by Calculated Risk on 10/02/2013 07:34:00 PM

From Gavyn Davies at the Financial Times blog: Why have markets ignored Washington risk?

Turning to the latest political shenanigans in Washington, risk committees all over the financial world are undoubtedly thinking hard about how to hedge these risks. No-one believes that a temporary shut-down in some government activities is critical, but the debt ceiling is seen as a different matter entirely. A default by the US government on its debt payments could be very disruptive, and set in train a series of events which would be hard for the authorities subsequently to control.

However, the risk committees will have started with a strong pre-disposition to believe that the US democratic process will not entirely take leave of its senses, though much brinkmanship could be involved in the meantime. They will also know that the US political process has it within its power to end the uncertainty at very short notice when political calculations change. This is not a case of “can’t pay”, it is a case of “won’t pay”.

To a sensible outside observer, it seems improbable that enough members of Congress would act against the interests of the US to trigger a “won’t pay” catastrophe.
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Hopefully, though, another feedback loop – between the politicians and their voters – will kick in before the markets need to react.

Thursday:
• Early, Reis Q3 2013 Mall Survey of rents and vacancy rates.

• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 313 thousand from 305 thousand last week.

• At 10:00 AM, the ISM non-Manufacturing Index for September. The consensus is for a reading of 57.0, down from 58.6 in August. Note: Above 50 indicates expansion, below 50 contraction.

• Also at 10:00 AM, the Manufacturers' Shipments, Inventories and Orders (Factory Orders) for August. The consensus is for a 0.2% increase in orders.

• Also at 10:00 AM, the Trulia Price Rent Monitors for September. This is the index from Trulia that uses asking house prices adjusted both for the mix of homes listed for sale and for seasonal factors.