The Finance 202: Investors brace for Comey effect on markets – Washington Post


THE TICKER

Wall Street’s attention trains on Washington today, though not primarily for the House vote on the Financial CHOICE Act to replace the landmark Dodd-Frank law. 

Investors — just like everyone else with a sight line to a TV or live-stream — will be rapt by the testimony of former FBI director James B. Comey when he makes his 10 a.m. appearance before the Senate Intelligence Committee (here’s handy viewer’s guide from my colleague Ed O’Keefe). The longtime lawman is set to break his silence about the events that led up his firing by Trump last month.

That shock move prompted the sharpest single-day stock tumble since Trump’s election unleashed an equities surge. The thinking behind the May 17thMay 17  sell-off, evidently, was that a deepening scandal surrounding the Trump team’s possible ties to Russian intelligence operatives threatened the White House’s ability to accomplish its economic agenda. And it was the promise of a fiscal boost from the incoming administration — in the form of tax cuts, major investments in infrastructure, and deregulation — that sparked the so-called Trump bump in the first place. 

The markets weren’t wrong. With no leadership from the White House, Congressional Republicans remain badly divided on the path forward for tax reform, the president’s tweets notwithstanding: 

And the administration’s intended focus this week on infrastructure instead has become a punchline for Beltway wags, further evidence of the futility of the Trump team’s message in the face of the hurricane-force controversy whipping around them:

From the senior economics editor at FiveThirtyEight:

As Dan Balz writes, the picture emerging from the White House is increasingly of a president “operating on his own. At one turn after another, there are reports about a president who is at odds with those who serve him, freelancing his views and grievances through tweets and other means of expression and disrupting the ongoing operations of government and diplomacy.”

The S&P 500 has more than recovered what it gave back last month and now continues to push into new record territory, though no longer on expectations of a lift from policymakers in Washington. Share prices that once zoomed or shuddered in response to Trump tweets have internalized a new skepticism toward presidential proclamations.

This week, investors peered past the White House messaging on infrastructure to the reality that progress on that front won’t come until next year at the soonest — and punished shares of construction materials suppliers. Despite the House Republican plan to rollback post-crisis Wall Street reforms finally hitting the floor today, the same bank stocks that helped lead the market rally are now lagging behind it

 

Markets largely shrugged off the Wednesday release of Comey’s prepared testimony, closing up on the day. That may have reflected some relief that the 7-page statement didn’t contain any explosive new charges but a lot of potentially damaging details. 

Then again, investors don’t know what they don’t know. It’s not unusual to find screens on trading floors these days tuned in to CNN or MSNBC when major political stories are breaking. But traders can keep watching the financial news networks today, since CNBC and Bloomberg TV are both planning to carry the hearing live. Bloomberg is also partnering with Twitter to livestream the hearing from the outlet’s main account. Two other storylines from across the pond will be bracing investors today, as well: The outcome of a European Central Bank policy meeting and the results of the U.K. election.

Of course, and ahem, discerning consumers can also follow along with the team that’s been owning the story every day:

The Post will broadcast the spectacle here and live blog the main event here, with real-time updates from across Capitol Hill and beyond.

MARKET MOVERS

— Today’s other Big Event, though it may shrink by comparison: House Republicans are set to approve their rollback of post-crisis Wall Street reforms. 
Democrats in the lower chamber will continue assailing the the Financial CHOICE Act, authored by House Financial Services Chairman Jeb Hensarling (R-Texas), as a sop to the industry villains who brought about the decade-old financial collapse.

And the bill accomplishes a lot of the Wall Street wish list for loosening regulatory controls imposed on the sector in its wake. Among other changes, it guts the Consumer Financial Protection Bureau; repeals the Volcker Rule banning speculative trading by big banks; eliminates the law’s curbs on executive pay; and undoes federal regulators’ ability to tag major non-bank financial institutions as “too big to fail,” with all the extra regulatory scrutiny that designation brings. 

— But the urgency of unraveling the measure has also dissipated, to varying degrees, for banks that have already spent seven years and untold millions of dollars adjusting to it. And some of the provisions in the Hensarling package could uncork uncertainty that industry leaders would rather avoid.

For example, big firms want to preserve Dodd-Frank’s answer to ending bank bailouts and walling off contagion in the event of another crisis. The original law tackled the concern by setting up a process called orderly liquidation authority, enabling the FDIC to assume control of a failing outfit. The industry also opposes subjecting the Federal Reserve to new Congressional oversight, as CHOICE would. 

(Here’s Hensarling talking up his bill on CNBC’s Squawk Box earlier this week:)

Those ends are more aligned with a libertarian vision of skimpier regulation advocated by the likes of the Heritage Foundation. The think tank’s political arm, Heritage Action, plans to score the vote, meaning it will factor how lawmakers line up into the ratings of them.

The U.S. Chamber of Commerce isn’t following suit. The big business lobby sent a letter to House members on Wednesday indicating it supports the bill. But it so far isn’t scoring the measure. That, though the organization included four votes related to Dodd-Frank in the 15 it used to size up House members back in 2009. 

—To that point, while House Republicans can point to a wide array of business and ideological groups that back the package, the holdouts are notable. Missing from the list of industry endorsers are several of the Wall Street lobby’s heaviest hitters: the American Bankers Association, the Managed Funds Association, the Securities Industry and Financial Markets Association, and the Financial Services Roundtable. 

The process faces a reset in the Senate, where Senate Banking Committee Chairman Michael Crapo (R-Idaho) has been working to find common ground with the top Democrat on the panel, Sen. Sherrod Brown (Ohio). They formally start that effort today, with a hearing focused on providing regulatory relief to community banks. 
 

MONEY ON THE HILL

Meanwhile, Trump isn’t earning Democratic support for his infrastructure push, once the brightest source of hope for a bipartisan breakthrough:

As Dave Weigel writes, Trump’s pitch for rebuilding the nation’s roads, rails, bridges, and airports was meant at the least to offer a welcome distraction from the onslaught of scandal-related news this week. Instead, it’s become “the latest example of the president’s vanishing clout.”

In a Wednesday speech in Cincinnati, Trump bashed Democrats as obstructionists and charged them with holding up his legislative agenda, Damian Paletta and David Nakamura write. “Every single thing is obstruction,” Trump said, adding that “if I was in that party, I would not do it that way. I’d be doing positive things. That’s why they lost the House, it’s why they lost the Senate, it’s why they lost the White House.”

Trump did not mention the events in Washington during his visit to Cincinnati, where he also made separate remarks shortly after landing about the effort to repeal Obamacare. 

 

POCKET CHANGE

U.S. markets are at their highest risk levels since before the 2008 financial crisis because investors are paying a high price for the chances they’re taking, according to Bill Gross, manager of the $2 billion Janus Henderson Global Unconstrained Bond Fund.

Bloomberg

THE REGULATORS

DAYBOOK

Today

  • The OECD’s 2017 Ministerial Council meeting continues in Paris.
  • The House Appropriations subcommittee on Agriculture, Rural Development, Food and Drug Administration, and Related Agencies will hold a hearing with J. Christopher Giancarlo, acting chairman of the Commodity Futures Trading Commission.
  • The House Appropriations subcommittee on Transportation, House and Urban Development, and Related Agencies holds a budget hearing with HUD Secretary Ben Carson.
  • The Peterson Institute is holding a panel discussion with Beijing-based think tank China Finance 40 Forum on “US-China Economic Relations in the New Era of Globalization” at 12:15 p.m.
  • The Consumer Financial Protection Bureau (CFPB) holds a meeting of the Consumer Advisory Board at 10 a.m.
  • The House Financial Services Committee will hold a hearing on virtual currency.
  • The Wilson Center will host an event with Canada’s premiers on the future of North American trade at 12:30 p.m.
  • The Heritage Foundation hosts a lecture at noon on “Populism and the Future of Democracy” 

Coming Up                                                                                                                                                      

  • The Heritage Foundation will hold a discussion on tax reform with House Freedom Caucus members on Friday at 9:30 a.m.
  • The Federalist Society will host an event on antitrust enforcement on Friday at noon.
  • The House Appropriations subcommittee on Financial Services and General Government will hold a budget hearing next week with Treasury Secretary Steven Mnuchin.
  • The Senate Banking, House and Urban Affairs Committee will hold a hearing on “Fostering Economic Growth: The Role of Financial Institutions in Local Communities”
  • The House Energy and Commerce subcommittee on Digital Commerce and Consumer Protection will hold a hearing on “Financial Options with FinTech” at 10 a.m.

BULL SESSION

See how Kansas Gov. Sam Brownback’s (R) tax “experiment” failed:

Fact Check: The Trump administration’s tally of $350 billion-plus in deals with Saudi Arabia:

Watch how the Senate hearing on surveillance turned into a Russia hearing:

Before you watch the Comey hearing, here are seven takeaways from his written testimony: 



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