Shares slide on fears of a US shutdown

Investors on Wall Street fled the stock markets on Monday, triggering sharp declines on major indices as political gridlock in Washington looked set to force a partial shutdown of the US government for the first time in nearly two decades.

With Republicans and Democrats unable to bridge their differences and authorise a stopgap budget to fund government departments past a deadline of midnight last night, the Dow Jones Industrial closed around 1 per cent or 128.57 points lower at 15,129.67, as investors sold stocks on worries about the impact that a shutdown would have on the still fragile US economy. The S&P 500 and the Nasdaq index were also lower as Republicans in the House of Representatives refused to budge on their demand that the budget measure include an amendment to delay President Obama’s healthcare reforms by a year. The Democrats, who control the Senate, meanwhile signalled their unwillingness to compromise over the President’s signature policy.

The result: as traders arrived at their desks on Wall Street, the US government seemed all but certain to partially shut down at midnight, when the current budget measure was due to expire.

Without a stopgap measure, US government departments will have no choice but to put hundreds of thousands of non-essential workers on unpaid leave and suspend a host of services. While estimates vary, as many as 800,000 workers could be affected.

According to analysts, a three to four-week shutdown could drive growth in the US in the final three months of the year down by as much as 1.4 per cent.

Many are also growing jittery about resolving an even more consequential issue that comes up in mid-October: the US debt ceiling, with the federal government set to exhaust its Congressionally-mandated borrowing limit by 17 October. A failure to raise the limit would trigger a disastrous debt default.