- Mike Johnson was elected by House Republicans on Wednesday
- A deal to keep the US government open expires on Nov. 17
The election of Mike Johnson — a prominent supporter of Donald Trump — ends weeks of acrimony over who should lead the US House following Kevin McCarthy ouster earlier this month after McCarthy brokered a deal to keep the government open. That deal expires Nov. 17, and Johnson has said he’s in favor of a stopgap bill that would push that deadline to either Jan. 15 or April 15. Conservatives in the House are already demanding spending cuts be attached to such a temporary measure, however.
Odds published by Kalshi Inc., a derivatives exchange that lets people wager on events, show a 33% likelihood of the government grinding to a halt in November, down from 67% earlier this month.
There’s about a one-in-three chance of a shutdown, according to Kalshi
That’s some comfort to traders who’ve been angsting over the degree to which a shutdown could knock the US economy, and by extension, American asset prices. A shutdown of two or three weeks would reduce GDP growth in the fourth quarter by around 0.5 percentage points, according to Goldman Sachs Group Inc. economists.
Here is what some on Wall Street are saying:
Peter van Dooijeweert, head of defensive and tactical alpha at Man Group:
Markets seem largely to have ignored the drama in the House as a bit of a sideshow to everything else going on in the world. However, given Johnson is backing a continuing resolution to fund the government through Jan. 15 or April 15, his election is a mild market positive as it puts off the budget battle and possible government shutdowns.
Chris Zaccarelli, chief investment officer at Independent Advisor Alliance:
It is a good sign that all Republicans voted for him… The new speaker is likely going to get an extension, so that they can work on a more permanent solution to the spending problems in Washington, and ultimately we may still have a shutdown next year, but in the meantime a government shutdown in 2023 should be one less thing to worry about.
Aaron Hurd, a portfolio manager at State Street Global Advisors:
It dramatically reduces the risk of shutdown… It does modestly increase the chance that the Fed hikes one last time by year-end, maybe to a 35%-40% chance of another hike. I doubt they would have hiked if we were in a shutdown.
Helen Given, an FX spot trader at Monex USA:
Having a speaker of the House at all brings down the risk of a shutdown, since the House will theoretically at least ‘get back to business.’ This particular speaker, however, does add back in some of that risk since his track record isn’t exactly one of compromise. My take: we’re back to where we were mid-September… If a shutdown remains short (or even doesn’t materialize), the risk to US dollar strength is pretty minimal.
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Zachary Griffiths, a senior fixed-income strategist at CreditSights Inc.:
There’s really no threat of default like there is with the debt ceiling… In 2018-19, we did see some spread widening but I don’t think there was any material reaction in the T-bill market directly related to it because there is no issue regarding the issuing or repaying of debt in the short term.
Solita Marcelli, chief investment officer Americas at UBS Global Wealth Management:
The outlook for Treasury yields will ultimately depend on the growth trajectory of the US economy, and the political drama will only be a side note… Whether a government shutdown will occur in November or not, and regardless of whether the landing is ultimately hard or soft, US and global economic activity will slow and inflation will moderate over the next year, boosting demand for high-quality bonds.
Paresh Upadhyaya, director of currency strategy at Amundi:
With House Republicans unanimously supporting Johnson to be the new speaker, it does reduce the risk of a government shutdown. With that, it continues to keep the momentum in the US economy going. Any evidence that we’ll see an appreciable slowdown going into Q4, those risks have fallen. Until we see signs that global growth is recovering, or the US is failing to match global growth, it’s tough to see a bear market for the dollar.
Lauren Goodwin, economist and portfolio strategist at New York Life Investments:
The election of a speaker does not materially change our view on a shutdown in Q4… For now, we view a government shutdown in November as a toss up, but the increase in broader risks in recent weeks make any shutdown likely to remain shorter, meaning it would have a smaller impact on aggregate economic outcomes.