it appears however the cloud has been just moved slightly further down the road, with Tea-party members re-affirming their commitment to keep fighting Obamacare spending.
With US debt placed on negative outlook my Fitch and the government grinding to a halt, the tactics taken by both sides over the last four weeks should offer no optimism for the delayed budget negotiations, with both sides in particular the Republicans demonstrating the lengths they are willing to go to force their agendas. The volatility and uncertainty over the last few weeks has shaved 0.6 percent from Q4 GDP and $24 billion out of the economy per Standard & Poor’s. Republican may have done irreversible damage to future election hopes after appearing to shoot themselves in the foot, public sentiment strongly places the majority of the blame on them.
The announcement did lead to huge relief for Asian equities with governments petitioning the US to avert a possible default, the MSCI Asia Pacific Index rose 0.7 percent. Dow futures however are currently trading down, after such a rally in anticipation of a deal, investors appeared positioned for the announcement and the markets could well suffer the hangover today.