Speaker McCarthy greets U.S. President Joe Biden before the 2023 State of the Union Address.
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New US Speaker could upset markets

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The new Speaker of the U.S. House of Representatives could impact financial markets as the possibility of a government shutdown increases, warned the CEO of a leading financial advisory and fintech.

House Minority Whip Democrat Katherine Clark said on Sunday that the House will vote for a new speaker on Tuesday at around 12 noon ET – two weeks after eight Republican members joined the Democratic minority in ousting the chamber’s previous leader, Kevin McCarthy.

Over the weekend Jim Jordan, an ally of Donald Trump, claimed he believes he will get the 217 votes required to secure the speakership.

The Speaker holds a pivotal role in shaping economic policies and priorities. Their influence over the legislative agenda, budget, taxation, trade policies, and other economic matters makes their position essential in determining the economic direction of the world’s largest economy.

“The next US Speaker will be less inclined to make deals than McCarthy; in many ways it makes more sense for them, politically, not to be a deal-maker in the current environment,” said deVere Group’s Nigel Green.

“As such, the next Speaker of the House is more likely to affect a partial government shutdown in mid-November in order to try and seize a political advantage.  It is also more likely that under this scenario, a shutdown would be extended – unlike the previous, more symbolic, ones.”

This would send shockwaves around financial markets, said Green.

Uncertainty

“A government shutdown creates uncertainty about the world’s largest economy, budgetary decisions, and the potential for disruptions in federal services. This uncertainty can be expected to lead to increased market volatility as investors become more risk-averse,” he said.

“It erodes investor confidence, both domestically and internationally, meaning investors pull back from the US financial markets, leading to a decrease in asset prices and potential capital flight.”

The deVere CEO added that should a shutdown happen, it will prompt Moody’s to cut the US credit rating below AAA.

“Over the summer, Fitch downgraded the US government’s top credit rating to AA+ from AAA. The rating agency cited fiscal deterioration over the next three years and repeated down-the-wire debt ceiling negotiations that puts at risk the government’s ability to pay its bills.

“This was the second major rating agency (after Standard & Poor’s) to strip the US of its triple-A rating.”

A shutdown would also hit the US dollar, said Green, “impacting exchange rates and affecting international trade and investment.”

It may also affect the prices of commodities such as oil and agricultural products, which would trigger price fluctuations on commodity markets.

“Investors need to closely monitor developments in the US government, as its stability and decisions have a profound influence on the global financial markets,” the deVere boss concluded.