The U.S. government shutdown headed into its 20th day Thursday, the second longest on record, after President Donald Trump called a meeting with Democratic lawmakers last night "a total waste of time" as the two sides refused to concede ground on the funding of a wall along the border with Mexico.
House Speaker Nancy Pelosi and Senate Democratic leader Chuck Schumer held a brief meeting with Trump in the White House Wednesday but failed to find any consensus on the budget impasse that has kept some 800,000 Federal employees at home since December 22. Pelosi has offered a bill that would fund the government until February without border wall funding, but the Republican Senate Majority Leader Mitch McConnell has said he won't call a vote for any legislation that the President will refuse to sign.
Market impact from the shutdown, however, has been largely muted, with only the U.S. dollar finding it difficult to maintain poise amid a near 2% decline against a basket of six global currencies since late December.
Much of that move, of course, has been triggered by the suddenly-dovish tilt of the U.S. Federal Reserve, which is now preaching "patience" on rate hikes just two weeks after signalling twin increases in borrowing costs for this year alone.
"The US government shutdown isn't helping the dollar," said ING's global head of strategy Chris Turner, as it is "muddying the data and adding to fears of the typical 1Q soft patch in US GDP. The Fed pause has ushered in a period of position adjustment in the dollar (including against the low yielders) and it's hard to stand in the way of it right now."
Perhaps more interesting, however, is the reaction of U.S. equities and the S&P 500 I:GSPC , which have risen 7% since the close of trading on December 21 and have posted the biggest gain of any U.S. government shutdown since 1976.
The longest on record -- the 1995 shutdown under President Bill Clinton -- clipped a total of 0.8% from the S&P 500 over the 22 days that ended on November 19 of that year.
U.S. equity futures suggest the four-day rally on Wall Street, the longest winning streak since September, may not extend into the Thursday session as contracts tied to the Dow Jones Industrial Average I:DJI indicate a 110 point decline and those linked to the S&P 500 I:GSPC suggest an 11 point pullback for the broader benchmark.
President Trump's threat to declare a national emergency along the southern border, however, and tap military funds to start construction of a barrier between the U.S. and Mexico, has the potential to deepen the crisis and trigger a broader market reaction as investors head into the thick of the corporate earnings season next week.
Further delays in the processing of annual tax returns could also suspend the release of 2018 rebate checks from the Internal Revenue Service, adding to pressure on consumer spending in the traditionally barren months of January and February.
Economic data releases are also being complicated by the shutdown, either through suspension (owing to closed government agencies, as is the case in housing) or through unemployment claims from furloughed Federal employees.
"Long shutdowns are rare, so we don't have many previous experiences to use as a guide," said Ian Shepherdson of Pantheon Economics. "Some 800,000 workers were furloughed in October 2013, during a 16-day shutdown, but the Labor Department reckoned that jobless claims rose by only about 15,000 as a result. And the December 1995 shutdown, which also put about 800,000 people temporarily out of work, generated no visible hit in the claims numbers."
A further concern from the shutdown was expressed by Fitch Ratings, which warned that if the current impasse triggers another debt ceiling breach, the country runs a record deficit and pushes overall borrowing past $22 trillion.
The U.S. debt ceiling is set to be reinstated on March 2 at $22 billion, but Democrat lawmakers in Congress are hoping to pass a so-called Gephardt rule that would allow the House to suspend it in parallel with the passage of a budget spending bill.
Republicans in the Senate, however, are unlikely to agree to such a measure, setting up the prospect of a the U.S. Treasury being unable to make debt payments to domestic and foreign creditors in the event of an extended government shutdown.
"From a rating point of view it is the debt ceiling that is problematic," Fitch's global head of sovereign ratings James McCormack said. "If this shutdown continues to March 1 and the debt ceiling becomes a problem several months later, we may need to start thinking about the policy framework, the inability to pass a budget ... and whether all of that is consistent with triple-A"