Government Shutdown: No CFTC, but SEC stays open

If you’ve been living under a rock the past week, you might not know that the federal government is in day one of shutdown. If you’re on social media – you sure as heck know it’s happening what with the twitter/facebook/social media world exploding. Except of course the government tweeters (all social media accounts controlled by the government have stopped tweeting… talk about non-essential).

Here’s what it came down to: the GOP controlled House is still attempting to delay/defund/repeal The Affordable Care Act, better known as Obamacare 4 years after it was passed, and Democrats controlling the Senate refuse to repeal the law. Jon Stewart on the Daily Show had a good breakdown of it last night:

John Stewart Government Shutdown

While the media is abuzz on how this will affect your personal life, we’re left wondering how it’s going to play out in the futures markets?

From a regulatory standpoint, the CFTC is shut down (although an email was sent out to NFA members giving the cell phone numbers of four CFTC staff in case of emergency), meaning we’re not likely to see any FCM fines for a few days, while the NFA (a self regulatory organization) remains open for business.  The SEC remains open also, with  a spokesperson with the SEC saying they have enough left over funds to stay open during the shutdown.

Reaching past regulations of our industry, the New York Times has put together a list of federal employees who are allowed to work during the shutdown (fish hatchery employees being one group).

Interestingly enough, the biggest impact the shutdown could have on the markets is on livestock and dairy futures. The Wall Street Journal reports the CME may have to change or modify its settlement procedures because no one’s working over at the USDA…

“The October 2013 contracts for live cattle, lean hog, feeder cattle futures and options, as well as milk, butter, whey, cheese and nonfat dry milk futures and options for September 2013 could potentially be impacted by the lack of pricing information from the U.S. Department of Agriculture. The USDA is furloughing staff who produce numerous daily and weekly reports on cash prices for agricultural products as a result of the partial government shutdown that began Tuesday.

CME said some of its dairy and livestock futures contracts are cash settled at their expiration, based on USDA price data. A prolonged government shutdown, it said in a letter Tuesday to customers, “may require the exchange to modify the current settlement procedures” for the affected contracts.”

So there’s not need to panic just yet, but the possibility is there…

Luckily for the Ag commodities, the crop report was released yesterday, so there shouldn’t be much of a hiccup (unless this shutdown lasts longer than expected). However, investors relying on economic reports for their index futures aren’t so lucky. The new jobs report is supposed to be released this Friday, but the Associated Press reports the U.S. Labor Department has no plans to release the data during the shutdown.

As for immediate market reaction – it’s predictably unpredictable, as always, with stock indices up rather handily (+1% on average). Metals seem to be taking the brunt of the pain today, (Gold down -2.7%, Silver -4.24%, Copper -1.69% – past performance in not necessarily indicative of future results), leading Josh Brown to quip:

Reformed Broker Tweet

And all this may just be a prelude to the coming  Debt Ceiling debate in just a couple weeks. The worst case scenario would be the federal government still shutdown, yet somehow needing to figure out the debt ceiling at the same time!  Now, normally we would be cheering on the volatility – but the sort of whipsaw, hour by hour volatility that seems to come with these sorts of debates/votes usually isn’t kind to managed futures. What would be much better would be if this is the tip of the iceberg – creating longer term directional volatility (like a large 6 month move in bond prices, 3-4 month rally in the USD, etc.)

P.S. – There was one other positive outcome from the shutdown… There was a hashtag created for Government shutdown pick up lines


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