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The Finance 202: Coronavirus relief talks are beyond help as time runs out


House Speaker Nancy Pelosi (D-Calif.) and Treasury Secretary Steven Mnuchin pointed to progress after a 90-minute call on Thursday afternoon. It was tempered by a late-night letter she sent House Democrats noting “many other disagreements remain,” and steady Senate Republican opposition to a pricier package. President Trump, meanwhile, continues to claim he wants as hefty package and says Pelosi is the only obstacle.

Grim news from the real economy should be injecting new urgency into Washington.

Jobless claims jumped to 898,000 last week, “up more than 50,000 from the previous week, the largest increase in first-time jobless applications since August” and fresh evidence of a stalling recovery, per Eli Rosenberg. 

That marks the 30th straight week unemployment claims have outstripped the previous one-week record. Eight million people have slid into poverty since May, a new Columbia University study finds, with millions more on the brink as emergency relief programs run dry.

Yet even as Pelosi and Mnuchin narrowed the distance between their overall price tags — they are discussing a package costing between $1.8 trillion and $2.2 trillion — Senate Majority Leader Mitch McConnell (R-Ky.) is tacking in the opposite direction. He announced his intention to put a $500 billion proposal on the Senate floor next week.

“The Senate GOP leader spent much of Thursday doubling down on his opposition, publicly denouncing the White House deal taking shape and swatting away Trump’s directive to ‘Go big or go home!!!’,” Erica Werner and Jeff Stein report.

McConnell, speaking while campaigning for reelection in Kentucky, noted he doesn’t support the level of spending Trump is calling for:

McConnell also said doesn’t believe Mnuchin and Pelosi will strike an agreement. The two agreed to include a national testing strategy. But they remain at odds over some basics beyond the top line: Among others, Pelosi objects to Republicans’ insistence on including corporate liability protections, while Mnuchin opposes the Democratic push to include more support for state and local governments. 

If Pelosi and Mnuchin prove McConnell wrong, it will fall to Trump to bring Senate Republicans aboard.

It’s hardly clear he could, despite his insistence otherwise. The president, in full-time campaign mode, has taken an array of contradictory positions on the stimulus in recent days. In a Thursday morning interview on Fox Business Network, he called Pelosi’s $2.2 trillion bill a non-starter because it includes items “your pride couldn’t let it happen.” He also said he wants Mnuchin to secure an even bigger package but “so far he hasn’t come home with the bacon.”

Later, at a rally in North Carolina, Trump “never raised the issue, despite speaking for more than an hour in a state with a hotly contested Senate race and a vulnerable GOP incumbent,” Erica and Jeff note.

Throughout the day, he renewed attacks on Pelosi:

At the NBC News town hall event in Miami, he said he is ready to “sign a big beautiful stimulus,” which he said Senate Republicans would support. He said Pelosi remains the stumbling block: “The Republicans want to approve a stimulus. She doesn’t want to do it because she thinks it’s bad for her election.”

Pelosi, for her part, sounds unwilling to make concessions. 

“On a private call with members of her caucus on Thursday afternoon, Pelosi said that House Democrats have ‘maximum leverage’ now, according to several people on the call who spoke on the condition of anonymity to discuss it,” per Erica and Jeff. “She said the Mnuchin proposal remains inadequate, and said she could not accept something that the administration can’t even sell to the Senate.”

In her letter to Democratic lawmakers, she said remaining disagreements with Republicans “are about more than dollars and cents.  They are about values and common sense and respect for lives, livelihoods and life of our American Democracy.”

Market movers

Morgan Stanley crushes profit estimates.

A flurry of trades continues to lift America’s big banks: “While Morgan Stanley’s trading unit did not hit the record highs of the previous quarter, the latest performance was still good enough to help the bank comfortably beat expectations,” Reuters’s Matt Scuffham and Ambar Warrick report.

“Even as trading returns to the spotlight amid the pandemic, CEO James Gorman has been taking steps to shore up Morgan Stanley’s asset and wealth management businesses to insulate the bank from weak periods for trading and investment banking.”

U.K, E.U. remain at odds on Brexit talks. “Prime Minister Boris Johnson said on Friday it was now time to prepare for a no-trade deal Brexit as the European Union had refused to negotiate seriously and that unless Brussels changed course there would not be an agreement,” Reuters’s Guy Faulconbridge and William James report. “A tumultuous ‘no deal’ finale to the United Kingdom’s five-year Brexit crisis would sow chaos through the delicate supply chains that stretch across Britain, the EU and beyond – just as the economic hit from the coronavirus pandemic worsens.”

Derivatives traders on high alert for “big bang”: “In a critical development in the global shift away from old benchmarks that was triggered by Libor’s shortcomings, interest-rate swaps on more than $80 trillion in notional debt will transition this weekend to a new rate for determining their value,” Bloomberg News’s William Shaw, Liz McCormick and Tasos Vossos report.

“While the switch to the secured overnight financing rate, or SOFR, is expected to boost longer-term liquidity in the new benchmark, it also is fueling concerns about unruly price action because it is expected to trigger the sale of swaps on tens of billions of dollars of debt.” 

Coronavirus fallout

From the U.S.:

  • At least 7,944,000 cases have been reported; at least 216,000 have died.
  • U.S. surpasses 64,000 new coronavirus infections for first time since late July: “In 44 states and the District of Columbia, caseloads are higher than they were one month ago, and many of the new infections are being reported in rural areas with limited hospital capacity,” Antonia Noori Farzan and Jennifer Hassan report.
  • Rich cities continue to have a grip on the U.S. economy: “This elite class of American city, including San Francisco, Los Angeles and the District, is made up of densely populated economic powerhouses with deep reserves of talent and wealth. But without an office to report to, their relative high cost of living becomes harder to justify, especially as technology and necessity have opened pathways to work pretty much anywhere,” Hamza Shaban reports.
  • Sen. Kamala Harris (D-Calif.) suspends travel after two in her orbit test positive: “Harris canceled her travel through this coming weekend after two people who were around her tested positive for the coronavirus … A person who recently flew on the same plane as Biden also tested positive, the campaign said, but that individual was never within 50 feet of the former vice president, who is not taking any additional steps to isolate himself,” Chelsea Janes and Sean Sullivan report.

From the corporate front:

  • Pfizer won’t seek vaccine authorization until at least mid-November. “The chief executive of Pfizer said on Friday that the company would not apply for emergency authorization of its coronavirus vaccine before the third week of November, ruling out [Trump’s] assertion that a vaccine would be ready before Election Day on Nov. 3,” the New York Times’s Katie Thomas and Noah Weiland report
  • There’s now a glut of plastics: “Petrochemical makers are pausing multibillion-dollar U.S. expansions as the pandemic subdues what had been rapid growth in demand for plastics,” the WSJ’s Collin Eaton and Saabira Chaudhuri report.

Pocket change

Business groups urge Trump to withdraw diversity training order.

The White House has decried sensitivity trainings: “More than 150 business and nonprofit groups, including the U.S. Chamber of Commerce, are asking Trump to withdraw his executive order that puts a limit on some diversity training,” the WSJ’s Khadeeja Safdar and Lauren Weber report.

“The groups said the order ‘is already having a broadly chilling effect on legitimate’ diversity training and its ambiguity could lead to unwarranted complaints and investigations. A senior administration official defended the order … referring to the training at issue as ‘indoctrination sessions’ that force some people to apologize ‘for the color of their skin.’ ”

  • Morgan Stanley launches Black recruitment program: “The Morgan Stanley Experienced Professional Program within its Fixed Income & Business Resource Management Divisions is seeking Black professionals with at least two years’ full-time work experience in any field who want to work in finance,” Reuters’s Imani Moise reports. “Morgan Stanley’s program is only open for up to 20 people. Derek Melvin, a managing director who designed the program, said he hopes the program, if successful, will be replicated across the firm’s institutional securities business.” 

Facebook and Twitter take unusual steps to limit spread of New York Post story.

Republicans slammed their actions, saying more regulations are needed: The social media giants “limited readership of an article by the New York Post about alleged emails from Democratic presidential nominee Joe Biden’s son, one of the rare occasions they have sanctioned a traditional media outlet,” Elizabeth Dwoskin reports. (Twitter reversed some of its actions last night, but the story will still be blocked)

“The social media giants took that action before verifying the contents of the article, in which Trump’s personal attorney Rudolph W. Giuliani and his former top adviser Stephen K. Bannon claimed to have obtained and leaked a trove of private materials from Hunter Biden. The leaked documents suggested at one point he gave a Ukrainian executive the ‘opportunity’ to meet the former vice president. The Biden campaign said his schedule indicated no such meeting took place.”

  • Republicans to subpoena Jack Dorsey: “The subpoena would require the Twitter executive to testify on Oct. 23 before the committee, according to the Republicans who announced the hearing,” the WSJ’s Siobhan Hughes reports. “GOP lawmakers are singling out Twitter because it prevented users from posting links to the articles …”
  • FCC chairman says he will move to “clarify” Section 230: Ajit Pai said “he plans to move forward with rulemaking to ‘clarify’ the scope of Section 230, an important legal shield for tech companies such as Facebook, Google and Twitter,” CNBC’s Lauren Feiner reports. “In a statement, Pai said the decision came after the FCC’s general counsel determined the agency has the legal authority to interpret the statute.”

Amazon says third-party sellers made more than $3.5 billion from Prime Day: The tech giant said “during this year’s Prime Day shopping event, an increase of nearly 60 percent compared with last year and a record for the small and midsize businesses that make up the marketplace,” CNBC’s Annie Palmer reports.

Houston tech mogul Robert Brockman charged in record tax evasion scheme: “Brockman has been charged in the biggest tax evasion case in U.S. history after fellow billionaire Robert Smith turned against him to avoid prosecution himself, the Justice Department said …” Reuters’s Sarah N. Lynch reports.

“Brockman, the 79-year-old chief executive of Ohio-based Reynolds and Reynolds Co, hid $2 billion in income from the Internal Revenue Service over two decades, using a web of offshore companies in Bermuda and St. Kitts and Nevis, according to an indictment unsealed on Thursday.” 

Trump tracker

Ex-Trump fundraiser to plead guilty to illegal lobbying. 

Elliott Broidy was a former Trump ally: Broidy, a former top political fundraiser for Tump and the Republican Party, plans to plead guilty to participating in an illegal foreign lobbying scheme and cooperate with investigators in the matter,” Bloomberg News’s David Yaffe-Bellany and David Voreacos report.

“Broidy was charged on Oct. 8 with illegally lobbying the Trump administration to stop investigating the embezzlement scandal at the 1MDB Malaysian state investment fund. Jho Low, a Malaysian fugitive who was charged as the mastermind of the 1MDB fraud, initially paid Broidy $6 million to lobby the U.S. Justice Department to stop its investigation and promised an additional $75 million if the lobbying succeeded, prosecutors said.”

Campaign 2020

Ray McGuire to leave Citigroup to run for mayor of New York.

He has been privately been discussing a run since January: “McGuire is a vice chairman of Citigroup and chairman of banking, capital markets and advisory,” CNBC’s Brian Schwartz reports.

“McGuire, 63, is getting into a crowded Democratic primary field for the mayor’s office …Valerie Jarrett, a longtime close advisor to former President Barack Obama, will act as co-chair of McGuire’s campaign.”

Trade fly-around

U.S. offers tariff truce if Airbus repays billions in aid.

There is a long-running fight over aircraft subsidies with the European Union: “The offer was made by U.S. Trade Representative Robert Lighthizer days before the World Trade Organization’s release on Tuesday of a report authorizing Brussels to slap counter-tariffs on U.S goods over subsidies to planemaker Boeing,” Reuters’s Tim Hepher, Andrea Shalal and Philip Blenkinsop report.

“Lighthizer’s proposal, however, is unlikely to win support from the EU, which appears set to ask the WTO at an Oct. 26 meeting to endorse $4 billion in EU tariffs on U.S. goods. The imposition of $7.5 billion of U.S. tariffs over Airbus subsidies has already started to hit European goods.”

The regulators

CFTC votes to pass final rule on position limits.

This a long delayed effort dating back to the 2010 Dodd-Frank Act: The nation’s top derivatives regulator voted ”to establish limits on the size of speculators’ bets in markets for commodities including gold, cattle and crude oil …,” the WSJ’s Paul Kiernan reports.

“The Commodity Futures Trading Commission established so-called position limits for the first time on 16 agricultural, metal and energy commodities, while updating federal caps on nine agricultural products that were already subject to them. By limiting the number of contracts that a single participant can amass, the rule aims to prevent speculators—as opposed to users or producers of the commodities—from causing price swings that don’t reflect underlying supply-and-demand dynamics.”

Daybook

The funnies

Bull session





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