During those six weeks, the Obama administration and the congressional Republicans would need to agree to reopen the government, implement some deficit-reduction measures and raise the debt ceiling by enough to last beyond 2014. But there is a risk that talks will become gridlocked and the markets will be worrying about the risk of default again come late November, Dales noted.
After all, a similar deal was struck when the debt ceiling was raised in mid-2011 and a “super committee” was asked to decide how to cut the deficit. But that committee was far from super and its failure to agree on anything triggered the crude sequestration spending cuts this year, as Dales pointed out. History could easily repeat itself.
The U.S. government partial shutdown, entering its 12th day, is already having impacts confidence and other survey measures.
The Reuters/University of Michigan Consumer Sentiment Index shed 2.3 points in mid-October to 75.2. Consumers’ expectations for the economy over the coming year fell 15 points. Initial jobless claims jumped by 66,000 in the week ended Oct. 5 -- 15,000 of those new unemployment claims were filed by furloughed federal contractors who, unlike furloughed government employees, cannot receive back pay once the shutdown ends.
Economic data releases remain light in the coming week as U.S. government-supplied data will generally not be released until the shutdown is over. While the official data are delayed, private-sector data continue to be released. Investors should keep a close eye on regional manufacturing surveys and the homebuilder survey.
Meanwhile, there are numerous speeches by Federal Reserve representatives scheduled for the coming week, including those by Fed Chairman Ben S. Bernanke on Monday and several other voters on the Federal Open Market Committee, or FOMC, on other days. Uncertainty emanating from Washington, coupled with a lack of data releases, has reduced the likelihood of a tapering of Fed asset purchases this year, according to Barclays.
Developments in Europe this week were overshadowed by the ongoing saga of the U.S. government shutdown and the associated concerns over the looming debt ceiling and a possible government default.
Washington’s shutdown drama is “unlikely to have major direct effects on the European economy and financial markets provided that it is resolved fairly quickly,” said Jonathan Loynes, chief European economist at Capital Economics. “Nonetheless, the episode has served as a timely reminder that euro-zone policymakers cannot necessarily rely on a smooth and seamless recovery in the global economy to pull the region further out of recession,” Loynes said.
Economic data in Europe next week could have a slightly more sober tone after the better news of recent weeks. Meanwhile, the Irish budget on Tuesday will show deficit-reduction plans on track. But Ireland may still need support to exit its bailout program this year.
A range of evidence suggests the U.K.’s economy is growing notably faster than the roughly 2.5 percent annualized pace suggested by official data. Bank of America Merrill Lynch economists estimate the unemployment rate could tick down to 7.6 percent with growth in the consumer price index easing to 2.5 percent.
It’s a holiday-shortened and unusually quiet week for Japanese data, although the markets will be focused in any event on the U.S. debt-ceiling debate given the potential impact on the yen. The final estimate of August industrial production on Tuesday is the only noteworthy release, according to Marcel Thieliant, economist at Capital Economics.
Investors will get an important batch of Chinese statistics, which will shed light on economic performance during the third quarter. The world’s second-largest economy’s growth has bottomed out after a slowdown in the first half of this year, but the momentum of the rebound that started in July is waning.
Chinese President Xi Jinping expressed confidence in the country’s near-term growth outlook and ongoing economic transformation at the recently concluded Asia-Pacific Economic Cooperation, or APEC, summit.
Xi reiterated that growth has been within a “reasonable and expected range,” and that slower growth is an intended result of the government’s efforts to rebalance and upgrade the economy. He noted “steady improvements” in the quality and efficiency of economic growth. Nevertheless, he acknowledged challenges from overcapacity, local government debt, shadow banking and external shocks.
Elsewhere, Singapore will release the advance estimate of its third-quarter gross domestic product, and Thailand has a scheduled monetary-policy meeting on Wednesday.
Below are entries on the economic calendar Oct. 14-18. All listed times are EDT.