The confrontation between the president and the House majority promises to be consuming, leaving little bandwidth or appetite for cooperation on other matters. “Not that there’s a ton now, but there’s going to be less,” says Andy Laperriere, head of U.S. policy research for Cornerstone Macro. “It’s hard to walk and chew gum when impeachment is one of those things. I don’t think they can multitask impeachment and a legislative agenda.”
Investors drew a similar conclusion. The S&P 500 saw its biggest one-day drop in a month, sliding 0.8 percent, as did the Nasdaq. And the Dow Jones industrial average closed down 0.5 percent after recovering some earlier losses. It was one of the most volatile trading day in weeks, as investors reacted to gyrations on the impeachment front while also absorbing gloomy news about consumer confidence and the U.S.-China trade war.
“Investors like gridlock, but they don’t like dysfunctional paralysis,” Stephen Myrow of Beacon Policy Advisors tells me. And impeachment “is raising the specter of dysfunctional paralysis,” a dynamic that could doom the USMCA, for example, while presenting new risks, “particularly in the event of a crisis.”
House Democrats haven’t foreclosed on continuing their everyday work while the impeachment inquiry gets underway. Via the Financial Times’s James Politi:
But White House press secretary Stephanie Grisham signaled the administration will no longer work with House Democrats on matters of common interest. “In a far departure from all of the work and results of this President, House Democrats have destroyed any chances of legislative progress for the people of this country by continuing to focus all their energy on partisan political attacks,” she said in a statement.
Trump sent a similar message in a tweet:
Washington analysts who help decode political developments for Wall Street investors reported a heavy volume of calls as clients attempted to make sense of the latest turmoil. Analysts said even amid rapidly moving and highly uncertain circumstances, the implications for a corporate priority such as the USMCA al are clear enough.
“From a purely market perspective, I think the impeachment conversation is being viewed as just another dynamic that will weigh on market sentiment until there is clarity on both the resolution and the longer-term implications,” Compass Point’s Isaac Boltansky said in an email.
Negotiations over the trade deal had showed signs of progress in recent days. Robert Lighthizer, Trump’s trade chief, was in talks with a working group of House Democratic lawmakers appointed by Speaker Nancy Pelosi (D-Calif.). They were trying to forge a compromise on Democratic demands for stronger labor, environmental and enforcement provisions — changes Pelosi demanded before agreeing to put the measure to a floor vote. “Before this weekend, USMCA was looking good,” one top House Democratic aide tells me.
But revelations about Trump’s call with his Ukrainian counterpart — and pressure the president applied for him to probe former vice president Joe Biden— reset the fall agenda. In a sign of how dramatically circumstances have shifted, some freshmen Democrats from swing districts who had been agitating for a USMCA vote in part to have a bipartisan accomplishment to tout at home became the driving force for an impeachment inquiry. Public calls from that cohort to zero in on Trump’s dealings with Ukraine dissolved Pelosi’s months-long resistance to taking the next step against the president.
"Perhaps Pelosi will schedule a vote on USMCA this year, but that strikes us as a political bridge too far," Cowen Washington Research Group's Chris Krueger wrote in a note. "Ratify Trump's signature trade achievement while calling for his impeachment?"
— Consumer confidence falls amid trade fears: “U.S. consumer confidence ebbed in September as an escalation in trade tensions fanned concerns about business and labor market conditions, a potentially worrying signal for consumer spending, which has been driving the economy,” Reuters’s Lucia Mutikani reports.
“The relatively downbeat survey from the Conference Board ... mirrors other confidence surveys and could renew financial market fears of a recession that had been assuaged somewhat by strong August retail sales, industrial production and housing data.”
- "The overall measure remains elevated," Bloomberg's William Edwards notes. But the drop represented the biggest slip since the beginning of the year. And it was steeper than economists expected.
— Kashkari: The Fed is partially responsible for the slowdown. The Post's Heather Long: "Minneapolis Federal Reserve President Neel Kashkari says two factors are holding the U.S. economy back right now: President Trump’s trade war and high interest rates. The current U.S. interest rate is a bit below 2 percent after the Fed lowered it slightly last week. Kashkari would like to see the rate cut to under 1.5 percent to stimulate the economy.
"'I’m concerned that we’ve needlessly raised interest rates over the past three years and put the economy into a more dangerous position that makes it more vulnerable to shocks that could hit us,' Kashkari told The Washington Post in an interview Tuesday. 'Why are we trying to contract the economy?'"
— Boris Johnson defiant after court ruling. Bloomberg's Tim Ross and Kitty Donaldson: "A defiant Boris Johnson hit back at the U.K.’s top judges and vowed to take the country out of the European Union next month, despite suffering an unprecedented legal defeat over his Brexit strategy in the highest court in the land. In a sweeping rebuke to the prime minister, Britain’s Supreme Court ruled that Johnson broke the law when he decided to suspend Parliament for five weeks in the run-up to the Oct. 31 deadline for leaving the EU."
- What's next: "The ruling marks an extraordinary constitutional moment and an unprecedented political crisis for the U.K. It blows a hole in Johnson’s political authority and calls into question his ability to remain in office as the Queen’s principal adviser. Senior politicians, including the former Conservative Prime Minister John Major, demanded that he apologize to Parliament. While the opposition was quick to call for his resignation, Johnson’s aides say he won’t go."
— Trump laces into China in U.N. speech. USA Today's John Fritze: "Trump accused China of 'gaming' the global trade system as he defended tariffs that his critics say have put the U.S. economy at risk of a recession. He repeated long-held criticism that the World Trade Organization is giving preferential treatment to China.
"Chinese delegates sat stone-faced as Trump also briefly praised protesters in Hong Kong this year who are opposing Beijing's tightening grip on the semi-autonomous city. 'We want balanced trade that is both fair and reciprocal,' Trump said. Trump said that while he wants a trade deal with China, he would 'not accept a bad deal for the American people.'"
Sidebar: Commerce Secretary Wilbur Ross appeared to find the speech less than riveting, as CNBC notes:
Chinese foreign minister: "Endless troubles" if the countries delink. WSJ's Tyler Blint-Welsh: "Chinese Foreign Minister Wang Yi said the so-called decoupling of the world’s two largest economies would have disastrous results and that China and the U.S. need to work cooperatively through their disagreements. Mr. Wang’s comments came as the U.S. and China remain at an impasse in a more than yearlong trade war, one that some analysts say could lead to a widening chasm between the two countries.
"'Decoupling from China’s economy would be to decouple from opportunities, and the future,' said Mr. Wang, who in the past has called the U.S.’s and China’s interests 'inseparable.'"
— Google, Starbucks fight E.U.: “Alphabet Inc.’s Google and Starbucks Corp. scored legal victories against European Union regulators," the Wall Street Journal’s Valentina Pop and Sam Schechner report, "in court rulings that restrict the reach of the bloc’s privacy orders and deal a blow to its competition czar as she prepares to expand her regulatory powers."
“The European Court of Justice ruled that Google doesn’t generally have to apply the EU’s ‘right to be forgotten’ to versions of its search engine accessed outside the bloc’s borders, though judges left the door open for European regulators to order it to do so in specific cases.”
— More workers to qualify for OT: “Workers making less than $35,500 are now entitled to mandatory overtime pay from their employers, under new rules announced by the Department of Labor. The new rules will take effect at the beginning of 2020,” my colleague Eli Rosenberg reports.
“The rules raise the salary threshold for workers for whom overtime pay — 1.5 times a worker’s typical hourly rate — is required from $23,600, a standard set in 2004 during the George W. Bush presidency. The Department of Labor under President Obama tried to raise the threshold to $47,000, a shift that would have given overtime pay to four million additional workers. But that proposal was met with strong opposition from business groups like the Chamber of Commerce, as well as Republicans.”
— Saudis consider doubling history’s largest IPO: “After attacks on its oil infrastructure, Saudi Arabia is moving forward with the much-anticipated initial public offering of its state-owned oil company and considering a proposal to offer investors a much bigger stake in the company than previously planned, people familiar with the matter said,” the WSJ’s Summer Said and Julie Steinberg report.
“The Saudi Royal Court and its advisers have been debating an eventual float of as much as 10% of the Saudi Arabian Oil Co., known as Aramco, doubling the country’s longstanding public intention to list just 5%, according to these people. Saudi Crown Prince Mohammed bin Salman ’s plan to expand what has already been billed as the world’s largest IPO suggests his often outsize ambitions are undeterred, even as the country’s oil giant attempts a full recovery from recent attacks on its largest facilities and faces risks to its valuation from subdued oil prices.”
— Pharma companies are ramping up their lobbying efforts: “Worried drugmakers are stepping up efforts to blunt proposals in Washington that they view as some of the most serious threats to their pricing power in recent years,” the WSJ’s Peter Loftus reports.
“Pharmaceutical industry trade organizations and outside groups are spending millions of dollars on advertisements attacking the proposals, which would peg drug prices in the U.S. to prices paid overseas and force companies to pay rebates if a drug’s price increases by more than the rate of inflation … Industry executives and lobbyists are urging friendly lawmakers to pass legislation blocking the plans. They are also pushing administration officials to pursue measures that would pressure industry middlemen such as pharmacy-benefit managers to provide some relief on patients’ costs without directly curbing drugmakers’ pricing power.”
- This quote: “We’re facing the stiffest political headwinds in the history of the industry,” James Greenwood, president of the trade group Biotechnology Innovation Organization, told the WSJ. BIO’s member companies include Amgen Inc., Johnson & Johnson and Pfizer Inc.
— WeWork’s CEO is out: WeWork co-founder and Chief Executive Adam Neumann "was forced to step down and cede control of the shared-office startup after its much-anticipated initial public offering was derailed, capping a swift fall from grace for the leader of one of the country’s most valuable startups,” the WSJ’s Eliot Brown, Dana Cimilluca, David Benoit and Maureen Farrell report.
“Mr. Neumann will also cede majority control of the company, with his voting shares reduced to 3-to-1 from 10-to-1, the people said. The company earlier this month had reversed a recent enhancement to Mr. Neumann’s voting power that allotted him 20 votes for each share he held.”
- The situation: “Mr. Neumann’s position at the company became tenuous after We postponed an IPO earlier this month amid concerns from prospective investors about its governance and ability to reverse big losses. That skepticism has placed a major dent in the company’s expected valuation, which has plummeted from $47 billion earlier this year to as low as $15 billion.”
— Hedge fun runs into Trump’s vaping ban: “Jason Mudrick has been enjoying a run this year that most other hedge fund managers only dream of,” Bloomberg News’s Sridhar Natarajan and Josh Saul report. “His flagship fund at Mudrick Capital Management is up 32% on soaring valuations for one of the largest players in the U.S. vaping market. Now, that same bet could pose a headache for the maverick investor.”
“About $800 million, or almost 30% of the assets overseen by his firm, are tied to E-cigarette maker NJOY Holdings Inc., according to people with knowledge of the matter. Mudrick’s controlling stake in the vaping venture has powered pretty much all of the gains in his flagship fund this year at a time when many other managers are posting tepid returns.”
MONEY ON THE HILL
— Sanders calls for 8% wealth tax: Sen. Bernie Sanders (I-Vt.) "unveiled a proposal to create a new tax on the wealth of the richest Americans, including a steep tax on billionaires that could greatly diminish their fortunes,” the New York Times’s Thomas Kaplan reports.
- The details: “Mr. Sanders’s plan to tax accumulated wealth, not just income, is particularly aggressive in how it would erode the fortunes of billionaires. His tax would cut in half the wealth of the typical billionaire after 15 years, according to two economists who worked with the Sanders campaign on the plan.”
- How it compares to Warren: “... While Ms. Warren came first, Mr. Sanders is going bigger. His wealth tax would apply to a larger number of households, impose a higher top rate and raise more money.”
- What the money would pay for: “Mr. Sanders would use the money generated by his wealth tax to fund the housing plan he released last week and a forthcoming plan for universal child care, as well as to help pay for 'Medicare for all.' ”
- But Sanders made clear the effort is also meant to be punitive: "I don’t think that billionaires should exist,” he said. “This proposal does not eliminate billionaires, but it eliminates a lot of the wealth that billionaires have, and I think that’s exactly what we should be doing.”
The New York Times has this explainer comparing the various Democratic plans for taxing the wealthy.
— Dennis Kelleher on Wall Street's budding Warren freakout. The chief of Better Markets, which advocates for strict regulations on the finance industry, wrote with some thoughts on yesterday's note detailing the rising alarm among Wall Streeters over Sen. Elizabeth Warren's (D-Mass.) rise in the 2020 Democratic field. He zeroed in on an CNBC report explaining how hyper-rich married couples could dodge Warren's wealth tax proposal by getting divorced: "The Wall Street-CNBC echo chamber is dangerously out of touch," Kelleher wrote in an email. "After decades of redistribution from everyone else up to the .01%, the handful of unimaginably super-wealthy Americans with $2 BILLION are going to get divorced to save $10 million in taxes! Because they are going to have a hard time making ends meet on $1,990,000,000?"
- Accenture, Conagra and Carnival are among the notable companies reporting their earnings on Thursday, per Kiplinger.
- The Financial Services Committee holds a hearing on abusive debt collection practices on Thursday.
- The Financial Services’ Task Force on Technology holds a hearing on real-time payments on Thursday.
- The Chief Economist of the American Farm Bureau Federation speaks at the National Economist Club on Thursday.