The Week Ahead: Government Shutdown Hogs Spotlight; Potential Jobs Report Delay

- Congress must pass stop-gap by midnight to avoid shutdown.  Senate back in session at 2pm ET

- Shutdown prospects currently hurting stocks and helping bonds (stocks more affected overall)

- Any length of shutdown could affect NFP (in that it wouldn't be reported this Friday)

- Chicago PMI is the only relevant data today, and likely overshadowed by headlines and month/quarter-end trading

Strategy

A lot about how the week shapes up depends on what happens by midnight tonight with respect to the 'government shutdown.'  The government agency responsible for the Employment Situation Report, the Bureau of Labor Statistics (BLS), said they would not be updating their website in the event of a shutdown. 

Some news outlets are reporting that we would not have a jobs report if the government shutdown goes through on Tuesday morning, but the BLS also noted that it could release data that had already been collected.  In the case of the jobs report, the relevant surveys have already taken place, so it's not entirely clear how the report would be affected.

Whether the report is going to happen this Friday or not, the uncertainty about that fact takes a toll itself.  So far that toll has mostly been seen in the form of lower stock prices, and perhaps marginal improvements for Treasury yields.  Additionally, the data that does manage to report this week stands a chance to be less meaningful than it otherwise would be outside the shadow of fiscal drama. 

11th hour resolutions are just about the only kind we've seen over the past few years, so it's premature to expect a resolution any time much before the deadline.  The Senate isn't even scheduled to reconvene until 2pm Eastern, even though the House has drafted a bill that the Senate will likely amend and send back to the house. 

The 2pm target time would seem to suggest that the game-plan is to be working until midnight tonight.  Even if it's only a stop-gap to avoid a shutdown, it risks a bit of a relief rally for equities and a correction for bond markets.  We'll cross that bridge if we come to it tomorrow morning.

Charts

Interest rates have made an impressive move lower from recent 2-year+ highs.  It's not unlike the corrections seen in 2009 and 2011.  In fact, most instances of 10yr yields moving higher at a similar pace look similar with respect to the chart below in that they make similarly-sized gaps above the 4-mo moving average and encounter similar resistance upon their first meaningful move back toward the moving average.

The only difference this time is that we're a few days or weeks too early to see such a bounce, not to mention the whole "unprecedented nature" caveat (i.e. 2013 is the first time we've even considered the prospect of beginning to dial back unprecedented, open-ended Fed asset purchases in bond markets).  In other words, don't look at the following chart as an argument for impending weakness.  Rather, if Congress pulls the same old 11th hour rabbit out of wherever they keep those rabbits, and if bond markets react like they might, then this sort of move becomes a risk.  Thankfully, it would still be predicated ultimately on the upcoming jobs report, which may or may not be this Friday depending on how soon we see that rabbit.