US: probability of a debt ceiling dispute disrupting financial markets is on the rise - Wells Fargo

Analysts from Wells Fargo, expect little in the way of market or economic effects with the current shutdown but they see that a solution could be difficult to find. They warn about the debt ceiling dispute. 

Key Quotes: 

“In the wake of the partial federal government shutdown, Congress has found a path forward. The plan is to fund the government until February 8 with assurance from Senate Majority Leader Mitch McConnell that a vote on immigration issues will take place before the February 8 deadline. President Trump has been insisting since the September funding bill that some money be set aside for the construction of a border wall. Democrats, whose support is needed in the Senate to pass the funding bill, are demanding a permanent fix to the Deferred Action of Childhood Arrivals (DACA) program.”

“Funding the government through February 8 would buy negotiators more time but could setup a series of back-to-back shutdowns if immigration negotiations once again falter. Furthermore, even if an immigration deal can be reached in the Senate, it remains unclear if such a deal could pass the more conservative House of Representatives.”

“Besides the economic effects, the shutdown would affect the release of economic indicators. In general, we do not foresee any major market disruptions. Treasury auctions and essential functions will continue to operate normally.”

“In October, we estimated that the Treasury could utilize extraordinary measures to remain solvent through mid-to-late March. As we have highlighted in previous reports, however, these estimates are even more uncertain than usual as a result of the new tax law, which will alter federal revenue collections in the coming weeks as the law is fully implemented. We expect the debt ceiling to be suspended as part of a broader budget deal, but as the short-term stopgaps have stretched closer and closer to this potential debt ceiling “X” date, the probability of a debt ceiling dispute disrupting financial markets is on the rise.”