Market risks mount as US shutdown drags on

The US government entered a shutdown on Wednesday, sending ripples of anxiety through global financial markets and prompting some investors to reconsider their exposure to American assets.

A critical immediate effect of the shutdown has been the paralysis of the government's economic data apparatus. Key agencies such as the Bureau of Labor Statistics have suspended operations, delaying the release of vital indicators like the monthly jobs report and the Consumer Price Index.

This information blackout poses a severe challenge to the Federal Reserve, which will weigh further interest rate cuts at its policy meeting later this month.

"I'm certainly struck by how much political capital the Trump administration seems to be willing to spend on reforming, if I can put it that way, the Federal Reserve," said Luke Bartholomew, deputy chief economist at Aberdeen Investments, in a CNBC interview. His comments underscore deepening worries over political dysfunction.

The shutdown comes alongside concerns about America's fiscal health — highlighted by a downgrade of the country's sovereign debt earlier this year — and as companies absorb the impact of tariffs.

"It's the cumulative, compounding effect of all of these events — the US credit rating downgrade, the changes to the trade regime and now the shutdown — that worry me," said Brian Shipley, chief investment officer of Coldstream Wealth Management.

A prolonged US shutdown threatens to dampen global risk appetite, Neil Birrell, chief investment officer at Premier Miton, told CNBC.

The shutdown also delivers a direct hit to US economic growth. Analysis by Oxford Economics estimates that a partial shutdown reduces GDP growth by 0.1 to 0.2 percentage points per week.

A prolonged stalemate could deal a sharp blow to consumer confidence. Lauren Goodwin, economist and market strategist at New York Life Investments, pointed out that the 2018-2019 shutdown, which lasted 35 days, coincided with a seven percent hit to confidence in the University of Michigan's consumer survey.

The crisis arrives as the US labor market already shows signs of softening. Further compounding the economic pain, an estimated 750,000 federal employees face furlough. In an escalation from past shutdowns, the Trump administration has also threatened mass firings that would not only remove employees from payrolls but eliminate their positions entirely, signaling a potentially more damaging and protracted disruption.

(With input from Reuters)