16 Oct 2013
European open: debt ceiling deadline looms but markets not panicking yet
FXstreet.com (London) - Although the week started on optimism that Congress was ready to thrash out a plan that would extend the debt ceiling ahead of the 17 October deadline, negotiations fell apart yesterday evening with both House and Senate plans meeting opposition.
A vote had been set to go ahead in the House following a plan tabled by Republican leaders that would fund the government through to 15 December and extend the debt ceiling until 7 February. The pan included provisions to strip the Treasury of its “get out of jail free card” ability to avoid default should the US hit the debt ceiling on future occasions. It would also strip elected officials and political appointees of healthcare subsidies.
Though heavily watered down from conditions demanded by the GOP at the beginning of the stand-off, Senate Democrats aid they would defeat the bill if it passed the House, however it didn’t even get that far, with Tea Party Republicans in the House again rebelling against John Boehner over funding of the Affordable Care Act.
We are set for a nervous day in the markets, with the US set to hit the debt ceiling deadline at midnight tonight. However, it is highly unlikely that Republican leaders will be able to draft a plan that pleases both Tea Party Republicans and Democrats, pass it through the House and Senate in time to beat this.
Although the Treasury will exhaust its spending ability at midnight tonight, it represents a soft ceiling, with no debt payment due until 31 October. Social security payments are due on 23 October.
Despite the looming deadline, markets have yet to show signs of real panic. Predictably, Treasury bills have spiked, with 31 October bills yielding 0.54 percent, up 21bps since the beginning of the shutdown.
Equities fell slightly – the S&P lost 0.71 percent and the Dow Jones lost 0.87 percent. However, Asian markets held up this morning, with the Nikkei up 0.18 percent.
EUR/USD lacks conviction, trading flat at USD1.3521.
USD/JPY is up 0.25 percent to JPY98.4640 despite debt ceiling worries.
A vote had been set to go ahead in the House following a plan tabled by Republican leaders that would fund the government through to 15 December and extend the debt ceiling until 7 February. The pan included provisions to strip the Treasury of its “get out of jail free card” ability to avoid default should the US hit the debt ceiling on future occasions. It would also strip elected officials and political appointees of healthcare subsidies.
Though heavily watered down from conditions demanded by the GOP at the beginning of the stand-off, Senate Democrats aid they would defeat the bill if it passed the House, however it didn’t even get that far, with Tea Party Republicans in the House again rebelling against John Boehner over funding of the Affordable Care Act.
We are set for a nervous day in the markets, with the US set to hit the debt ceiling deadline at midnight tonight. However, it is highly unlikely that Republican leaders will be able to draft a plan that pleases both Tea Party Republicans and Democrats, pass it through the House and Senate in time to beat this.
Although the Treasury will exhaust its spending ability at midnight tonight, it represents a soft ceiling, with no debt payment due until 31 October. Social security payments are due on 23 October.
Despite the looming deadline, markets have yet to show signs of real panic. Predictably, Treasury bills have spiked, with 31 October bills yielding 0.54 percent, up 21bps since the beginning of the shutdown.
Equities fell slightly – the S&P lost 0.71 percent and the Dow Jones lost 0.87 percent. However, Asian markets held up this morning, with the Nikkei up 0.18 percent.
EUR/USD lacks conviction, trading flat at USD1.3521.
USD/JPY is up 0.25 percent to JPY98.4640 despite debt ceiling worries.