Financial shutdown impact widens

Nobody has blinked yet in the US budget standoff and lawmakers seem further from rather than closer to reaching an accord, bolstering concern about another political hot potato-the need to raise the federal government's debt ceiling to avoid default.

The partial shutdown of the government as a result of the budget stalemate is now headed into its second week. A two-week closure could cut 0.25 percentage point off fourth-quarter economic expansion, according to Federal Reserve Bank of San Francisco President John Williams.

"With the government shutdown and all of the uncertainty around it, we're pretty sure there will be additional negative impact on economic growth," in particular on consumer spending, Natalie Trunow, chief investment officer of equities at Calvert Investment Management, told Reuters.

Last week, the Standard & Poor's 500 Index slid almost 0.1 per cent, while the Dow Jones Industrial Average fell 1.2 per cent. The Nasdaq Composite Index rose 0.7 per cent over the past five days.

Still, optimism prevails that a deal will be done. On Friday, Wall Street closed higher, with the Dow rising 0.51 per cent, the S&P 500 gaining 0.71 per cent, and the Nasdaq adding 0.89 per cent.

"There will not be a default, we'll find some way to raise the debt ceiling, and government workers will go back to work. In a few weeks it's not going to have any impact," Mackintosh Pulsifer, vice chairman and chief investment officer of Fiduciary Trust Co International in New York, told Bloomberg News.

Gold slid 0.6 per cent on Friday, bringing its decline for the week to 2.2 per cent.

"Money seems to be chasing equities," Phil Streible, a senior commodity broker at RJ O'Brien & Associates in Chicago, told Bloomberg News. "Gold does not seem to be attracting the safe-haven premium."

Investors had to make to do without the latest monthly government payrolls data, which could not be released on Friday as originally scheduled because of the shutdown.

Reports scheduled for the coming days include consumer credit data, due Monday, trade balance, due Tuesday, wholesale inventories, due Wednesday, initial jobless claims, due Thursday, followed by consumer sentiment, retail sales, producer price index, and business inventories, all due Friday. It's unlikely, though, that any of the government data will be released.

As a result, there will be heightened interest in this week's speeches by policy makers.

On Tuesday, Cleveland Fed President Sandra Pianalto will speak on the economy and monetary policy in Pittsburgh, while Philadelphia Fed President Charles Plosser will talk about the economy to the Johnstown Chamber of Commerce.

On Thursday, St. Louis Fed President James Bullard will make opening remarks at a conference in St. Louis, while San Francisco Fed President John Williams will give a speech to business leaders in Boise, Idaho.

Investors also will have to contend with the third-quarter reporting season which is set to start in the days ahead with Alcoa, Costco, Safeway, JPMorgan Chase, and Wells Fargo among the first wave.

Third-quarter earnings are expected to grow 4.5 per cent, according to Thomson Reuters data.

Meanwhile, BlackBerry is in talks with Cisco Systems, Google and SAP about selling them all or parts of itself, Reuters reported on the weekend, citing several sources close to the matter. It is unclear which parties will bid, if any. Google, Intel, Cisco, LG and SAP declined to comment, Reuters said.

In Europe, the Stoxx 600 declined 0.7 per cent last week.

The latest data scheduled for release include euro-zone second-quarter GDP, due Monday, German factory orders and trade balance, due Tuesday, German industrial production, due Wednesday, and German CPI on Friday.