Fear of shutdown remains: US budget situation depresses mood on Wall Street

Fear of shutdown remains
US budget situation depresses sentiment on Wall Street

October 2, 2023, 11:02 p.m

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The divisions between Republicans and Democrats in the US Congress are still deep. There will be no shutdown, but there is no sustainable solution to the debt dispute. Investors are correspondingly cautious. But there is a surprise: While the Dow Jones and S&P 500 are falling, Bitcoin is rising.

The US indices have failed to find common direction after a series of dates. Investors tried, among other things, to interpret the outlook for the US budget plan after the approval of bridge financing. The Dow Jones index of standard stocks was 0.6 percent lower at 33,321 points. The broader S&P 500 fell 0.3 percent to 4,275 points and the Nasdaq technology exchange index fell 0.4 percent to 13,271 points. The interim budget approved at the weekend will initially secure the financing of federal authorities and institutions until November 17th. If there is no agreement between the Republicans and Democrats by then, the important institutions will face another forced break.

“The joy about the shutdown in the USA being averted for the time being didn’t last long. The problem lies in the emphasis on ‘for now’. Short-term uncertainty is now just changing into medium-term uncertainty,” commented Konstantin Oldenburger, analyst at broker CMC Markets. “The rifts between Democrats and Republicans in the US Congress are simply too deep to find a sustainable solution to the debt dispute. And politically, there is now more at stake than ever before.” Therefore, share prices on the stock exchanges are likely to remain volatile in the coming weeks.

At the same time, the latest economic data limited the losses. The purchasing managers’ index for US industry rose by a surprisingly strong 1.4 points to 49.0 points in September. This is the highest value since November 2022. This means that the barometer, which is closely followed on the financial markets, is approaching the 50 mark, above which it signals growth. However, analysts were cautious.

Bitcoin is climbing

“Overall, U.S. manufacturing appears to be past the worst, but the outlook remains subdued – particularly given the weak global economy,” said Paul Ashworth, chief economist at analyst firm Capital Economics. Nevertheless, hopes for economic growth spurred Bitcoin, which climbed by a good four percent to $28,033. “It is and remains the hope of investors that the simmering concerns about inflation and interest rates could lose momentum,” said Timo Emden from the analysis house Emden Research. The eagerly awaited speech by the head of the US Federal Reserve, Jerome Powell, did not provide any new information about the further monetary policy course of the monetary authorities.

The chairman did not comment on current monetary policy or the economic outlook in his brief opening speech at a roundtable discussion in the US state of Pennsylvania. Fed Director Michelle Bowman, however, said during a conference that she would support further interest rate hikes if inflation declines too slowly. The monetary policy fears prompted investors to throw US government bonds out of their portfolios. In return, the yield on ten-year bonds reached a new 16-year high of 4.689 percent.

The two-year bonds, which best reflect interest rate expectations, yielded 5.108 percent. Expectations that interest rates may continue to rise also supported the US currency. The dollar index climbed 0.6 percent to 106,818 points. Meanwhile, profit-taking and the strong US currency in which raw materials are traded depressed oil prices. The North Sea variety Brent and the light US variety WTI each fell by almost two percent to 90.74 and 89.08 dollars per barrel (159 liters). Growth stocks were in demand among companies. The shares of Apple, Meta, Amazon and Alphabet gained between a good one and almost two percent.