THE TICKER

Wall Street will have to navigate some rocky shoals on Capitol Hill this fall, as the industry confronts few opportunities to score new wins and some perilous oversight. 

Here’s a look at what the industry will be pushing for the hardest — and what threats it will be guarding against — in what is shaping up to be a potentially busy season. 

1. Deadlines. Topping the financial sector's priority list will be a series of deadlines Congress must meet on expiring measures. Government funding runs out at the end of September, and that debate will pit President Trump’s demands for new border wall money against hardened Democratic opposition to the initiative. "With just over three weeks to strike a deal, leaders are already eyeing a short-term measure to buy themselves more time to negotiate," my colleagues Rachael Bade and Mike DeBonis reported yesterday. 

Financial services lawmakers will also be focused on extending the Export-Import Bank and the National Flood Insurance Program by the end of the month.

“Stop me if you’ve heard this one before: lawmakers are returning from their recess with a lengthy to-do list and not much time to act,” Compass Point’s Isaac Botlansky says in an email. “The base case at this point is a short-term punt that pushes some, if not all, of the September deadlines into either November or December. Notably, I haven’t had a single client question on the federal funding deadline. With the debt ceiling risk off the table, investors are looking past this particular funding fight and instead focusing on trade policy and preparing for election season.”

And a series of smaller spending bills may become vehicles for policy riders that could take aim at the industry. “Their agreement said no controversial riders, but that’s in the eye of the beholder,” says Jason Rosenstock, a financial services lobbyist at Thorn Run Partners. 

2. Housing finance restructuring. Arguably the biggest-ticket item with the potential to advance this season, the Trump administration’s plan to overhaul mortgage finance giants Fannie Mae and Freddie Mac could largely end-run the Hill. Eleven years after the firms backing half the nation’s mortgages were placed into government conservatorship, the Trump administration last week released a sweeping plan to address their long-term structure. The proposal, which would turn Fannie and Freddie back into private companies, doesn’t need congressional approval, and the administration said it would ignore lawmakers if necessary. 

But top congressional Democrats have blasted the Trump plan for pushing changes they argue will diminish homeownership while jacking up housing costs. “The proposal raises serious concerns about the future of housing in this country, particularly affordable housing,” House Financial Services Chair Maxine Waters (D-Calif.) said in a statement. She and others will want to weigh in. Senators will get the opportunity first, this Tuesday, when Treasury Secretary Steven Mnuchin, Federal Housing Agency Director Mark Calabria and House and Urban Development Secretary Ben Carson defend the plan before the Senate Banking Committee. 

“While pushback from Hill liberals is hardly unexpected, and not necessarily a show stopper, given no need for Congress to act, the delicate balance sought [by] the administration (placating conservatives and neutralizing liberals) still points to how such plans could easily become delayed, depending on how the next six-nine months of capital-setting and other administrative reforms play out,” Capital Alpha President Charles Gabriel said in a note to clients. 

3. A tweaked North American free trade deal. The Trump administration has named getting Congress to ratify the United States-Mexico-Canada Agreement (USMCA) as its top legislative priority. And while House Democratic leaders have been in talks with the administration, they have yet to forge a breakthrough. Moderate House Democrats meanwhile are starting to agitate for a vote, potentially putting a squeeze on leaders trying to navigate between them and the demands of trade-skeptical progressives. “Once the House reconvenes Sept. 9, lawmakers will have just 13 legislative days on Capitol Hill before taking another two-week break — meaning the next several weeks could prove crucial to the pact's fate,” Politico’s Megan Cassella wrote last week. 

Boltansky wrote in a recent client note that its prospects are looking brighter. “We continue to believe that the odds still favor the USMCA being cleared by this Congress, but the exact timing remains unclear,” he wrote. 

4. Oversight. Waters has made clear she has a long list of targets for the committee’s attention this fall. Her panel has scheduled 11 hearings this month to probe everything from abusive debt collection to the macroeconomic effects of climate change. She released an agenda on Aug. 23 highlighting other high-priority topics, including stock buybacks; Libra, Facebook’s proposed cryptocurrency; new loan instruments; real-time payments; and the finance industry’s use of artificial intelligence. The industry could face more heat as Democratic presidential candidates serving in Congress come back to town potentially looking to make a splash with new legislative rollouts. 

And the campaign season will increasingly impinge on lawmaking. “There is always some tension between partisan posturing and policy writing, but it seems especially acute right now,” the lobbyists at the Smith-Free Group wrote in a recent note to clients. “Can a zig-zagging White House agree to the bottom line of legislative deals amid the daily whir of social media? How both sides can balance their political needs with policy goals will determine what bills run the legislative gauntlet in the coming months.”

MARKET MOVERS

J.P. Morgan creates index to track Trump tweets. Bloomberg's Tracy Alloway: "Make market volatility great again? Analysts at JPMorgan Chase & Co. have created an index to gauge the impact of Donald Trump’s tweets on U.S. interest rates, which they say is on the rise.The ‘Volfefe Index’, named after Trump’s mysterious ‘covfefe’ tweet, suggests that the president’s tweets are having a statistically significant impact on Treasury yields. The number of market-moving Trump tweets has ballooned in the past month, with those including words such as ‘China,’ ‘billion,’ ‘products,’ ‘democrats,’ and ‘great,’ most likely to affect prices, the analysts found...

"They found that the Volfefe Index can account for a “measurable fraction” of moves in implied volatility, seen in interest rate derivatives known as swaptions. That’s particularly apparent at the shorter end of the curve, with two- and five-year rates more impacted than 10-year securities."

U.K recession threat recedes, for now. Bloomberg's David Goodman: "The U.K. economy grew at its fastest pace in six months in July, an unexpectedly strong performance that will allay fears Britain is facing a possible pre-Brexit recession. The economy recorded growth across the board, with the dominant services sector enjoying its best month this year. All else being equal, it will expand 0.4% in the third quarter even if output is unchanged in August and September, avoiding a second straight quarter of contraction."

TRUMP TRACKER

— Kevin Hassett defends Trump’s trade war: “Despite his generally free-trade views, Hassett — who is now a CNN commentator — is all in on Trump’s trade war, telling me that regardless of the economic turbulence, “there’s a really massive upside” to the president’s moves,” the Atlantic’s Lizzie O’Leary writes of her interview with now-former chairman of the Council of Economic Advisers, Kevin Hassett.

  • On the costs of the trade war: “The issue is just that when you see these big numbers, it’s easy to just tune them out. And the fact is that the relationship with China is just utterly unacceptable because of their misbehavior. And the president is standing up to them. Absolutely there are going to be short-term costs associated with that. But I think that the long-run benefit could be enormous.”
  • On Trump’s legacy: “Well, I think on the way, you’re right to highlight the uncertainty. But I think that when people go back and write the story of trade in the 21st century, they’re going to talk about a sea change that President Trump began … the bottom line is that we entered the 21st century with really asymmetric trade deals where we were much kinder to imports from other countries than they were to our companies trying to sell in their countries. I believe that we’re going to move towards a world where there are no tariffs, no nontariff barriers, where there’s real free trade that doesn’t require 10,000-page negotiations, and that that’s going to be the 21st-century equilibrium.”
  • On Trump’s attacks on Federal Reserve Chair Jay Powell: “No, I’d just say that it’s pretty common for the Fed to be the target of political criticism. It’s something that’s been going on forever and ever. And Jay Powell is a terrific Fed chair that can take a little criticism. But I think that President Trump is a guy whose brand is that his supporters want to know what he thinks. And Jay understands that, and Jay’s not going to cut interest rates because President Trump tweeted something.”

Speaking of Trump’s economic advisers: “Top White House economic adviser Larry Kudlow said the trade war with China may take a long time to resolve, warning of a prolonged dispute with Beijing that he compared to the Cold War,” Bloomberg News’s Jordan Fabian reports.

“‘The stakes are so high. We have to get it right. And if that takes a decade, so be it,’ Kudlow told reporters at the White House on Friday. He also said that he didn’t want to make a prediction about the timeline for a deal.”

— China’s growth is slower than it lets on: “Beneath China’s stable headline economic numbers, there is a growing belief among economists, companies and investors around the world that the real picture is worse than the official data. That has analysts and researchers crunching an array of alternative datam — mfrom energy consumption to photos taken from space — mfor a more accurate reading,” the Wall Street Journal’s Mike Bird and Lucy Craymer report.

“Their conclusion: China’s economy isn’t tanking, but it is almost certainly weaker than advertised. Some economists who have dissected China’s GDP numbers say more accurate figures could be up to 3 percentage points lower, based on their analysis of corporate profits, tax revenue, rail freight, property sales and other measures of activity that they believe are harder for the government to fudge.”

  • China’s exports contracted in August: “Exports decreased 1% in dollar terms from a year earlier, while imports declined 5.6%, leaving a trade surplus of $34.84 billion, the customs administration said Sunday,” Bloomberg News reports. “Economists had forecast that exports would grow 2.2%, while imports would shrink by 6.4%. Shipments to the U.S. fell 16% from a year earlier.” 
  • Beijing gets behind $126 billion in new stimulus. NYT's Alexandra Stevenson: "China’s central bank moved on Friday to give the country’s slowing economy a jolt, saying it would essentially inject $126 billion into the financial system as Beijing fights an escalating trade war with the United States and contends with a dangerous addiction to debt at home. The move signaled China’s willingness to ease up on a campaign to curb the borrowing that has weighed on growth in the country’s economy, the world’s second largest, and potentially to open its lending machine up even further if the trade dispute begins to take an even greater toll."

— Tariffs you will wine about: “The Trump administration has proposed a tariff of up to 100% on $25 billion in European items. Romano, Parmesan, provolone and Gouda are all on the list,” CNN’s Katie Lobosco reports. “But it's not just cheese. The tariff is proposed to hit a variety of items that pair well with cheese, as well — like wines and meats, olive oil, olives and pasta.”

With U.S. corn farmers hammered by the trade war with China, President Trump has said Japan will buy enough to pick up the slack. But not everyone in Japan has gotten the memo.
WSJ
POCKET CHANGE

— JP Morgan close to landing history’s biggest IPO: “Somewhere, Jamie Dimon is smiling,” CNBC’s Hugh Son reports. “J.P. Morgan Chase is close to winning the lead advisory role for the initial public offering of Saudi Aramco, the world’s most profitable corporation, edging out rivals for the plum assignment, according to people with knowledge of the situation. A final decision is expected next week and could still change, the people said.”

— Nissan CEO reportedly plans to resign: “Nissan Motor Co Chief Executive Hiroto Saikawa has told some executives he plans to resign, the Nikkei newspaper reported on Sunday, in what would mark the latest upheaval over governance at the troubled Japanese automaker,” Reuters’s Chang-Ran Kim and Naomi Tajitsu report.

“Nissan, which has struggled to right itself after former chairman Carlos Ghosn was ousted late last year, was battered by another crisis just days ago when Saikawa admitted to being overpaid in violation of internal procedures. The admission followed the results of an internal investigation.”

— Dorian insured loses could cost billions: “Insured losses from Hurricane Dorian are expected to total several billions of dollars, German reinsurer Munich Re said on Sunday,” Reuters’s Tom Sims reports

— Microsoft’s president chides Facebook: “Microsoft built its fortune making the tools of technology that billions use every day,” my colleague Jay Greene reports. “But the company’s president, Brad Smith, has increasing misgivings about how thieves, terrorists and scoundrels have weaponized those tools, and how the industry has failed too often to thwart them.”

“He chides Facebook for allowing influence campaigns to flourish on the network that helped elect Donald Trump president in 2016. And he argues that social media companies can’t profit from hatemongers posting vile content while brushing off responsibility.”

A large proportion of the world’s stock of foreign direct investment is “phantom” capital, designed to minimise companies’ tax liabilities rather than financing productive activity, according to research.
FT
Rajaratnam, whose Galleon Group LLC once managed more than $7 billion, has been living with his family on a quiet block of Manhattan’s East Side since July 23, according to the Federal Bureau of Prisons. He’s mostly confined to his apartment for the remainder of his sentence, but is free to work outside his home during the day.
Bloomberg
DAYBOOK

Upcoming:

  • The Senate Banking, Housing and Urban Affairs Committee holds a hearing on housing finance reform on Tuesday, which will feature testimony from Treasury Secretary Steven Mnuchin, Housing and Urban Development Secretary Ben Carson and others.
  • The House Financial Services Committee holds a hearing on protecting student loan borrowers on Tuesday.
  • The Brookings Institution holds an event on using regulations to combat recessions on Tuesday
  • The Financial Services Subcommittee on National Security, International Development, and Monetary Policy holds a hearing on the macroeconomic effects of climate change on Wednesday.
  • The Peterson Institute for International Economics holds an event on a 2019 IMF report on exchange rates and external adjustments on Wednesday 
  • Brookings holds an event on the status of anti-money laundering efforts on Wednesday
  • The Financial Services Task Force on Artificial Intelligence holds a hearing on the future of identity in financial services on Thursday.
THE FUNNIES

From The Post's Tom Toles:

BULL SESSION