Transcripts For CNBC Worldwide Exchange 20130930

Trend in what could be its biggest free market experiment in years. Announcer youre watching Worldwide Exchange bringing you Business News from around the globe. Well, the u. S. Government is on the brink of its first shutdown in 17 years if congress does not pass a stopgap spending bill by midnight. Early sunday the house approved a measure linking funding to a one year delay of president obamas Health Care Law. It would also repeal the medical device tax which helps pay for the law. The senate convenes at 2 00 p. M. Eastern and will likely vote to strip those provisions sending the bill back to the house. It is then up to House Speaker john boehner who could have members vote on a clean bill or one with new provisions. On sunday republicans and democrats continued to trade blame. Here, unlock those doors, i say to harry reid, and come out and do your job. The senate must act. They must, must act. We do not want to shut this government down. Its wrong, and we want to work and negotiate and get the job done. Want to debate obama care, thats fine. People have strongly held views on both sides. But to hold hostage democrats and mainstream republicans until you get your way and hurt millions of innocent people across america is wrong. So thats the latest out of washington. The latest out of europe er equity markets are down. Were now into the session where were at the low as well. Last week the ftse 100 was down 1. 3 . The xetra dax is down 1 . Cac ka rant is down. We could see the collapse of the Coalition Government led by he nrika letter. The italian banks are down 3. 6 . Its ousted its chief executive after a hasty range Board Meeting yesterday. In a statement the biggest lender said the biggest investor carl messina would replace him. There were resignations of five ministers from the countrys governing commission. Now that has pushed up italian bond yields. We got to spreads of 300 bases points. Italy is yielding 4. 6 . We have been to 4. 3. 10 year bond yields, the spread back below the 300 bases points. Italian treasury yields are a safe haven flow. Ten year yields down 2. 6 . Last week down to 2. 63 and spanish yields a little bit higher at 4 point poip 38 . Rather mixed day for currency traders in the euro weaker against both the yen and the swiss frank against the dollar. Flat 135. The dollar is also being pressured. The dollar yen is down a two week drop. The aussie dollar saw a twoweek drop. Sterling has been a beneficiary this morning. Currently 1. 6134. Weve been up to 1. 6180 this morning. Thats where we stand right now in europe. Lets bring you up to speed with the rest of the action in asia. Lisa is with us. Asian markets are worried about disappointing data out of japan. China has a seven day holiday starting tomorrow. The nikkei ended lower but over 2 with the b. O. J. s survey. A abes tax decision is due tomorrow. The yen was trading 98 below the green back. Chinas pmi grew only slightly but it was revised down one point. Meanwhile, hong kong, australia, and india see losses for more than 1 . Now on to some big movers in japan. Mizuho financial dropped 4 . But teppco continued to outperform. Its application to restart some undamaged facility helped convince regional banks. According to reuters creditors are providing 5. 9 billion life line. The shares gained more than 2 . China markets bucked the down trend. Some shanghai based companies continued to gain ground after launch of the program yesterday. Wai gaoqiao. Xinhua surged up 10 . Thank you for that. Joining us is a strategist at monument securities, mark. Put the u. Is ts. Political newo perspective. Markets hate politics. Unlike Central Banks decision, you never know quite what youre going to get. They always assume, given history, that some say it will resolve itself. Theyre now being faced with this prospect that positions are extraordinarily entrenched in the states. The difference between this and the 95, 96 situation is 95 bill clinton was in quite a good position to face down all the beginning gri gingrich demands. In this situation mr. Obama i dont think has any friends on capitol hill, either in his own party we dont care about budgets. It doesnt stop the number of shoes that are selling or the bottles of coke people drink, does it . Are we worried about it for what it means for the debt ceiling . We are worried about it for the debt ceiling even though the treasury says it will try to carry on paying things for quite a long time. I think were worried about it is there doesnt seem to be any movement. We went through all of this two years ago and they had an opportunity in the meantime to talk to each other. Me we are at one minute to 12 yet again and yet again the u. S. , capitol hill is unable to make a decision. Thats the worrying signal. What everyones used to in terms of the perception of the u. S. A. Ell while europe is seen to be muddling through and coming out with compromises, in america its the perception of everyone else, while we may not like the decisions, its decisive. We have the body position that doesnt like to make decisions. There will be some sort of agreement even if its a compromise one. It will probably put the issue on ice for a short while. Unfortunately the time frames where we get these compromises are getting shorter and shorter and shorter and the positions arent moving. So whats the damage then that it can do . If we are going to get another 11th hour agreement and so far the market doesnt seem to be selling off. I think thats exactly where the interesting part of the markets perceptions going to be. Does it go, well, if the American Government shut down for three to four weeks, it might deduct, say, 2 from gdp in q 4, but excluding Government Shutdowns Everything Else was all right. And thats a very positive spin. Or does it go actually, this is bad news and we seem to be in a situation where the Positive Side will be we get taper forever. Could we be in for a nasty surprise then . I think the risks are increasingly for a nasty surprise that not much does get done. Theres a lot of data out this week or does that matter. If it gets published. Even the eurozone pmi and so on . The pmis do matter this week. They have different points. Will it look more like the chinese one we saw this morning which was disappointing or the japanese one. Will exports start picking up. In the eurozone will green chutes fade into autumn leaves. In the u. K. Is the strength of the Services Data that were seeing and the manufacturing data going to actually translate into decent hard data and in the u. S. Is there any impact on the other hand of people anticipating this shutdown and saying that sends a very bad signal for america . Well, well talk it out certainly throughout the show. Staying with us, mark oswald, strategist at monument securities. Give us your opinion. There should be lots of them this week. Take part in our online poll this week. Were asking you how to trade the s p 500 as a u. S. Shutdown looms. Head to trader poll. Cnbc. Com and cast your vote. Straightaway you will begin to see the trend. You can have your say in twitter, use traderpoll and you can tweet ross or i. You can. Dont miss out on that. Got some data out of italy. Producer points up 2 month on month. The year end rate falling. 2 . The biggest decline in almost four years. The annual decline the biggest since 2009. Plenty more to come on todays show. Were just full of good news today, arent we . On todays show, cleaning graffiti, picking up rubbish. This is what im going to do in london for the rest of the week. Cleaning graffiti, picking up rubbish and going to the job center for the rest of the week. Those are the tasks for the unemployed under government proposals. We have the latest at 10 30 c. E. T. Plus, german finance minister is talking about the green party. Well have the latest from frankfurt in 30 minutes. President obama says the new insurance exchanges created by his Health Care Law will launch tomorrow. At 11 20 c. E. T. We ask if obama care can avoid falling foul . Can the u. S. Government avoid the first shutdown in nearly 20 years. Well have the latest from washington. And you know i love this story. As the long awaited free trade zone launches in shanghai, find out whether it poses a competitive threat to hong kong. Un eunice yun will be joining us live from shanghai after the break. Announcer youre watching Worldwide Exchange. Welcome back. Italian Prime Minister will hold a confidence vote in parliament on wednesday as he and the countrys president scramble to save the government from collapse. It follows silvia berlusconis withdrawing his party. Yesterday the italian president said he would do anything to avoid going to the polls seven months after the election. Translator the president of the republic dissolves the republic only if theres no chance of finding a majority. Joining us from rome, claudia penzotti. How is this going to play out from now . Reporter ross, today is going to be an important day. Berlusconi is going to try to persuade his party to stay out with him. It is the idea that there are dissidents to this party. Some of the ministers, some of the five that were asked to step down, the five in the cabinet as well as others have made comments about their doubts Going Forward with this idea that bur lerlusconi has had on government. They want to postpone it so they can work to try to get more support. He needs 24 particle la mliamen his side. He may get a majority. He probably will get a majority. The question is how strong will it be . How much longer can he hold out before this government needs to go to an election . Clearly its important to pass a new electoral law before that happens. Its important to pass a stability law by october 15th and another big step is, of course, not part of the government but part of time. On the 4th of october, the committee thats evaluating whether to send to parliament a vote on his senate seat if that goes forward as well. This could mean a future without the possibility of actively participating in politics for senior berlusconi. This is a crucial week for the Italian Government in general and for politics in italy. Joining us is mark oswald and hes saying hue we hate politics in the market. This has blown up much quicker than people thought. The question is can we get some kind of not a new government, can we get something that passes a stability law as claudia was saying and the electoral law on a casebycase basis. Can we muddle through here . Right. I would say that was definitely possible. Theres been a growing number of defect shuns. Some of these have been very high profile including the deputy Prime Minister. If these defect shuns gain momentum, we can see a majority to support the current government or force berlusconi to backtrack. Its unclear if this new majority will be to support a limited time is that conceivable, berlusconi backtracking . Personally, i think thats not likely. I think theres a deal on fiscal policies on the table. The center left has been resisting. Theres an ongoing debate on that. However, any deal i think would likely include ways to freeze the ongoing impeachment of berlusconi. Theres a final vote. Is that going to go . Is that going to go . Right. Thats just not going to happen, i dont think. Mark, you said we hate politics. Weve seen italian yields rise today. Banks being sold off. An election is not new for us. Theyre not new but this does look like a return to old form. 2011. In the current scenario where youre talking about defect shuns within the pdl, you are looking at this breakup of the right which berlusconi, give him credit, he managed to unite the whole of the right. The question, its biz zan thyme, is whether a more sustainable government can be formed. Perhaps the most important thing is this electoral change. Frankly under the Current System theyll likely have the same outcome. Fred der reek a. Thats possible. Theyre talking about passing a budget. Go to elections in early 2014. Thats the question. Can they lead the government in case the majority is too slim . Are the stakes up too quickly by calling a confidence vote . Could he have muddled through this with berlusconi . He may not have all of the support of the party. Would have been able to muddle through but not for too long. This had to happen . Yes. The looming senate on berlusconis impeachment would have been bad for the government in any case. Incompetent stead of giving into the latest rounds of the pdl, latta decided to force them to show their cards. Zooming out a little bit, what are all the implications of this political turmoil. What are the implications for the eurozone, fragile recovery . Theres been some minor slippage that was recently shown by the september budget. The slippage is marginally limited to 2014. The real risk is the market pressure, perhaps to the levels that we saw in 2011, 2012 that could cause trouble in the eurozone. At that point the ecu can resort to its buying program. Lets go back to claudia whos Still Standing by. Claudia, were also looking at corporate movers out of milan today. Specifically with antessa san palo. What can you tell us . Reporter it was planned as far as the exit timing. They decided to announce the resignation of the ceo of intesa. The markets were going to come out certainly in a very cautious state to say the least. So they got that information out. The stock is down not too, too much. This was a rumor that was circulating last month and the stock had suffered by 6. 8 already on the news of that. He was seen as sort of more of an international manager, somebody who was going to move the bank forward sort of away from old italian ways of managing banks and according to shareholders, this is not what they preferred. The longtime manager of the bank is sort of giving the ba bank going back to the old ways for the time being. Other sectors, were watching telecoms where the chairman of telecomutaile may step down. He wanted a capital hike. He didnt get it. Telefonica has snepd and taken t operator. Its a very, very busy week for investors as they are looking for italy trying to grasp whether there is stability or not and look at the individual stories. The banks are a big issue as we were saying. They are holding on to a lot of government italian debt. Its increased from 397 billion total that they are holding now of Italian Government debt. We have to watch the spreads and yields. Its an incredible time. This gets put in the past and they move forward. Thank you so much. Just more on that. San paulo is saying its going to speed up the effect of the groups potential. Basically what claudia was saying. Meanwhile, politics also in focus in the u. K. Prime minister David Cameron is defending his governments mortgage security scheme. Cameron talks about why he thought it was important to bring forward the help to buy despite the fact that its going to create a problem. Im not going to stand in the way as peoples dreams are trashed. Thats why its good news that were bringing forward the help to buy scheme. I can tell you today that matt west, halifax are all going to be putting forward these products. This morning we have data out that said house prices are up 1 2 percent. At the same time, british chancellor George Osbourne is due to address the conference this morning and will announce new plans for longterm unemployed to do Community Work or training to get their benefits. Our correspondent is in manchester. The chancellor will use his speech to say after three long years the british economy is finally turning the corner. He will say the battle is a long way from being done. While the labor Party Last Week lurched to the left politically, the tourists will be fighting to try to persuade brittain that they are the business Friendly Party and able to plot this really steady course for the economy to come back. We are still below historical debates. The help to buy scheme has raised huge questions about whether the government is going to create an asset bubble that is dangerous and an unbalanced u. S. Recovery. We have warnings from the imf and the business secretary, vince kamber. Theyve raised concerns because after all we still dont know until next week what these new powers that the bank of england has that is going to put a check on the help to buy scheme and make sure it doesnt fall foul of asset prices. The Business Community in the u. K. Are also going to be asking, is enough being done on skills and immigration, on Infrastructure Spending and on business rates. This is going to be a Conference Full of politics. Weve got the headlines today this morning talking about the work to door scheme. This is the unemployed being forced to do community service. Remember, this is a conference dedicated to hard working people and were going to hear a lot about those rights, but the question is going to be the cost of living. Will people have recognized the recovery in the u. K. How is that going to affect their pockets and the chancellors going to have a lot of hard work to persuade people that the recovery is really benefitting them quite yet. Now, mark, i saw you nodding your head a little bit and sort of chuckling at some of those things. What catches your eye about that . I think theres three things. All the issues to do with structural problems in the u. K. Are never being addressed. This isnt just this government, its serial governments for the last 50 years and they are a major issue and its getting worse the more people dont do something. Its a classic balloon effect. It goes expo tension nal. With the hope to buy is very good for them to talk about. We saw when we had the collapse in the whole borrowing in the u. K. , it wasnt about aspirational, its about actually affordability. And guaranteeing all of these things if basically someone is having to get a 95 mortgage and that represents if its guaranteed by the government and that represents eight times earning, its not affordable. Yes, it may be playing into their aspirations, but in realistic terms youve still got this massive divide and really what needs to be done much more is something that focuses on the supply side. What weve got is a badly distributed population in the u. K. Concentrated in the southeast. We need much, much more in the way of new housing being built. Thats where the housing should be. It should come on the social side. Mark, stick around for now. More to come. Well get more out of the u. K. As we do so, lets recap where we are with equities. Just about decliners outpacing advancers. Coming up later in the show, well be joined from washington, d. C. , as the political machinations continue. In august thats the highest since february 2008. Consumer credit. 6 billion which was the same of. 6 billion in july as well. Quick reaction from that from mark oswald whos still with us. As i say, it comes the same time as we saw the biggest jump in home track monthtomonth in six years. We dont need to bring it forward. Many people thought we should scrap it. When you look at it in the longer term historical context, its way off. Anything we thought of as normal was 4 or 5 million. In the bubble it was higher. Were a long way from the bubble. There are some people who want to get on the housing ladders and others have mortgages and theyre still trying to pay them down. So encouraging people to take on more debt when others want to have less debt is perhaps not the best idea. But this will definitely give a boost to mortgage lending as we go forward. Nonresident gilts sales. Yes. The monthtomonth gilts you shouldnt look a. Neared doe mess sticks nor foreigners are infused. Youre seeing that reflected. Lets show you where we are with currencies. Sterling in particular has been firmer. Up to 1. 6183 against the dollar. The dollar in europe weaker across the board. Dollar yen is weaker. Euro is lower. Lets take a look at the bonds. They have plenty of risk events ahead this week so wouldnt be surprised to see some of these yields edge up. Look at the ten year benchmarks, 2. 61. Holding very steady. The ironic part of this is worries over the debt ceiling would put the trust in u. S. Bonds. At stake, its a safe haven. 2. 61, a little bit weeker. The ten year bond a little bit weaker. The ten year italian bond, we have seen it go up today. Its at 4. 64. Earlier today the spread between the ten year italy and german bond was 2. 93. That is the widest so we continue to watch the debt space particularly as the political shakeup. We wait to see what happens. Yeah, the confidence vote. The European Equity markets, we are down heavily. Corporate news were following as well. German giant siemens says it will cut costs. 5,000 of the jobs will happen in germany. Its part of a 6 billion cost cutting program. Siemens currently down 2 3 of a percent in frankfurt. German chancellor Angela Merkels promise not to raise taxes will be challenged this week during talks with the opposition spd party. We have more with annette wise beck. Whats it going to take . Thats the 1 million question. The new government is not really inside yet because what we are seeing right now in germany is exploration talks, not Even Coalition talks. What is going to happen is that the spd and Angela Merkels party are sitting together and they are actually define iing we the red lines are. From the christian Democrat Part it is talks. Were hearing various policy makers from Angela Merkel say no to tax hikes. At the same time the social democrats are insisting on hiking taxes. There is not really a lot of agreement between those parties. As well, the greens had a party convention. They are interestingly in their final statement when it comes to as well saying yes to those talks with Angela Merkels party, they are not talking about taxes. So perhaps thats one indication according to policy analysis analysts, i should say, that the greens are a little bit more open to go together with Angela Merkels cdo. So when it comes to when we are going to have a new government, last Time Coalition talks took six weeks and nobody really thinks that a new government will be in place before november. Another area of battlefield or another battlefield, i should say, is of course who is getting the finance ministry. According to the recent reports we are hearing that the social democrats are insisting to get the finance ministry. That would mean the end to the jobs. Back to you. Annetta back in frankfurt. Portugals Austerity Party incurred the wrath over the weekend. Meanwhile, the opposition socialists performed strongly regaining power in lisbon with mayor antonio costa claiming a third term by a wide margin. The vote was seen as a key test for the 2yearold Coalition Government. Meanwhile, a government crackdown into the activities of the greek far right dom party intensified this weekend with the arrest of the partys leader and deputy. Yesterday the man seen as the partys number two turned himself in after a warrant for his arrest had been issued. On saturday Police Arrested the partys leader before charging him with belonging to a criminal organization. And lots of politics, ross. Thats all we are talking about. Austrians headed to the polls on sunday to vote on the countrys parliament elections. They fought off a strong challenge from the euro skeptic right wing gaining just enough votes to form a new government. The centrists crossed the line with 50. 9 of the vote. Mark, politics, more politics, more politics. Is there anything here that could make us reevaluate our much more sang win view of the eurozone crisis . Over the summer and last few months weve sort of put it to bed really . I say when i say we i mean investors. The german coalitions and investors are the most important. Whats happened in germany, greece, portugal are all significant. You could have predicted a lot of those outcomes. In germany i think what we have is a lot of positioning going on. The reason that theyre talking about talking to the greens is they are basically using that as a bargaining chip with the spd. There is essentially two fundamental issues here. The spd doesnt want to go into a coalition and be bear hugged by merkel again. Thats what they feel happened last time. The cdu csu have to give ground on something they dont want to do. It appears at the moment, what theyre saying is we wont give ground on the tax issues which means theyre then going to have to go to the other issue, which is also not popular with the party bases, and that is on the minimum wage. Merkel and cdu and csu are absolutely opposed to it. The spd are demanding that. With the greens, the main issue would be sorting out energy policy. There is major reform needed particularly in terms of what the consumers are talking about. Which is huge. Which is huge. A lot of businesses are exempted. There are businesses being exempted which theyre seeing i think a huge competitive disadvantage comes in terms of paying 60, 70 more than the americans. But its all part of the changeover process. Theyre not going to go back on that. Thats the key issue here. Along with the negative message that was sent by the labor party here in the u. K. , the Energy Sector isnt exactly coming up roses in europe. By contrast for the u. S. Obviously where the whole shell gas revolution is making people feel very happy. Okay. Were going to get back and talk more about this. Were going to go to japan now where toshiba has decided to scale back on tv manufacturing. We have the story live from tokyo. Over to you. Reporter hello. Yes. Electronics maker toshiba has announced it will be suspending two out of three operations. It will reduce by 2,000 workers by march 2015. This will reduce costs by 2 million. It hasnt decided yet which factory which will keep running. Its likely the keep the plant running in indonesia which runs the most ee fish lengthy. The companys trying to pull it back into the black by early next year. Its already shut down all of its tv production plants in japan and sold off its factory in mexico to a taiwanese firm. Toshiba sells tvs to 100 countries. The news made investors hopeful that the companys tv arm will become less of a burden and toshiba stocks went up temporarily during the trading day. Thats all from nikkei business report. Back to you. Thank you very much. Lets give our viewers a look at what else is on the agenda in asia tomorrow. The golden week holiday. The last week you ever want to travel. They are starting in china and hong kong tomorrow. China releases its official pmi gauge for august. The hsbc number disappointed. Japan comes out with Household Spending and jobs data. The b. O. J. s survey is due ahead of shinzo abes hiking of the sales tax. The rba is expecting to hold study when it makes its policy decision. Ross, youve been to china once, right . I have. You dont want to be traveling there on a holiday. No. Its quite an experience anyway. Theres a 250 kilometer traffic jam. Yeah. I got stuck in one jam. A bit scary. I closed my eyes. Still to come on the show, keep your eyes very much open. Shanghai launches its long awaited free trade zone. But is the deal all its cracked up to be . I have something to say about that. Well discuss after the break. I want peacocks. Peacocks . Walking the grounds. In tuscany. [ man ] her parents didnt expect her dreams to be so ambitious. Italy . Oh, thats not good. [ man ] by exploring their options, they learned that instead of going to italy, they could use a Home Equity Loan to renovate their yard and have a beautiful wedding right here while possibly increasing the value of their home. You and roger could get married in our backyard. Its robert, dad. [ female announcer ] come in to find the right credit options for your needs. Because when people talk, great things happen. Announcer youre watching Worldwide Exchange. Welcome back. Well, it is all the talk of asia. This much anticipated, much behind free trade zone in shanghai heralded as a new drive in chinas reform. This is what youre looking at right now. It makes up 29 square kilometers. Much anticipated as a way that would lead forward chinas reforms. Its different than whats in the south of china. This is supposed to be focused on the financial reforms. Chinas markets are closed. Its not freely convertible. Even though the list was ten pages long, some of the details. First i want to show you what was promised. Youll notice, well give you a list here. Its very vague i have to say. Much anticipated today, what beijing was going to say what was expected. We know that it is a test bed for new policies. It will focus on the Service Sector as well as Financial Sector in particular. Also, less central control. That is a key one. What we got was ten pages which read a lot more like a bunch of restrictions. No market determined Interest Rates nor free flows of capitals, but the government did promise Interest Rate liberalization. The government has to go slowly but surely. You have a lot of analysts and onlookers doubting how far this will go. Many are saying this is hugely symbolic. Euni eunice eun has been following this. Were heading to the shanghai free trade zone. It could say about the governments willingness to reform in china. Reporter the shanghai free trade zone is a 29 kilometer plot in the city. It combines a manufacturing area and a port. Reporter china has similar Economic Zones around the country, but this one is being billed as a test bed for financial reforms. This zone backed by the premiere is seen as the most important attempt at Economic Reforms since the government founded its First Special Economic Zone in the south of the country over three decades ago. It is a test of economics. I believe that if shanghai officials can really implement and prepare well an experience, this is very important, very critical for chinas next 50 years. Reporter the blueprint here at least in theory will allow less restricted foreign investment, more liberal Financial Services and freer trading of the chie niece xuan. Reporter the government has used Economic Zones like this one to experiment with market reforms and to eventually spread those changes to the rest of the country. Previous zones focused on manufacturing and trade, but opening the Financial Sector presents greater dangers to the economy. There are big risks because financial, the capital flow very quickly especially in a modern economy. We see so many crisis happening in different countries. They are all associated with the opening of Capital Accounts too quickly. I think this is a big lesson for china. Reporter and a reason the rules are still unclear and why significant changes appear to be years away. Eunice eun, cnbc, shanghai. Joining us from shanghai is michael kobain. Thank you for your patience. Youve been waiting a while. Thank you for that. You say at the moment this free trade zone is rather a symbolic gesture. Why . Yeah, i think thats right, because what we saw announced yesterday was really about the future. There will be things to come. What was actually announced is not significant in terms of an activity that a company can conduct today that they couldnt do yesterday. Michael, you know, ten pages long and you see the words limited and only show up quite often. Its always been a matter of the future for china, slow and steady reforms. This is about the government giving up some control. Do you think thats residential realistic in the next few years or will it take longer than that . This is an important point. We believe very strongly that there is urgency to Financial Market reforms in china. Interestingly enough, the rebalancing towards a consumptionled economy has everything to do with Financial Market reforms because a lot of the things that currently are restricted in terms of not having markets rates Interest Rates or whatever, these essentially are subsidies from savers to companies. Until you create investment alternatives, capital flows, those subsidies remain in place. That really is the thing that inhibits consumption more so than almost anything zblels rig else. The hsbc pmi number was disappointing. The mini stimulus we saw out of china has run its course. Were still seeing a lot of reliance on investment. So is a free trade zone going to be is that going to be what it takes to make that shift . Right. Well, i mean, i think this symbolic nature of the free trade zone is that the government is serious about these reforms. This gives them a sand box basically to play in, so to speak, because they can pilot some of these measures. Thats always been the approach to policy making in china. Try it out, pilot it, see what works, take what works and then extend it more broadly. So i think this at least demonstrates that theyre serious about moving forward with the process, but it will take time. And these kinds of reforms are not things that can be implemented overnight. And they never were. It does take time. Its kind of an iterative process. Michael, its mark oswald here. Im just wondering, the whole thing in china is basically as you sad, savers subsid diez all of the lending, if theyre going to make it a more consumption led company, theyll still need that colossal pool of savings. They cant free it up. Thats the biggest obstacle without obstructs some of the things of moving a lot more of the rural population to the cities and also creating enough jobs in the cities to maintain that Unemployment Rate at the sort of level it is. Right. So i think this is something that isnt very well understood, actually. In our view, the way to create a consumptionled economy is to create more consumers, and that more so than getting the current consumers to spend more money. And how do you do that . Well, growing the Service Sector is very much an integral part of that because the Service Sector is more Human Capital intensive than investmentled growth is so that creates jobs. It creates white collar jobs. It creates demand for all of these people moving into the cities. Ultimately as those people do move into cities their productivity improves and wages go up. You create more consumers and thats how china becomes more of a consumptionled economy. I think the efforts to free up spending, you know, strengthening the social safety net, in our view those are necessary but not sufficient conditions to get people to spend more money. Absolutely. And then just back to the free trade zone, michael. In terms of how realistic is it . A lot of folks were upset and there were no market Interest Rates or free flow of capital. That would create an arbitrage. How does it go forward . How can the beijing government ring fence from the rest of china . Right. That is the big question that were waiting for answers on because if you do create these arbitrage opportunities, i can imagine just an endless stream of armored cars going into and out of the zone full of cash. But thats clearly not what theyre going for. I think, you know, the process of reform is a long one. This does, as i said, give them a place to try some things out. I think over the next six months and certainly november will be a key point where we have the economic plenum in beijing. That will be probably one of these way markers where we see more announcements. Absolutely. Ultimately the fact that lee kaching is so strongly behind this is a very good sign. Although he did not show up at the opening ceremony. Thank you very much, michael. Head of Research China and mark oswald, strategist at monument securities. Thanks for being with us today. Still, theres more to come as the u. S. Senators attempt to hammer out an 11th hour compromise. Our next guest tells us what effect this could have on investors. [ agent smith ] ive Found Software that intrigues me. It appears its an agent of good. [ agent smith ] ge software connects patients to nurses to the right machines while dramatically reducing waiting time. [ telephone ringing ] now a waiting room is just a room. [ static warbles ] these are your headlines from around the world. On the brink. Congressional leaders are locked into a stalemate within hours of the first potential Government Shutdown within nearly two decades. Washingtons budget jitters are sending equity markets lower following asia into the red. Italian problems is pushing the bond yields higher. China launches a new free trade zone in what could be its biggest free market experiment in years. Announcer youre watching Worldwide Exchange bringing you Business News from around the globe. Well, the u. S. Government is on the brink of its first shutdown in 17 years if congress doesnt pass a stopgap spending bill by midnight. Early sunday the house approved a measure linking funding to a oneyear delay of president obamas Health Care Law. It would also repeal the medical device tax which helps pay for the law. The senate convenes at 2 00 p. M. Eastern and will likely vote to strip those provisions sending the bill back to the house. It is then up to House Speaker john boehner who could have members vote on a quote, unquote, clean bill with new provisions. On sunday republicans and democrats continued to trade blame. Here. Unlock those doors i say to harry reid and come out and do your job. The senate must act. They must, must act. We do not want to shut this government down. Its wrong, and we want to work and negotiate and get the job done. Want to debate obama care, thats fine. People have strongly held views on both sides, but to hold hostage democrats and mainstream republicans until you get your way and hurt millions of innocent people across america is wrong. Well, a Government Shutdown would set the stage for an even more contentious fight in congress over raising the u. S. Debt ceiling. Treasury secretary jack lew asas the u. S. Will reach its Borrowing Limit in mid october. The dow was down at 70 points down 1. 25 . The futures are 91 points below fair value. Last week the s p was down 18 points. Its, what, about ten points below fair value and the nasdaq is 15 points below fair value. Global equities have been weaker ahead of the u. S. Starting the week. The ftse 300 down 100. The ftse was down 1. 3 last week. Currently off. 7. The cac ka rant is down 1 pain pain 1. 57 . It looks like we could be facing the prospect of elections. Thats weighing on italian banks as well. Weve seen the bond rates rise. Intesa san palo is down. There was a resignation yesterday. The biggest lender in italy said his Deputy Messina would replace him. It was expected cucchiana would step down at some point but it wasnt expected to happen quite so soon. As far as other assets are concerned, italian bond yields are higher at 4. 63 . Its warding out to 300 bases points. Thats the widest weve seen for some time. Yields on friday were 4. 47 . This is interesting. Treasury yields down at 2. 61 . We have been below 261 this morning so continuing actually to get safe haven flow from that. If we get prolonged Government Shutdown there will be Less Government bond auctions whilst the fed is buying. Take a look at the currency markets. The dollar and the euro are both struggling today which means against each other theyve canceled each other out. 1. 35 is where we stand. The euro will close against the yen. Yen dollar is the strength of 97. 85 dollars. The lz dollar saw a little bit of weakness on pmis out of china. 52 revised down. Weve been up to a fresh 8 1 2 month high at 1. 6180. The trading day almost over in asia. Xishuan is standing by. Theyre bucking the trend with the free trade zone ahead of the golden week holiday. The outperformer in todays trade. On the whole asian markets ended on a soft note weighed down by government worries and disappointing data out of japan. The nikkei tumbled 2. 5 . While the bojs Tankan Survey and abes tax decision are due out tomorrow. That index gained 8 for the month. In china markets outperformed despite hsbcs september final pmi grew only slightly from august but its revised down by one point from the flash reading to 50. 2 hurt by weak domestic demand. Most other asian markets lost ground ahead of the seven day holiday starting tomorrow. Now on to some big movers in japan. The Mizuho Financial Group tumbled. As for the big gainer, tepcos application to restart some undamaged facility helped convince regional banks and according to reuters a creditor is set to offer a 5. 9 billion life line to the crippled Fukushima Daiichi power plant. Meanwhile, china markets bucked the trend. Wai gjumped. Well get the latest on the politics out of washington, wht it means. What would a Government Shutdown look like . More than 1 3 of the 2. 1 million federal workers would be furloughed. It would force all of the closures of the national parks, national zoo, smithsonian and the statue of liberty. Mail would continue. Federal workers deemed essential would keep working without pay. Critical services such as National Security and air Traffic Control will go on as usual. Social security and medicare benefits will still be paid but governmentbacked home loans could be delayed. Another casual at this of a Government Shutdown would be the release of government data. The bureau of labor statistics says all survey and other data operations would cease and nearly all of the agencies 2400 workers would be furloughed. But the bls says its possible the data could be released if the White House Budget Office gives authorization and then the agency would bring in small staff on friday. Every week cnbc is asking you to talk the trend by taking part in our online poll. This week we are asking you how to trade the s p 500 as a u. S. Shutdown looms. Maybe its a buying opportunity. Head to traderpol. Cnbc. Com. You can have your say on twitter using twitterpoll. Dont miss out on that. Go on to cnbc. Com. Joining us with his thoughts in new york, mcneill curry at bank of America Merrill lynch. Good to see you this morning. Thanks for joining us. Politics is a hard one for investors because we cant judge it cleanly. Technical analysis, we look at the numbers. What do you do with this story as an investor . What you should do whenever youre interested in the Financial Markets, first you take a step back and look at the Bigger Picture. Its easy to get caught up in the moment and look at the tape. If you look at the Bigger Picture the trend is for continued equity appreciation. If you look at the treasury market, weve been correcting to the down side and yield and up side and price for almost a month now. So definitely we have a lot of headline shock over the course of the next couple of days especially into friday with the payrolls. The trends are very much clear. That is for higher equity prices and a continued correction in the u. S. Treasury market to higher prices and lower yields. While, yes, there is a lot of headline risk at the moment, its not doing a lot of damage to the larger trends. If you were on our poll you would say any weakness is a buying opportunity. What supports your theory about the trend is intact . Just by the simple fact that we havent broken any key supports if you look at the u. S. Equity market. If you look underneath the hood and you look at brat and momentum, were seeing momentum weakness. Whats driving the market from a breadth perspective is still quite strong in the fact that most equities are rallying the breadth and new highs and lows. Advancers versus decliners are quite constructive. Mcneill, could you argue that that is a sense of complacency among our guests . Go back to 2011 and it was a really nasty surprise. A lot of volatility. Could that not be approaching in the next few weeks . Well, remember, back in 2011 actually we did start to see a fair amount of deterioration in many of the breadth statistics beforehand. So i would say that this is a little bit different in the sense that back in 2011 there were some warning signs transparent before we started to see that significant selloff into the august and september time frame. That is also an interesting point in the sense that if you think back to 2011 when we did have the massive amount of weakness, it was the end of q 3, beginning of q 4. Certainly very strong volatility into the early part of q 4. That is usually the case in the sense that historically we tend to have seasonal weakness around this time. If you look at historically Global Equity markets you tend to see september as a very poor month if not the poorest month of the year for equities. So we do tend to see corrections around this time of year. You talked about treasury yields. This morning in our row mean trade we headed below 2. 61 . How much lower do you think they could go. . I think we probably could push down somewhere between ten years space to 255, 2 45rks 247 area. In there i would be looking for a base. Again, i think its worth while. If you take a step back and look at the big picture, theres two things that stand out here from the treasury market perspective. One, we have been in a bear trend since the summer of 2012. Two, what weve been doing over the past month is correcting that bear trend. It doesnt look like were at the start of a new trend to say the least. If anything, were in a 3 , 250 area range trade which ultimately when it runs its course well see a resumption of a bear trend. In the meantime well push a bit lower especially if we see a bit of a seasonal risk off or if investors start to get a little bit more cautious about Global Growth. But Bigger Picture, again, both the equity space and the treasury space say that we should see a continuation of riskseeking behavior and continuation of Global Growth once this bumpy patch takes its course. Stay there, get a cup of coffee. Relax. Well come back to you fairly shortly. Still to come on the program. What impact will the shanghai zone have on business . We are going to cut through the detail and hype, ross. We are going to cut through the hype that has been building and building right after the break. Have been exploding over the last few weeks or so in the chinese markets. Yesterday it was announced to surprisingly little fanfare however given all the expectations. This is an overview here. Its a 29 square kilometer area that is going to enjoy more liberalization, more free trades. What exactly that means, thats still a little unclear. Lets show you the list of what was expected and some pretty big promises here, at least things to look forward to. A test bed for new policies. This has been heralded as beijings drive for reforms and could be landmarked. Is it really the game changer . That still remains to be seen. Service sector, free trade in the south focuses on manufacturing. Shanghai trade expected to focus on services and opening up easing Interest Rate restrictions, broader rate of Financial Markets. Eunice, i know you do not have facebook or twitter so not complete control yet. Those are two things that a lot of folks thought we were going to get, at least in the free trade zone. That hasnt happened. How is it playing out over there, the expectations and all of that hype . Reporter thats definitely not going to happen here. Facebook and twitter is not allowed here in china. Policies are pretty much the same here as anywhere else. Basically people have been talking about questioning how free this free trade zone really is. There are a lot of restrictions on foreign investment, telecommunications. These restrictions are similar to the ones we see on a nationwide level. A lot of people have been questioning just how free its really going to be. At the same time you can really understand why the authorities here are moving so slowly, because basically what were seeing here is the government putting a rather oldfashioned concept for factories onto the Financial Sector. Pretty much what people have done here in the past has been to take, you know, a free trade zone, put a lot of goods, manufacture stuff, sell it over to europe and other places and then those free trade zones have been replicated across the country. Now you could argue that those free trade zones havent been very disruptive. For the Financial Sector it can be very disruptive. Thats because financial flows move very quickly in large amounts and people are worried about what those risks could do to the Financial Sector. A lot of reason why a lot of people think that the government is going to move very, very slowly. Any significant changes could take years to come. Always slowly and surely, eunice, especially when youre trying to wrestle control from beijing or open it up. Thanks so much for having us. Ross, usually in singapore reporting on all of this. Exactly. The interesting thing is maybe it will make shanghai more of a jump of investment into china. Whether that has any implications for hong kong. Theres some debate in hong kong. You have them saying that it would massively hurt hong kong, but in the end i think because what we got yesterday for the free trade zone was so under what everyone else expect the that theres not as much worry. Well take a short break. Still to come, obama care is giving u. S. Lawmakers a headache. How are Health Care Providers fairing. As we do so, following the falls in the u. S. Equities, looks like were going to start off on the same tone. The s p currently down 9 points. The dow currently down. More to come on Worldwide Exchange. [ taps baton ] [ dings ] [ male announcer ] every thought. Every movement. 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The allnew 2014 lexus is. Its your move. President obama says the new online insurance exchanges credited by his Health Care Law will launch on tuesday. The department of health and Human Services which oversees this says several activities such as insurance rate reviews would be unaffected by a shutdown. Joining us now from cnbc headquarters, cheryl scolnick. Mcneill curry is with us. Cheryl, lets kick off with you. Good to see you this morning. Thanks for joining us. The reason were facing a shutdown is because they keep tacking obama care funding on to this budget care bill. What is the risk at the moment . How do you see this playing out . Well, i think that its hard to call that, but it seems highly unlikely that obama care will be prevented from taking place. I think that well ultimately see the implementation of the exchange as well as the expansion of medicaid in the optin states proceeding as expected. Yeah. The as expected, what is going to happen, you know, through as we sort of play through this. Theres a lot to go through. A lot of businesses have complained about the costs of it. What happens to the Health Care Providers as we go through these different scenarios . The Health Care Providers have already experienced cuts before coverage, and thats been extremely difficult for them. There are a number of hospitals that are in great distress already before any additional cuts will take place over the next several years, and there will be more cuts. So its very important for these hospitals to maintain their presence in their markets to receive the additional funding that will come with the additional volumes that are expected to come from covered patients. You have to see patients come instead of being no pay patients who maybe pay 8 cents on the dollar at best become full pay patients even at very low medicaid rates but preferably at Higher Exchange rates in order for these hospitals to maintain their viability. Now, cheryl, maybe many people would agree that republicans even within the party shouldnt necessarily be tying such a high stakes game, the budget, nor the debt ceiling to concessions that they want on obama care, but if they dont argue for it now, if they dont try to water it down and delay it, would they be able to and when would they be able to . Only if the republicans in the white house and the Senate Control the senate. Otherwise its a complete blockade and we have the kind of gridlock that we see. So how does it shake out then . Are we going to get a deal thats pushed through . Are we going to get a budget thats pushed through i should say . Do you expect this to hurt talks on the budget ceiling or the debt ceiling . Im sorry. Well, you have to remember that im a Health Care Services analyst, not a government strategist, so this would be more my personal opinion, but it seems to me from what weve seen before, every time obama care has come up for a vote, weve seen the same scenario. It would be nice if our representatives in washington would finally understand that pushing the government to the brink over something which is current law which has very little chance of being overturned with our current political structure is playing roulette of a very unfortunate type with not only our Health Care Needs for the uninsured and for the viability of the Health Care Sector but for the viability of our nation. Mcneill, do you want to comment . From the perspective of how the markets are playing out with regards to the uncertainty in washington, i do think over the course of the next couple of days or week or so we see an increase in anxiety if you look at the vix which is a measure of sentiment or investor anxiety. Weve seen a pretty decent breakout over the past 24 hours. Investors are a bit uneasy surrounding Political Developments but also remember theres also things going on in europe as well, such as a political situation in italy. I think theres a couple different head winds that are transpiring and pushing out markets beyond what were seeing in washington. And just going back to you, cheryl. There is a plan on the table to push back the opening of sort of the Health Care Exchanges for a year. Do you see that happening . If so, what would happen . Because the plans are supposed to start offering insurance by january the 1st. They are. So first of all i dont see it happening unless the president makes that a reality. Barring a move by president obama to strike a deal that allows his signature plan to be extended or suspended for a year, i think these exchanges start tomorrow and coverage starts january 1st. Mcneill if it were to be delayed, there are significant expenses already being made to make coverage happen. Those expenses are being borne by the insurance companies, hospitals, navigators. But the most important factor is that the companies, the Health Insurance companies, the hospitals, the medical device manufacturers, the pharmaceutical manufacturers have paid for this plan. These cuts have been significant and highly detrimental so just delaying it for a year is kind of the worst of all worlds. Okay. Interesting. So the republicans are sort of cutting their nose off despite its face it sort of sounds like. Mcneill, quick question to you. If youre an investor outside of the u. S. , say in europe, how do you position yourself . I mean, again, i think the first thing any investor should do regardless of whether theyre domestic based or foreign based is have some kind of a plan. Dont get caught chasing the tape which you can do now. If you take a step back and say what is my investing period, what is my investing horizon, you begin with that and then you take a step back and look at the Bigger Picture. Say what is the general trajectory and outlook beyond what were seeing in the near term. I think from that perspective, the outlook for u. S. Markets is still constructive. Okay. Thank you guys very much. That was mcneill curry. Hes head of Global Technical Strategy Bank of america and cheryl schylnick. Good to see you, cheryl. Its impressive. There have been 17 Government Shutdowns since 1976 ranging from 1 to 21 days. None has caused a market meltdown, none. Thats good fodder for our pool. Yeah, it is. Still to come, as u. S. Lawmakers dig in their heels, the key Sticking Point is whether to tie this to the budget. Which side will blink first . Were live from washington with the latest next. Hours to go before the first potential u. S. Government shutdown in nearly two decades. Washingtons budget jitters sending Global Equity markets lower in europe. Italian stocks are the weakest in italy. Thats on the back of a fresh political process in rome. But shanghai bucks the market down trend as china launches a new free trade zone in what could be its biggest market experiment in years. Announcer youre watching Worldwide Exchange bringing you Business News from around the globe. All right. If youve just joined us state side, very warm welcome to the start of your global traiting week here on cnbc. U. S. Equities were hitting a two week low. Futures suggesting we have to start off negative again today. We are Something Like 88 points below fair value foft dow. Down 1 1 4 last week. Europe inequities have been weak as much of the Global Trading equities. The ftse 100 last week was down 1. 3 . Cac carant down. The ftse is the weaker. Italian bond yields are rising as members of silvia berlusconis party are resigning. Theres a confidence vote in the next couple of days. It may see the collapse of the Italian Government if they cant garner enough support. There is a split in berlusconis pdl. Its on a bit of a knife edge. Italian yields, 4. 6 . The spread is around 290 bases points. We were up over 300 bases points. The widest weve seen. As far as currency markets, it has put pressure on the euro and dollar. The dollar index down 1 3 of a percent. The sort of levels we were around last week. The dollar is down against the yen. The euro is down. One of the beneficiaries has been the pound. We hit fresh eight month highs of the green back of 1. 6180. All about politics. The senate convenes this afternoon in the u. S. To likely vote to strip out provisions in a budget bill passed by the house early sunday that would link government funding to a oneyear delay to president obamas Health Care Reform law. If that passes the measure goes back to the house where Republican Leaders have a big decision to make as a Government Shutdown looms at midnight. Cnbcs john harwood is live in washington with the very latest. Nice to see you. Are we headed for an imminent shutdown . Theres still time to avoid one, and this is all about when republicans figure out that the hand that theyre playing is not going to work whmpt do they fold that hand . Do they to it before midnight tonight or do they do it after theres a shutdown . Whats unusual about this fight is Republican Leaders are not in favor of the strategy that theyre executing but theyre doing it because theyre getting pressure from the tea party that theyve not been able to resist. The question is is it possible for them to in effect fold up the strategy, stop trying to extract concessions, pass an extension of government funding. Is it easier for the speaker of the house, john boehner, to do that this evening or after you have the shock of a shutdown, market reaction, pressure from the Business Community, pressure from wall street. I still hold out some significant chance that it will happen before midnight tonight. Okay. Stay with us, john. Also joining us now is jim nussel group. Office of the white House Management and budget. Thanks for joining us. John holding out some hope we get a lastminute deal done. Do you think that might be the case . Yes. I mean, part of it is because ive seen it work before. Ive done it before. When you write as many budgets as i have and when youve seen the process work, both smoothly and sometimes not quite so smoothly, you know where the pressure points are. John is exactly right. Theres still an opportunity here. Its starting to become very slim. John boehner only has a couple of things he can do between now and midnight in order to get this done and at the same time appease those on the right. Putting those votes together is going to be difficult. If he decides to go completely to the left in order to accomplish this, he puts his speakership at risk. Its an interesting dangerous time politically. Most people are not going to necessarily find much drama in this. Theyre going to look at it and say this is a bunch of crazy republicans trying to shut down the government, but if you are watching this, there is a lot of political drama. There is a way to do this and i hope they find that path forward between now and the end of the day. What is the way to do it . First of all, they could pass a clean continuing resolution. That would be the extreme for john boehner because he would then work with dim kratz in order to accomplish that and his right would find a lot of fault with that. The other thing you can do is he can take some pieces of the bills that have gone over which would again at first blush seem to the democrats nonstarters. He could take away the congressional exemption. He could put in just the tax reduction on medical equipment. Theres a couple of things he could do that are kind of scaled back versions that would still allow full funding of obama care. It would nick at the edges. I dont know if he could put the votes together. Would the senate buy it once it came over from the house. Again, theres a lot of back and forth that could occur, but right now as john is probably observing, too, nothings happening. No ones talking. Back in 96 when we had a shutdown both parties were still at the table. Both parties were talking. There was a lot of frustration but both parties knew what was at stake, what policy decisions they were for. Even within parties theres not much discussions. John, lets come back to you on that point. If no one is talking how on earth are we going to get any kind of deal . Well, sometimes not talking and having the consequences become evident to people who are causing a stalemate helps break that stalemate. I remember, ross, when jim nussel was a young men of congress, john boehner was a young member of congress. They were pressing the republican conference, their own party, to have a more aggressive stance against the democrats, but the group john boehner is dealing with is so far beyond where they were. Were talking about the late 1980s, early 1990s. These are people who have disconnected what theyre trying to do from any normal legislative process. This was not preceded by a budget negotiation. They passed budgets but then they did not meet to reconcile them. This is about using the moment of a shutdown, the moment of a debt crisis to extract the repeal or undermining of an act that was passed. I think whats happening is democrats have managed to achieve complete unity on this. The senate is going to reject anything that the house sends over that touches obama care. I think the only thing left to happen is when is the moment i was talking with a republican member of congress yesterday who said weve got to break these members of the tea party, these 40 or so members who are pushing us to take this stance. The question is when do we do that . Can we do that tomorrow . Can we do that after a shutdown for a while . Boehner can do it but its going to be difficult and hes going to have to make a difficult decision to confront them and say, youre not in charge anymore, im in charge and im either going to do this with democrats or im going to do this with republicans but heres what im going to do. What hes going to do is extend government funding. Jim, when is the moment to break the tea party . Two observations. Johns exactly right. The difference between 96 and today is that back then i would tell you exactly what the policy positions that we were trying to achieve. I could tell you exactly what the budget looked like. I could tell you all of those kinds of policy issues that we were working for. Today i dont see them. I dont know what victory looks like for the republicans. So if they get their way, what happens . Because so thats whats a puzzlement to me, number one. Number two, i think johns right, but this is the danger for boehner and youve got to understand this is a difficult position. If he decides to go with the democrats and confronts the Tea Party Members of his own conference, he may very well lose his speakership. You cant just confront them in an issue this salient and have no consequence. There will be a consequence if he decides to go over and work with the democrats and passion government funding. It may be that john boehner may not be the speaker if that happens. So thats why i say theres a lot of drama that could occur if, in fact, this day shapes out in a way that john just described. Jim, john, good to talk to you both. John, do you want to add something briefly . Yeah. I just wanted to say that jim nussels right, john boehner would be risking his speakership. I think the key for him to survive this and come out on top and take control of his caucus is if the entire Leadership Team is with him, kevin mccarthy, eric cantor, the entire whip operation. If they say this is the play that weve called, were going to run this play and were with the speaker, they can prevail. Thanks for that, guys. Good to see you, jim and john. Talking the politics of the Republican Party never an easy thing. The latest fiscal fight, certainly investors a bit more on edge. We are starting the week off negatively. Could history provide some clues as to how the markets may react before and after a political crisis . Courtney reagan is live at the cnbc headquarters with more on this. Courtney. Reporter good morning to you. It is interesting we are in this pickle again. It is tough to precisely quantify how much down side risk there would be with the looming battle over raising the debt ceiling. Analysts say historically any drop in the market would likely be temporary. That could be good news for the markets. 1995 to 1996 the s p 500 index fell nearly 4 . It did rise more than 10 over the following month once the government got back to, would. In the summer of 2011 when congress fought over raising the debt ceiling cutting the u. S. s aaa debt rating, it took five months to recover. Recently when lawmakers flirted with the fiscal cliff last december the dow fell more than 400 points or 3. 1 between december 18th and 28th of the last year. After congress averted the cliff with the deal on new years day, the dow soared. There are several sectors that could feel the impact of a lengthy Government Shutdown. A recent Goldman Sacks report said that companies that derive 20 of their revenues from the government. Lockheed martin gets 97 of its sales from government contracts. You dont think about your neighborhood garbage plan. The u. S. Farms out a lot of its back Office Support work to the private sector. Among the biggest i. T. And equipment providers, cisco systems, generates 22 of its sales from washington. Centene is top on the list relying solely on the u. S. Government for its sales. Health care stocks may not be as impacted as the other sectors, but that is a whole other can of worms and another story were going to be following in the coming days and year to come. Back to you. That gives you an indication of how wide rooechk these consequences can be of all of this political bickering. Its not just happening in the u. S. Politics in italy, the italian Coalition Government is on the brink and will be in the italian capital rome next. Are you flo . Yes. Is this the thing you gave my husband . Well, yeah, yes. The name your price tool. You tell us the price you want to pay, and we give you a range of options to choose from. Careful, though that kind of power can go to your head. That explains a lot. Yo, buddy i got this. Gimme one, gimme one, gimme one the power of the name your price tool. Only from progressive. [ taps baton ] [ dings ] [ male announcer ] every thought. Every movement. Carefully planned, coordinated and synchronized. Performing together with a single, united purpose. Thats what makes the worlds leading airline. Flyer friendly. Claudia, we saw stocks down 2 12 1 2 1 2 . Very fluid situation. What is the latest . It is. The market has improved a bit as you were mentioning since the start today. It seems to be looking more like it is believable that latta may be able to pull together a majority and keep Going Forward with this government. That did not seem likely just a few days ago. Hes actually going to this confidence vote on wednesday rather than tuesday which gives us the indication that he believes he can talk to some of these ministers and some of these parliamentary members of the pdl that could actually give latta support in order to move forward on some important parts of laws that need to be passed in order to change the electoral law, in order to pass the stability pact, all of it is that is very necessary for italy. The spread was higher by reaching 288 points and now is slipping a bit. So giving us the idea that the market is also betting on that. There are meetings today with the Party Leaders of the house and senate and at 5 00 Silvio Berlusconi is meeting with his party. The big day is wednesday for the confidence vote. A lot can happen between now and then, right, claudia . Thank you so much. Well, wall street remains on edge. Were just going from political crisis to political crisis. Washington of course inching closer to a shutdown. Is there an opportunity in the standoff for investors . Most shutdowns havent had a huge market impact. Well talk about that when we come back. Investors. Mark, okay, with all the eyes on washington, how are we going to get through this . Yeah. I mean, its definitely going to be an ugly day today. I think well see the s ps continue some weakness down. I wouldnt be surprised if we sold off 20 some odd handles. Where youll really see the evidence is in the vix. It finally woke up on friday catching a bit of a bid towards the end of the day. Traders thought, oh, my gosh, this might actually happen. I think thats really where youre going to see how worried wall street is, if we see the vix move from 15 1 2 up to 18 or even 20 could be in the cards over the next couple of days especially if things back up. One to 21 days, none of them had any huge impact on market. Yeah. If you look statistically, any real selloff because of a Government Shutdown is almost always a buying opportunity. Youll wait the neat thing is you can actually wait until they sign a deal. Typically once they sign a deal the market will get a pop but theres a lot of follow through after that. The one time where we didnt get a pop and we didnt actually see the vix selloff after a deal was signed was august 2011 and we know what happened after that. So my general approach is i dont even need to buy ahead of some sort of deal. I can buy after the deal and play the momentum up. If one really wants to get in ahead of time with the vix, likely to pop toward 20. I think an out of the money put selling strategy could make some sense. I think we have a shot at 1600 if this thing goes bad. That is the level i would sell at. Have a good day there. Thats the latest from chicago. Thats it from Worldwide Exchange. Squawk box is coming up. Well see you again tomorrow. See ya. Attention americans living with limited mobility. What do you do when you can no longer get around like you used to . When you fear losing your independence . Who do you call . Call hoveround now, to see if you qualify for americas premier power chair. Hi, im tom kruse, inventor and founder of hoveround. Now you can do more, see more, enjoy life more. Heres why hoveround makes it easier than any other power chair. Hoveround is more maneuverable to get you through the tightest doors and hallways. More reliable. Hoveround employees build your chair, deliver your chair, and will service your chair for as long as you own your chair. 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