Business News

CCTV Script 22/01/18


— This is the script of CNBC's news report for China's CCTV on January 22, Monday.

On Saturday, President Donald Trump and Republican lawmakers were locked in a standoff with Democrats over the U.S. government shutdown. Democrats stuck to demands that any short-term spending legislation must include protections for young undocumented immigrants -- known as "Dreamers." Republicans in turn said, they would not negotiate on immigration until Democrats gave them the votes needed to reopen the government. Funding for federal agencies ran out at midnight on Sunday with no agreement in the Senate, meaning the second year of Trump's presidency began without a fully functioning government.

Now here comes the question - what happens to the U.S. economy during the government shutdown?

During a shutdown, nearly 40% of the government workforce is placed on unpaid furlough and told not to work. Many, but not all, are non-defense federal employees. Active duty military personnel are not furloughed.

When the last time the government shutdown in 2013 for 16 days, the U.S. economy took a $24 billion hit, according to Standard & Poor's analysis. This year's government shutdown could cost the U.S. about $6.5 billion a week -- that includes loss in productivity, closure of national parks and museums, and projects' suspension at federal departments like NASA.

Then the next question is how would the dollar and financial markets react?

Historical record suggested that government shutdowns have had a limited lasting effect on the market. If we review 18 shutdowns dating back to 1976, we can see that markets have shown modest weakness during those shutdowns, with the S&P 500 falling an average of 0.6% over the period of the closure. Other assets, including the dollar, would fall initially but then covered its losses in the next few trading days.

As a result, until major government contractors experience direct financial impact from the shutdown, the markets potentially could brush off the shutdown as Washington being Washington.

However, we have heard concerns of some investors, who argue that this government shutdown could trigger a market correction, if it were to last longer than expected. In fact, the market has not seen a 5% correction for the past year, which might result in market sentiment becoming relatively sensitive.

[Brett McGonegal, CEO Capital Link International] "I there there's a little fear in the market just because the move that markets had."

"At the end of the day, that fear is not really.. I dont think it translates directly into the market. But I do think what it shows is some sentiment is very fragile right now about buying thingings at extended levels."

Now, Trump, along with a long list of his administration officials, could be forced to skip their trip to the World Economic Forum in Davos, if the shutdown drags on, according to Office of Management and Budget Director Mick Mulvaney.

According to administration officials, Trump could still make the trip late in the week if the shutdown ends in time.

At the annual Swiss Alps schmooze-fest, Trump is slated to speak toward the end of the summit, which begins Tuesday and runs through Friday.

But plans for the entire Trump delegation are in flux. The Senate has another vote scheduled for Monday at noon to reopen the government but passage is not assured.

CNBC's Qian Chen, reporting from Singapore.