Welcome to Libra week
Welcome to Libra week — Facebook’s proposed digital currency will likely take a hammering on Capitol Hill this week with a Senate Banking Committee hearing on Tuesday and a House Financial Services hearing on Wednesday.
Trump ripped the would-be digital currency last week, the SEC is considering regulating it and House Financial Services Chair Maxine Waters circulated a discussion draft of a bill that would ban “large platform utilities” from becoming financial institutions. Not likely to be an easy week for Facebook’s David Marcus who testifies at both hearings.
First in MM: New at the CFTC — New CFTC Chairman Heath Tarbert plans to name Jaime Klima, currently chief counsel at the SEC, as his new chief of staff. Via SEC chair Jay Clayton: “Jaime’s judgment, pragmatism, and character made her an invaluable member of my leadership team.”
Via Tarbert: “Jaime is whip smart, a financial regulatory expert, and has impeccable judgment. I'm thrilled to have her aboard as we work to keep our derivatives markets vibrant while holding wrongdoers accountable.”
Flash: China slows — Via CNBC’s Huileng Tan: “China released second-quarter figures on Monday showing that its economy slowed to 6.2% — the weakest rate in at least 27 years, as the country’s trade war with the U.S. took its toll.
“From April to June, China’s economy grew 6.2% from a year ago, the country’s statistics bureau said on Monday. …The second quarter growth was the country’s slowest pace since the first quarter of 1992, the earliest quarterly data on record, according to Reuters.”
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DRIVING THE DAY
President Trump at 11:45 a.m. hosts the “Made in America Product Showcase” … Treasury Secretary Steven Mnuchin at 3:15 p.m. participates in a Justice Department session on fighting anti-Semitism … Empire State manufacturing at 8:30 a.m. expected to rise to 2.0 from -8.6
ALSO THIS WEEK — House Financial Services has a markup hearing on Tuesday at 10:00 a.m. … Senate Banking Libra hearing at 10:00 a.m. Tuesday … Senate Banking has a hearing Wednesday at 9:30 a.m. on economic mobility … House Financial Services Libra hearing at 10:00 a.m. Wednesday …
House Judiciary subcommittee has a hearing on tech market power at 2:00 p.m. on Tuesday featuring executives from Facebook, Apple, Google and Amazon … Trump has a MAGA rally in North Carolina on Wednesday
MEET AOC’s CHIEF OF STAFF — NYT's Catie Edmondson: “After graduating from Harvard, [Saikat] Chakrabarti worked for a year as a technology associate at the hedge fund Bridgewater Associates, and then moved to Silicon Valley to help found the technology company Stripe. He is presumed to be rich, but has not filed a financial disclosure form, leadership aides say.”
POLL BLAST: TRUMP TRAILS TOP DEMOCRATS — NBC’s Mark Murray: “Former Vice President Joe Biden leads the president by 9 points among registered voters, 51 percent to 42 percent — outside of the poll's margin of error of plus-minus 3.5 percentage points.
“Sen. Bernie Sanders, I-Vt., is ahead of Trump by 7 points, 50 percent to 43 percent. Sen. Elizabeth Warren (D-Mass.), holds a 5-point advantage, 48 percent to 43 percent. And Sen. Kamala Harris (D-Calif.), is ahead by just 1 point, 45 percent to 44 percent — a jump ball.”
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THE FED’S DILEMMA — Via Mohamed A. El-Erian: “It’s hard to justify a rate cut using traditional metrics. The unemployment rate is at a five-decade low, inflation is not that far below the Fed’s target, financial conditions are the loosest in almost two decades, stock indices are at record highs, and interest rates are already at low levels. …
“The more the central bank does now, the less room it will have to cut later if domestic economic momentum wanes. … The greater the policy easing, the stronger the signal to investors and traders to expand their risk appetite even more – and this at a time when several indicators of excessive risk-taking are already flashing yellow if not red.”
TOP ECONOMISTS OF THE LEFT — WSJ’s Jacob M. Schlesinger: “For decades, William Darity Jr. and Darrick Hamilton toiled in obscurity. They criticized mainstream economists and politicians for failing to address racial inequality, and touted more radical remedies of their own.
“Now, with the 2020 presidential campaign under way and liberal Democrats ascendant, the two economists are in the spotlight, thrust into the middle of an intraparty debate over how much to embrace big government and a race-oriented message.”
NEW AT MOODY’S — Per release out this a.m.: “Moody’s Corporation announced today that Lisa Rabbe has joined Moody’s as Chief Government and Public Affairs Officer. Ms. Rabbe will oversee Moody’s global engagement with regulators, policymakers and other external groups.”
FLOOR TRADERS CLASH WITH NYSE — WSJ’s Alexander Osipovich: “Floor traders on the New York Stock Exchange, who once numbered in the thousands, have been pushed to the brink of extinction by the rise of electronic trading. Now, some feel they have a new nemesis: the NYSE itself. The Big Board publicly celebrates the floor, one of the world’s last working stock-exchange trading floors and an essential part of the NYSE’s brand.
“Behind the scenes, conflict has broken out over a crackdown on floor traders that some say has driven smaller firms out of business. Current and former floor traders said the exchange’s in-house regulatory arm since 2017 has ramped up enforcement of a federal rule designed to prevent trading errors. That occurred in the wake of a bungled trade that caused one brokerage to fail.”
CENTRAL BANKS TOSSING GRENADES — Bloomberg’s Enda Curran: “Central bankers readying to fight another economic downturn are tossing hand grenades rather than firing bazookas.
“Federal Reserve Chairman Jerome Powell and European Central Bank President Mario Draghi stand ready alongside many of their counterparts to cut interest rates to bolster the weakest growth in a decade and lackluster inflation. Yet they have little to work with and, perhaps more worryingly, what they do have lacks potency.”
PUERTO RICO’S BANKRUPTCY PLAN ALMOST DONE — NYT’s Mary Williams Walsh: “After three years of negotiations, Puerto Rico’s federal overseers are at last finishing up a plan to complete the restructuring of the island’s roughly $124 billion in debt. To resolve the biggest government financial collapse in United States history, they have had to untangle the island’s thorny finances, negotiate with creditors and figure out how to do it without endangering the livelihoods of retirees who rely solely on their pensions.
“That may have been the easy part. Some of the island’s creditors — including the hedge fund Aurelius Capital Management, which held up Argentina’s debt settlement for years for a better deal — will almost certainly challenge the plan on the ground that it violates the territory’s 1952 Constitution.”
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SEC WEIGHS WHETHER TO REGULATE LIBRA — WSJ’s Dave Michaels and Lalita Clozel: “U.S. securities regulators are examining whether Facebook Inc.’s planned cryptocurrency should fall under their oversight, a development that could further complicate a project that faces criticism from … Trump and lawmakers.
“Staff at the Securities and Exchange Commission are looking at whether Libra’s structure effectively makes it an exchange-traded fund, according to people familiar with the matter. If the SEC decided that Libra’s design makes it an ETF, Facebook would need the regulator’s approval to launch the project.”
WARNING SIGNS FROM CHINA’S STOCK MARKET — Bloomberg: “China’s nervy stock market is about to be hit with $5.4 billion in fresh supply. The risk that a new trading venue in Shanghai will drain liquidity from existing shares is one of the top concerns keeping investors in China awake at night. Throw in worsening economic data, excessive large-cap valuations and selling from overseas funds, and Chinese shares are among the world’s worst performers since Presidents Xi Jinping and Donald Trump agreed to resume trade talks.”
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FED EXPECTED TO LAUNCH REPO FACILITY EARLY NEXT YEAR — Reuters: “The Federal Reserve may launch a policy tool to lend to banks using Treasuries and other securities as collateral in early 2020 with possible testing to begin later this year, a Deutsche Bank strategist said. Such a standing fixed-rate repurchase agreement, or repo, facility would serve as a backstop against sharp spikes in interest rates in money markets, which are occurring with growing frequency at month- and quarter-end.”
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