Home Business Bloomberg Evening Briefing: Shutdown Threatens ‘Gold Standard’ Economic Data

Bloomberg Evening Briefing: Shutdown Threatens ‘Gold Standard’ Economic Data

by Stella Morgan

Title: The Impact of a US Government Shutdown on Economic Data and Insider Trading Charges at Goldman Sachs

Date: September 28, 2023

As the deadline for a potential US government shutdown draws closer, the consequences are becoming increasingly apparent. Not only does the refusal by far-right Republicans to negotiate pose a threat to the functioning of the government, but it also has the potential to delay the release of key economic data. This situation, in turn, puts the trust of policymakers and investors in less-regarded economic indicators to the test.

Some of the critical figures that may potentially be delayed due to the government shutdown include the Labor Department’s monthly employment report and a key inflation gauge from the Commerce Department. These data points play a crucial role in informing Federal Reserve officials’ decisions, particularly in their efforts to combat persistently high inflation. Without access to this indispensable information, the spotlight will shift onto data from private-sector sources.

Private-sector indicators, such as business activity gauges from the Institute for Supply Management, private payrolls from ADP Research Institute, and existing-home sales from the National Association of Realtors, have traditionally influenced government reports and assisted the Fed in its decision-making process. However, the absence of official government data may increase the precariousness of the Fed’s “data-dependent” approach to policy decisions.

Michael Pugliese, a senior economist at Wells Fargo, acknowledges that finding substitutes for the quantity and quality of the delayed “gold-standard data” will prove challenging. The reliance on alternative sources could potentially result in the misinterpretation of economic conditions, leading to policy missteps and undermining the apparent trajectory of the US economy toward a soft landing.

In addition to the potential economic ramifications of a government shutdown, the financial sector faces another significant development. Federal prosecutors have charged a former employee of Goldman Sachs and Blackstone with securities fraud. The allegations suggest that the employee provided confidential information to his friends, resulting in profitable trades topping $400,000. The trades were coordinated through messaging apps like Signal and Xbox chat. Unfortunately, this incident marks at least the fifth insider trading case involving a Goldman Sachs employee in recent years.

The indictment highlights the significance of vigilance and adherence to ethical practices within the financial industry. Insider trading not only undermines the integrity of the market but also erodes investors’ confidence in the fairness and transparency of the financial system. It serves as a reminder of the ongoing need for stringent regulations and enforcement to prevent such fraudulent activities.

Meanwhile, the financial industry is witnessing another development as BlackRock joins the list of exchange-traded fund (ETF) issuers seeking to replicate JPMorgan’s successful active strategy. BlackRock’s newly launched BlackRock Advantage Large Cap Income ETF tracks dividend-paying stocks and sells S&P 500 call options. This approach mirrors the $29 billion JPMorgan Equity Premium Income ETF, which has already inspired several copycat funds.

The competition among ETF issuers to clone successful strategies highlights the demand for attractive investment options among investors. However, it also raises concerns about the potential overcrowding and replication of similar strategies in the market. It remains to be seen how these cloning efforts will impact the overall performance and diversity of the ETF industry.

In conclusion, the looming US government shutdown not only threatens to disrupt critical economic data releases but also casts a spotlight on the challenges of finding suitable alternatives. Meanwhile, the recent charges of securities fraud involving a former Goldman Sachs employee underscore the ongoing need for strong regulatory oversight in the financial sector. Additionally, BlackRock’s entry into cloning JPMorgan’s successful ETF strategy highlights the competition among market participants and the potential implications for investor choice and portfolio diversification.

related posts