From the FT:
US Senate leaders have struck a bipartisan deal to reopen the government and avert the threat of a debt default, putting both off for several months while Democrats and Republicans start negotiations on a new budget.
…Although they did not lay out how the deal would be passed through Congress, the early signs are that it could be done quickly, with Ted Cruz, the Republican from Texas, promising he would not delay a vote.
…The basic outline of the deal, as understood by analysts early on Wednesday, was that it would reopen the government until January 15 and raise the debt ceiling until February 7.
It would require negotiations to reduce the budget deficit to be completed by December 13, and would give government agencies more flexibility to arrange their budgets in line to comply with long term cuts in spending known as “sequestration”.
Under the current law, the agencies have little wiggle room to determine how the across-the-board cuts should be made. However, the overall, lower levels of government spending would be preserved.
…“I believe that John Boehner will likely be in a position where he will have to essentially pass the bill that is negotiated between Senators McConnell and Reid,” Charlie Dent, a moderate Republican congressman from Pennsylvania, told CNN on Tuesday. “And I believe that the House would first pass it then send it to the Senate.”
Stocks rallied 1% and bond yields fell over 1%, no doubt reaching the same conclusion that I have, that the taper is off on the fiscal saga. Short-dated Treasury yields tumbled but February immediately blew out. The Australian dollar broke out above 95.5 cents and gold and oil rose modestly but the US dollar held its ground.
The data for the night was modestly poor. The Fed Beige Book painted a relatively unchanged outlook in September, the NAPM Builder’s Confidence Index fell marginally but the MBA weekly mortgage results were more revealing with the shutdown prominent:
Mortgage applications increased 0.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 11, 2013.
The Market Composite Index, a measure of mortgage loan application volume, increased 0.3 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 0.4 percent compared with the previous week. The Refinance Index increased 3 percent from the previous week. The seasonally adjusted Purchase Index decreased 5 percent from one week earlier. The unadjusted Purchase Index decreased 5 percent compared with the previous week and was 1 percent lower than the same week one year ago.
“The government shutdown had a notable impact on the mortgage market last week. Purchase applications for government programs dropped by more than 7 percent over the week to their lowest level since December 2007, and the government share of purchase applications dropped to its lowest level in almost three years,” said Mike Fratantoni, MBA’s Vice President of Research and Economics. “Conventional purchase applications dropped as well, but not to the same extent, falling almost 4 percent for the week.”
The can kick is in but it’s not very far.
