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Finance Brief: Mnuchin Dismisses Reports of Tax Hike for Wealthiest Americans

Washington Brief

  • A “full-blown release” of a tax overhaul is planned for the beginning of September, with the aim of a final vote before the end of the year, according to Treasury Secretary Steven Mnuchin, who dismissed reports that the proposal would include a top personal tax rate of 40 percent or more. (USA Today)
  • Republicans looking to advance tax reform legislation face an uphill battle, including intra-party divisions about key parameters of their plan and continued tension surrounding efforts to pass a health care bill, according to industry experts. Tax reform is also clouded by impending fiscal deadlines to pass government spending bills and raise the debt ceiling. (Bloomberg News)
  • G-20 leaders closed their summit with an agreement to secure fair trade and a declaration to “strive to ensure a level playing field.” For the first time since 2008, the group forsook a level commitment to free trade and embraced the need to instead pursue balanced trade. (The Associated Press)

Business Brief

  • European financial leaders expressed concern about global financial stability in the face of President Donald Trump’s potential scale back of Dodd-Frank rules. The European Union’s financial services chief, Valdis Dombrovskis, said that if Trump abandons regulatory agreements put in place after the 2008 financial crisis it could endanger already shaky global cooperation. (The Wall Street Journal)
  • Of the six largest U.S. banks, Goldman Sachs has had the sharpest forecast decline since the start of the year. Analysts have lowered Goldman Sachs earnings per share estimates by 11 percent in the past six months, while estimates for Citigroup and Morgan Stanley have fallen by 8 percent and 5 percent, respectively. (Financial Times)
  • The Financial Industry Regulatory Authority may be forced to revise its ban on class-action waivers in arbitration clauses if the Supreme Court next term sides with the Trump administration regarding arbitration agreements. The Justice Department did not defend Finra’s class-action provision in a recent lawsuit involving the Labor Department fiduciary rule, saying that doing so would contradict the position of the Trump administration in a case the Supreme Court is set to take up. (InvestmentNews)

Chart Review

Events Calendar (All Times Local)

Monday
Tuesday
Fed’s Brainard speaks at New York Fed conference 12 p.m.
Ken Rogoff speaks at National Economists Club 5:30 p.m.
Wednesday
U.S.-China Economic and Security Review Commission hearing 9:30 a.m.
Fed’s Yellen testifies before House Financial Services Committee 10 a.m.
Heritage Foundation discussion on U.S. debt 12 p.m.
House Financial Services subcommittee hearing on reg relief for community financial institutions 2 p.m.
Thursday
House Ways and Means Committee hearing on tax reform 10 a.m.
Fed’s Yellen testifies before Senate Banking Committee 10 a.m.
House Financial Services subcommittee hearing on the fiduciary rule 10 a.m.
Crowe Horwath webinar on Trump tax reform plan 12 p.m.
Friday
House Financial Services subcommittee hearing on fixed income market structure 9:15 a.m.

 

General

G-20 shut Trump out on climate, strike deal on trade
David McHugh and Geir Moulson, The Associated Press

World powers lined up against U.S. President Donald Trump on climate change, reaffirming their support for international efforts to fight global warming. The Group of 20 summit that ended Saturday in Hamburg also revealed tensions on trade, as the U.S. administration and international partners forged a deal that endorsed open markets but acknowledged countries had a right to put up barriers to block unfair practices

U.S. Jobs Growth Picks Up, but Wage Gains Lag Behind
Jeffrey Sparshott, The Wall Street Journal

U.S. employers are churning out jobs unabated as the economic expansion enters its ninth year, but the inability to generate more robust wage growth represents a missing piece in a largely complete labor recovery. U.S. employers added a seasonally adjusted 222,000 jobs in June, the Labor Department said Friday, and the unemployment rate rose slightly to 4.4% with more people actively looking for work.

Stocks Advance as Mood Remains Buoyant After Data: Markets Wrap
Natasha Doff, Bloomberg News

Stocks rose and the dollar was steady as investors prepare to parse second-quarter earnings for more evidence global economic growth is back on track after a positive batch of data from Europe and the U.S. The Euro Stoxx 50 index was 0.3 percent higher as of 10:42 a.m. in London.  S&P 500 Index futures were up 0.1 percent.

Banking

Big US banks’ profit forecasts take a fall
Alistair Gray, Financial Times

Profit forecasts for several of the biggest US banks including Citigroup, Goldman Sachs and Morgan Stanley have taken a fall as concerns mount that a dearth of dealing in markets is leaving trading desks idle. On the eve of results season, an analysis of broker estimates shows Wall Street is anticipating a mixed batch of earnings, in spite of a boost to banks from higher interest rates and recent success in the Federal Reserve’s stress tests.

City’s banks see Trump bump begin to flatten
Aaron Elstein, Crain’s New York Business

Wall Street figured to be one of the biggest beneficiaries of Donald Trump’s presidency, as investors bet that banks would thrive under the administration’s lighter regulatory touch, lower taxes and overall pro-business approach. Bank stocks’ post-election rally was led by Goldman Sachs, which counts several alumni as administration officials.

Finance friendly France Scores Late Points in Brexit Bank Context
Leigh Thomas et al., Reuters

A government push to make France more “finance-friendly” is raising Paris’ chances of attracting Brexit-fleeing banks from London although it is raising its game at a late stage in the process, a group of senior financial industry executives said. Eager to keep Frankfurt from getting the bulk of jobs that leave London, Prime Minister Edouard Philippe outlined on Friday plans to ease the financial sector’s wage bills and vowed to keep the regulatory burden competitive.

Financial Products and Investments

Supreme Court could put pressure on Finra class-action policy
Mark Schoeff Jr., InvestmentNews

If the Supreme Court sides with the Trump administration on the question of class-action litigation in arbitration agreements, it could cause Finra to rethink its policy banning waivers. In a series of pending cases the court will hear next year, the Trump administration argues that class-action can be prohibited in arbitration clauses, taking a different stance than that of the Financial Industry Regulatory Authority Inc., the broker-dealer self-regulator, which does not allow class-action waivers in arbitration clauses between brokers and customers.

Housing and GSEs

Fitch: New tools from Fannie Mae and Freddie Mac will make mortgages safer
Ben Lan, HousingWire

Mortgage underwriting is getting stronger and safer for both borrowers and lenders thanks to new tools introduced in recent years by Fannie Mae and Freddie Mac, Fitch Ratings said in a new report. According to Fitch, new approaches to appraisal valuation and income verification are “improving these government-sponsored enterprises’ ability to assess credit risk, while reducing costs for sellers and borrowers.”

Taxes

Mnuchin still expects middle-class tax cuts in 2017
Paul Davidson, USA Today

Treasury Secretary Steven Mnuchin said Sunday the Trump administration still aims to pass tax reform legislation this year and its focus is on cutting taxes for middle-class Americans and businesses rather than the wealthy. “We’re absolutely committed to getting tax reform done this year,” Mnuchin said on ABC’s This Week With George Stephanopoulos.

Trump’s Massive Tax-Cut Plan Faces ‘Train-Wreck’ of a Calendar
Sahil Kapur, Bloomberg News

Congress returns from its mid-summer break Monday for a crucial three-week stretch that will help determine whether President Donald Trump can deliver on his promise of a historic tax cut. Several obstacles await lawmakers, including an ongoing health-care fight, divisions among Republicans on the basic parameters of a tax bill, and a maelstrom of upcoming deadlines to keep the government running and avert a catastrophic default on U.S. debt.

Financial Technology

Stripe strikes global partnerships with China’s Alipay, WeChat Pay
Anna Irrera, Reuters

Silicon Valley startup Stripe has partnered with digital payment providers Alipay and WeChat Pay to enable merchants using its platform globally to accept payments from hundreds of millions of Chinese consumers. Starting Sunday, the partnerships will allow online merchants using Stripe to integrate the ability for Chinese users to pay with Alipay and WeChat Pay on their websites, the company said.

Opinions, Editorials and Perspectives

American needs pro-growth tax reform to shrink the deficit
Jenny Beth Martin, The Hill

If there’s little appetite for reductions on the spending side of the equation, there’s only way to solve the math problem — increase receipts on the revenue side of the equation. And that means it’s time to push hard for tax reform — the kind of tax reform that will generate the kind of economic growth needed to boost federal revenues and reduce federal outlays far more than current CBO projections suggest.

Health and tax overwhelm Republicans
Rana Foroohar, Financial Times

Healthcare reform is the Moby-Dick of American politics, a great white whale that can pull down anyone who takes it on. Former President Barack Obama encountered it, as did Hillary Clinton during her husband’s tenure in the White House. Republican senators returning this week from their July 4 holidays must surely be thinking about it, too, as they try again to push through a healthcare bill that has become the single most unpopular piece of legislation in three decades.

SEC Expands Nonpublic Review of Draft Registration Statements
Mark D. Wood et al., National Law Review

The Division of Corporation Finance (Division) of the Securities and Exchange Commission announced that, beginning on July 10, the Division will permit all issuers to confidentially submit to the Division, for nonpublic review, draft registration statements in connection with initial public offerings (IPOs) and in certain other cases. This was previously only available to emerging growth companies (EGCs) under the Jumpstart Our Business Startups Act for their IPOs.

Research Reports

The Global Factor in Neutral Policy Rates: Some Implications for Exchange Rates, Monetary Policy, and Policy Coordination
Richard H. Clarida, The National Bureau of Economic Research

This paper highlights some of the theoretical and practical implications for monetary policy and exchange rates that derive specifically from the presence of a global general equilibrium factor embedded in neutral real policy rates in open economies.