Top Stories

  • The Commodity Futures Trading Commission voted to establish position limits for the first time on 16 agricultural, metal and energy commodities, as well as updating nine existing agricultural caps. The rule, a provision of the 2010 Dodd-Frank Act, is designed to prevent price swings caused by speculators that aren’t representative of supply-and-demand movements. (The Wall Street Journal)
  • House Speaker Nancy Pelosi (D-Calif.) and Treasury Secretary Steven Mnuchin spoke for nearly 90 minutes yesterday, after which both said they had made progress on resolving differences in one of Pelosi’s big asks: a national strategic testing plan for COVID-19. Mnuchin said that the White House would accept the proposal with “minor” modifications, according to Pelosi’s spokesman, although Senate Majority Leader Mitch McConnell (R-Ky.) said that President Donald Trump is “willing to go higher” on a relief package price tag than Senate Republicans are. (The Washington Post)
  • World Bank Chief Economist Carmen Reinhart warned that the coronavirus pandemic could turn into a “major economic crisis, with very serious financial consequences.” When asked about central banks purchasing bonds to keep yields low and whether that strategy has its limits, she noted that there are “dire needs” that governments must address during these times, further warning that “the scenario we are in is not a sustainable one.” (Bloomberg)

Chart Review

Events Calendar (All Times Local)

10/16/2020
IFF Annual Membership Meeting
Federal Reserve Bank of New York: Culture and Communities: A Conversation about the Creative Sector, Community Development and Impact Investing 9:00 am
10/19/2020
American Bankers Association Unconventional Convention
SIFMA Annual Meeting
International Monetary Fund and World Bank Group event: “Cross-Border Payment—A Vision for the Future” 8:00 am
Hudson Institute event: “China’s Eight Deadly Sins in Trade Policy: A conversation with Peter Navarro” 11:00 am
10/20/2020
American Bankers Association Unconventional Convention
SIFMA Annual Meeting
FDIC open meeting 10:00 am
WHF/WHFF Partner Series: Is Postal Banking In Our Future 12:00 pm
10/21/2020
Society of Professional Economist conference
Economic Club of DC Election Panel
Brookings event: “Charting a new course toward economic, social, and environmental progress” 9:00 am
PIIE event: “In light of COVID-19, should supply chains be reconfigured?” 10:00 am
Bipartisan Policy Center event: “What Is Stakeholder Capitalism and What Might It Mean for Corporate Governance?” 2:00 pm
Brookings event: “Economic recovery in American cities: Building Black businesses and wealth” 2:00 pm
View full calendar

New Report: What Consumers Want Companies to Say and Do in a Year Like No Other

Driven by a dwindling economy, an unfolding pandemic, significant social unrest around racial injustice and an imminent election, 2020 has been defined by a quickly changing consumer environment.

Our new report, What Consumers Want Companies to Say and Do in a Year Like No Other, brings together our latest insights to help brands strike the right tone in messages and communications. Download the report.

General

Jobless claims increase to 898,000, a sign the recovery could be stalling
Eli Rosenberg, The Washington Post

The number of new unemployment claims jumped last week, the latest sign of the toll the coronavirus pandemic continues to take on the economy. States across the country processed 898,000 new unemployment claims, up more than 50,000 from the previous week, the largest increase in first-time jobless applications since August.

8 Million Have Slipped Into Poverty Since May as Federal Aid Has Dried Up
Jason DeParle, The New York Times

After an ambitious expansion of the safety net in the spring saved millions of people from poverty, the aid is now largely exhausted and poverty has returned to levels higher than before the coronavirus crisis, two new studies have found. The number of poor people has grown by eight million since May, according to researchers at Columbia University, after falling by four million at the pandemic’s start as a result of a $2 trillion emergency package known as the Cares Act.

Fed’s Quarles Disappointed by Short-Term Lending Strains in March
Paul Kiernan, The Wall Street Journal

A top Federal Reserve official said strains in short-term lending markets that emerged in March were “particularly disappointing” given regulators’ efforts in the past decade to shore up those markets. Fed Vice Chairman Randal Quarles on Thursday added his voice to chorus of regulators calling in recent weeks for a re-examination of possible ways to make the commercial-paper market and some money-market mutual funds more resilient during times of market distress.

Not even a pandemic can break rich cities’ grip on the U.S. economy
Hamza Shaban, The Washington Post

Adam Fawer has seen the ups and downs of living and working in New York City. In the early ’90 and just out of college, he struggled to find work. 

Bank of England calls for mandatory company disclosures on climate risks
Reuters

A common, mandatory set of rules on company disclosures are needed to help markets price in risks from climate change, a senior Bank of England official said on Friday. “Disclosing your plans can improve your credit rating, broaden your investor base, reduce your cost of finance, and economise on the fixed costs of meeting increasingly vocal investor requests for information,” the BoE’s executive director for markets Andrew Hauser told an Investment Association online event on Friday.

Business Groups Urge Trump to Withdraw Order on Diversity Training
Khadeeja Sadfar and Lauren Weber, The Wall Street Journal

More than 150 business and nonprofit groups, including the U.S. Chamber of Commerce, are asking President Trump to withdraw his executive order that puts a limit on some diversity training. In a letter sent to the White House Thursday, the groups said that the order creates confusion, leads to unnecessary investigations and hinders employers from combating workplace discrimination.

Retail Spending Likely Rose in September on School Supplies, Vehicle Sales
Harriet Torry, The Wall Street Journal

Retail sales likely increased in September for the fifth month in a row, as consumers prepared for further months of working and studying from home by spending at home-improvement stores and on appliances and vehicles. “September is kind of a hinge month” between the back-to-school and holiday seasons, said Craig Johnson, president of Customer Growth Partners, a consulting firm. He added that this year’s back-to-school season pushed further into September because many schools delayed opening for in-person classes, giving sales of school supplies and computers a second wind.

Futures Gain With Europe Stocks; Dollar Weakens: Markets Wrap
Robert Brand, Bloomberg

U.S. equity-index futures edged higher along with stocks in Europe as positive corporate news lifted sentiment amid concerns about new restrictions to curb the pandemic and the stalemate over U.S. stimulus.

Banking

A Liquidity Rule Dormant Since 2016 Is Getting a Second Life, and Banks Say the Treasury Market Can’t Handle It
Claire Williams, Morning Consult

Regulators are picking back up a long-delayed liquidity rule before a potential administration turnover after the presidential election, reviving concerns among banks that it could hobble the smooth functioning of markets — concerns that have taken on new urgency after the Treasury market meltdown in March. The net stable funding ratio is a liquidity benchmark proposed in 2016 by the Federal Reserve Board, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency. 

Top Citi Banker Ray McGuire Leaves to Pursue NYC Mayoral Run
Jennifer Surane et al., Bloomberg

Ray McGuire, one of Citigroup Inc.’s top investment bankers, is leaving the firm as he takes the first steps toward a run for mayor of New York. McGuire on Thursday will open an account with the city’s Campaign Finance Board, said Lupe Todd-Medina, a spokeswoman for his campaign. That step will give him the ability to raise funds from donors and hire more staff as he seeks the Democratic nomination, Todd-Medina said. 

The Deutsche Bank whistleblower who gave up $8m is going broke
Tom Braithwaite, Financial Times

Seven years of court battles have left Eric Ben-Artzi with no money but a new crusade.

Financial Products and Investments

Banks Brace for ‘Big Bang’ Switch on $80 Trillion Worth of Swaps
William Shaw et al., Bloomberg

It’s being called the “big bang,” and it has derivatives traders on high alert. In a critical development in the global shift away from old benchmarks that was triggered by Libor’s shortcomings, interest-rate swaps on more than $80 trillion in notional debt will transition this weekend to a new rate for determining their value.

Warren asks watchdogs to probe private White House coronavirus briefings for insider trading
Sylvan Lane, The Hill

Sen. Elizabeth Warren (D-Mass.) has asked the two U.S. financial market regulators to investigate whether the Trump administration’s private February warnings to a conservative think tank about the potential economic harm of the coronavirus pandemic spurred insider trading.  In a Thursday letter to Securities and Exchange Commission (SEC) Chairman Jay Clayton and Commodity Futures Trading Commission (CFTC) Chairman Heath Tarbert, Warren asked the agencies to probe if administration officials privately shared information that was later used to preempt the March financial meltdown during late February briefings with the Hoover Institution.

Goldman Partner Gordon to Lead RedBird’s U.S. West Coast Efforts
Gillian Tan, Bloomberg

RedBird Capital Partners hired Goldman Sachs Group Inc. partner Andrew Gordon to run a new West Coast office. Gordon, who is based in Los Angeles, said he is retiring from Goldman and will join RedBird in February. The New York-based investment firm was founded by another former Goldman partner, Gerry Cardinale.

Housing and GSEs

Mortgage Rates Fall to a Record Low for the 10th Time This Year
Christine Marcus, Bloomberg

Mortgage rates in the U.S. have hit another record low. The average for a 30-year, fixed loan dropped to 2.81%, down from 2.87% last week and the lowest in almost 50 years of data-keeping, Freddie Mac said in a statement Thursday. 

Mortgage Lender IPOs Are Booming. Which Are the Best Buys?
Telis Demos, The Wall Street Journal

Home mortgage lending in the U.S. this year could hit record levels, and some big private lenders are eager to tap the public markets. Investors will have to sort out which—if any—to buy. The first to go public this year was Rocket Companies. 

Mortgage Credit for Some Americans Drying Up Amid Supply Deluge
Christopher Maloney, Bloomberg

A flood of mortgage-bond supply combined with a dearth of credit for lower-quality borrowers point to how the U.S. housing market is becoming more uneven when it comes to access to historically cheap debt. The Mortgage Bankers Association’s index of housing credit availability dropped last month to the lowest since February 2014.

Taxes

Biden’s proposed tax increases have shrunk, analysis says
Brian Faler, Politico 

Democratic presidential candidate Joe Biden’s proposed tax increases have shrunk, according to a new analysis, falling by almost half, to about $2.4 trillion. That’s because while he initially focused on raising taxes on businesses and rich people, in recent months Biden has leavened his plans with tax cuts aimed at people further down the income ladder.

Trump says he may lower corporate tax rate to 20 percent if reelected
Naomi Jagoda, The Hill

President Trump on Thursday said that he may push to lower the corporate tax rate from 21 percent to 20 percent if he is reelected. In an interview on Fox Business Network, Trump said he “may bring down the 21 percent down to 20,” calling a 20 percent rate an “even number.

U.S. Brings ‘Largest Ever Tax Charge’ Against Tech Executive
Michael Levenson, The New York Times

A Houston tech executive was charged on Thursday with hiding $2 billion in income from the Internal Revenue Service in what federal prosecutors called the largest tax evasion case in U.S. history. Federal prosecutors said the executive, Robert T. Brockman, had used a web of entities based in Bermuda and Nevis, as well as secret bank accounts in Bermuda and Switzerland, to hide income from the I.R.S. that he had earned on private equity investments over 20 years.

Billionaire Robert Smith Admits He Cheated on Taxes for 15 Years
David Voreacos and Neil Weinberg, Bloomberg

Billionaire Robert F. Smith has been hailed as a brilliant investor who built Vista Equity Partners into a private equity powerhouse and a generous philanthropist lauded for paying off the student debt of Morehouse College’s entire graduating class last year. But federal prosecutors undercut that image on Thursday, saying Smith concealed income and evaded taxes for 15 years by using foreign trusts, corporations and bank accounts to cheat the Internal Revenue Service.

Financial Technology

Cryptocurrency ETFs under active consideration, says SEC chair
Jackie Noblett, Financial Times

‘Tokenisation’ would allow a crypto asset to represent single securities like ETFs.

Robinhood Internal Probe Finds Hackers Hit Almost 2,000 Accounts
Sophie Alexander, Bloomberg

Almost 2,000 Robinhood Markets accounts were compromised in a recent hacking spree that siphoned off customer funds, a sign that the attacks were more widespread than was previously known. A person with knowledge of an internal review, who asked not to be identified because the findings aren’t public, provided the estimated figure.

Opinions, Editorials and Perspectives

America’s Money Men Could Save Us. But They’re Stuck in the Seventies.
Claudia Sahm, The New York Times

Let’s face reality: It is likely that no further economic relief is coming from Congress before the election. For months, negotiations between Democrats and Republicans over a follow-up package have alternated between stopping, starting and stalling.

How one of the world’s biggest banks plans to tackle climate change
Daniel Pinto and Ashley Bacon, Fortune

The Covid-19 pandemic has been a tragedy for many, a crisis for millions more. It has exacerbated age-old inequities and taken a heavy toll on economic growth. 

A pandemic should be the great equalizer. This one had the opposite effect.
Fareed Zakaria, The Washington Post

Pandemics should be the great equalizer. They affect everyone, rich and poor, Black and White, urban and rural.

Research Reports

When Uncle Sam Introduced Main Street to Wall Street: Liberty Bonds and the Transformation of American Finance
Eric Hilt et al., The National Bureau of Economic Research

We study the effects of the liberty bond drives of World War I on financial intermediation in the 1920s and beyond. Using panel data on U.S. counties we find that higher liberty bond subscription rates led to an increase in the number of investment banks, stronger local competition between investment banks and commercial banks, and a relative contraction in commercial bank assets.

Morning Consult