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US shares hit by the threat of a shutdown | US shares hit by the threat of a shutdown |
(about 1 hour later) | |
Shares in New York are trading lower as the prospect of a shutdown of some US government activities looks increasingly likely. | |
The Dow Jones and S&P 500 both fell 1% shortly after the open, but then recovered some lost ground. | |
The deadlock also unsettled European stock markets, already nervous about the political crisis in Italy. | |
The US needs to agree a new spending bill before the financial year ends at midnight on Monday. | The US needs to agree a new spending bill before the financial year ends at midnight on Monday. |
But political divisions have resulted in a stalemate and there are worries over the economic impact of a shutdown of the US government. | But political divisions have resulted in a stalemate and there are worries over the economic impact of a shutdown of the US government. |
If the government does shut down on 1 October, as many as a third of its 2.1 million employees are expected to stop work - with no guarantee of back pay once the deadlock is resolved. | If the government does shut down on 1 October, as many as a third of its 2.1 million employees are expected to stop work - with no guarantee of back pay once the deadlock is resolved. |
National parks and Washington's Smithsonian museums would close, pension and veterans' benefit cheques would be delayed, and visa and passport applications would be stymied. | National parks and Washington's Smithsonian museums would close, pension and veterans' benefit cheques would be delayed, and visa and passport applications would be stymied. |
Programmes deemed essential, such as air traffic control and food inspections, would continue. | Programmes deemed essential, such as air traffic control and food inspections, would continue. |
Unemployment report | |
Investors will be keen to know if Friday's job report will be released. | |
The monthly non-farm payrolls report is one of the most closely watched pieces of US economic data. | |
Employees at the Labor Department's Bureau of Labor Statistics (BLS), who prepare the report, would be among those who would stood down in the event of a shutdown. | |
"All survey and other program operations will cease and the public website will not be updated," said Erica Groshen, commissioner of the BLS, said in a memo published on the department's website. | |
Deadlock | |
Republicans are targeting President Barack Obama's healthcare law, popularly known as Obamacare. | Republicans are targeting President Barack Obama's healthcare law, popularly known as Obamacare. |
Early on Sunday, the Republican-run House of Representatives passed an amended version of the Senate spending bill that removed funding for the healthcare law. | Early on Sunday, the Republican-run House of Representatives passed an amended version of the Senate spending bill that removed funding for the healthcare law. |
US Senate Majority leader Harry Reid has vowed that his Democrat-led chamber will reject the Republican bill. | US Senate Majority leader Harry Reid has vowed that his Democrat-led chamber will reject the Republican bill. |
"Tomorrow, the Senate will do exactly what we said we would do and reject these measures," said Adam Jentleson, a spokesman for Senate Majority Leader Harry Reid. | "Tomorrow, the Senate will do exactly what we said we would do and reject these measures," said Adam Jentleson, a spokesman for Senate Majority Leader Harry Reid. |
"At that point, Republicans will be faced with the same choice they have always faced: put the Senate's clean funding bill on the floor and let it pass with bipartisan votes, or force a Republican government shutdown." | "At that point, Republicans will be faced with the same choice they have always faced: put the Senate's clean funding bill on the floor and let it pass with bipartisan votes, or force a Republican government shutdown." |
Speaking for the president, White House spokesman Jay Carney said: "Any member of the Republican Party who votes for this bill is voting for a shutdown." The president, he said, would also veto the Republican bill. | Speaking for the president, White House spokesman Jay Carney said: "Any member of the Republican Party who votes for this bill is voting for a shutdown." The president, he said, would also veto the Republican bill. |
Uncertain Italy | Uncertain Italy |
Meanwhile European financial markets have been upset by a deepening political crisis in Italy. | Meanwhile European financial markets have been upset by a deepening political crisis in Italy. |
Italian shares are down 1.5% and the euro fell to the lowest level since June against the Swiss Franc. | Italian shares are down 1.5% and the euro fell to the lowest level since June against the Swiss Franc. |
Italy's 10-year bond yield - an indication of how much the government has to pay to borrow money - rose as high as 4.66%, the highest level in more than three months. | Italy's 10-year bond yield - an indication of how much the government has to pay to borrow money - rose as high as 4.66%, the highest level in more than three months. |
Prime Minister Enrico Letta plans to hold a confidence vote on Wednesday, to seek the backing of Italy's parliament. | Prime Minister Enrico Letta plans to hold a confidence vote on Wednesday, to seek the backing of Italy's parliament. |
He was forced to make that move after five ministers from Silvio Berlusconi's party stepped down at the weekend. | He was forced to make that move after five ministers from Silvio Berlusconi's party stepped down at the weekend. |
But those ministers have now given mixed signals as to whether they are actually leaving the government. | But those ministers have now given mixed signals as to whether they are actually leaving the government. |
The crisis follows weeks of worsening ties between Mr Berlusconi's party and Mr Letta's grouping. | The crisis follows weeks of worsening ties between Mr Berlusconi's party and Mr Letta's grouping. |
Mr Berlusconi's People of Freedom (PDL) objects to a planned increase in sales tax, which is part of a wider government policy to reduce big public debts. | Mr Berlusconi's People of Freedom (PDL) objects to a planned increase in sales tax, which is part of a wider government policy to reduce big public debts. |
The government has also been struggling with a deteriorating economy. | The government has also been struggling with a deteriorating economy. |
It is forecast to shrink by 1.4% this year according to the national statistics agency. | It is forecast to shrink by 1.4% this year according to the national statistics agency. |
The agency also estimates that unemployment will reach a record high of 12.3% next year. | The agency also estimates that unemployment will reach a record high of 12.3% next year. |
'Fear of the unknown' | 'Fear of the unknown' |
Earlier on Monday, Worries over the US shutdown had hit Asian shares. | Earlier on Monday, Worries over the US shutdown had hit Asian shares. |
Japan's Nikkei 225 index closed 2% lower, Hong Kong's Hang Seng was down 1.5%, Australia's ASX fell 1.7%, while South Korea's Kospi shed 0.7% | Japan's Nikkei 225 index closed 2% lower, Hong Kong's Hang Seng was down 1.5%, Australia's ASX fell 1.7%, while South Korea's Kospi shed 0.7% |
"It is the fear of the unknown," said David Kuo of financial website the Motley Fool. "No one knows what is really going to happen and markets don't like uncertainty." | "It is the fear of the unknown," said David Kuo of financial website the Motley Fool. "No one knows what is really going to happen and markets don't like uncertainty." |
"There is likely to be some reduction in US government spending, but we don't know what areas are going to be affected. | "There is likely to be some reduction in US government spending, but we don't know what areas are going to be affected. |
"Until that is resolved, we are likely to see volatility in the markets," he added. | "Until that is resolved, we are likely to see volatility in the markets," he added. |