Top Stories

  • Facebook Inc. privately pitched its plans to launch a digital currency to more than a dozen officials from the Treasury Department, Securities and Exchange Commission and other agencies in June, leaving the regulators shocked at the tech giant’s lack of preparedness, according to three people familiar with the meeting. The regulators were surprised Facebook couldn’t better address concerns including money laundering, consumer protection and other potential financial risks. (The Washington Post)
  • President Donald Trump said he could impose more tariffs on Chinese goods after promising to hold back on any more tariffs following a truce reached with Chinese President Xi Jinping in Osaka last month. New tariffs would “create a new obstacle” for recently revived U.S.-China trade talks, China’s Foreign Ministry spokesman Geng Shuang said. (Bloomberg)
  • Bank of America Corp. posted an 8 percent jump in second-quarter profit to $7.3 billion, reporting record-high profit for the first half driven by strong retail lending. Revenue climbed 2.1 percent year-over-year to $23.2 billion. (CNBC)

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Events Calendar (All Times Local)

07/17/2019
In|Vest conference
House Financial Services Committee hearing: “Examining Facebook’s Proposed Cryptocurrency and Its Impact on Consumers, Investors, and the American Financial System” 10:00 am
07/24/2019
House Financial Services Committee hearing: “The Next Megabank? Examining the Proposed Merger of SunTrust and BB&T” 10:00 am
07/18/2019
Bipartisan Policy Center event: “The Sandwich Generation’s Financial Strain: How Caregivers Balance Family and Finances” 3:30 pm
View full calendar

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General

Trump’s Policies, Not His Heckling, May Force Fed to Cut Rates
Jeanna Smialek, The New York Times

President Trump lacks official power to make the Federal Reserve cut interest rates, but he may have found a way to force its hand: stoking economic uncertainty. The Fed’s chair, Jerome H. Powell, has signaled that he and his colleagues could cut interest rates at their upcoming meeting as inflation remains stubbornly low and risks, including Mr. Trump’s trade war with China, threaten economic growth. Mr. Powell, speaking in Paris on Tuesday, reiterated that the Fed would act as appropriate to sustain the economic expansion. 

On Path to ECB, Lagarde Resigns as IMF’s Chief
Josh Zumbrun, The Wall Street Journal

Christine Lagarde submitted her formal resignation as managing director of the International Monetary Fund to prepare for the nomination process to be the next president of the European Central Bank and to allow the IMF to begin finding her successor. Ms. Lagarde was announced as the leading candidate for the ECB job two weeks ago, and had relinquished leadership of the IMF at that time, but she had not resigned. Her resignation will formally take effect Sept. 12.

Trump tries to woo Federal Reserve in China trade fight
James Politi, Financial Times

Shortly after trade talks with China broke down acrimoniously in mid-May, US president Donald Trump very publicly turned to Jay Powell, head of the Federal Reserve, for help in confronting Beijing.  “China will be pumping money into their system and probably reducing interest rates, as always, in order to make up for the business they are, and will be, losing,” Mr Trump wrote in a tweet.

Powell Says Fed Must Pay Greater Attention to Global Developments
Nick Timiraos, The Wall Street Journal

Federal Reserve Chairman Jerome Powell highlighted the growing importance of global developments in monetary policy—a reflection of how slowing growth abroad could prompt the U.S. central bank to provide new stimulus despite steady labor markets and consumer spending. In remarks prepared for delivery at a conference in Paris, Mr. Powell also underscored the benefits that the U.S. economic expansion has delivered to a broad range of Americans, including low- and moderate-income communities that haven’t always shared as broadly in economic gains.

Currency intervention: how would the US do it, and would it work?
Eva Szalay, Financial Times

The US dollar is near a multi-decade high, on a trade-weighted basis, and President Donald Trump is not happy about it. His increasingly blustery rhetoric, accusing other countries of manipulating their currencies lower to boost exports, could mean that the US Treasury Department intervenes in FX markets for the first time in years.

Lighthizer Charms Congress, but Struggles to Sell USMCA
Natalie Andrews, The Wall Street Journal

When he isn’t trying to forge an elusive trade deal with China, U.S. Trade Representative Robert Lighthizer can often be found working Capitol Hill, schmoozing with lawmakers on that other trade deal, the one with Canada and Mexico. Rep. Stephanie Murphy of Florida is one of the many Democrats Mr. Lighthizer has impressed with his attention to their concerns and the sheer amount of time he is devoting to win support for the U.S.-Canada-Mexico Trade Agreement, or USMCA.

Fed’s Kaplan Says Rate Cut Could Be Warranted Based on Bond-Market Signals
Nick Timiraos, The Wall Street Journal

Dallas Fed President Robert Kaplan said he could be convinced by arguments to cut rates based on signals coming from bond markets, even though he hadn’t penciled in any rate cuts this year at the central bank’s June policy meeting. Bond yields have tumbled over the last two months, a sign investors expect poorer economic growth and potential rate cuts from the Fed and other central banks.

White House Knows It Needs the Fed to Make a Dent in the Dollar
Katherine Greifeld and Saleha Mohsin, Bloomberg

Donald Trump needs help from one of his favorite punching bags, the Federal Reserve, if he truly wants to take action to weaken the dollar. The president has repeatedly brought up the idea of late. He tweeted this month that Europe and China are playing a “big currency manipulation game” and called on the U.S. to “MATCH, or continue being the dummies.” 

White House, Congress inch toward debt, budget deal
Jordain Carney and Niv Ellis, The Hill

Lawmakers and key administration officials say they are getting close to a budget deal that will allow them to avoid defaulting on the debt as they barrel toward a break at the end of the month. Congress has a matter of days before it’s scheduled to leave for the August recess, raising the stakes for negotiators to clinch an agreement quickly.

WTO rules against US in tariff dispute with China
Don Weinland, Financial Times

The World Trade Organization has said some US tariffs on Chinese goods do not comply with its rules, opening the door for Beijing to levy retaliatory sanctions. The ruling from the WTO appellate body on the case, which predates the current trade war between the two countries, was attacked by the US trade representative office, which claimed the report was undermining its own rules. 

Stocks Struggle as Earnings Roll In; Dollar Steady: Markets Wrap
Robert Brand, Bloomberg

U.S. equity futures pared gains as corporate earnings gave traders food for thought, while European stocks struggled for traction amid fresh trade tensions. Treasuries were steady and European government bonds climbed.

Banking

Consumer Lending Powers Big-Bank Earnings, Upstaging Wall Street
David Benoit et al., The Wall Street Journal

U.S. consumers are taking advantage of low interest rates to borrow and spend, boosting banks that cater to Main Street and leaving behind those that don’t. Booming consumer businesses drove quarterly profits higher at JPMorgan Chase JPM 1.07% & Co., Wells Fargo WFC -3.02% & Co. and Citigroup Inc., C -0.54% while trading and deal fees shrank. 

Banks Get the Late-Cycle Blues
Aaron Back, The Wall Street Journal

Banks are showing symptoms of late-cycle exhaustion. Quarterly results from a trio of big U.S. lenders showed slowing loan growth and declining net interest margins.

FDIC eases requirements on deposit tracking
Rachel Witkowski, American Banker

The Federal Deposit Insurance Corp. voted 3-1 on Tuesday to give large banks additional time to comply with new rules that force them to keep better track of insured deposits. The agency also unanimously approved a final rule giving banks additional ways to verify joint deposits and issued a new proposal designed to make it easier for institutions to receive a safe harbor for backing certain residential securitizations.

Financial Products and Investments

Lawmakers unveil competing flood insurance bill
Hannah Lang, American Banker

 Lawmakers from states threatened by storms unveiled a bill to reform the National Flood Insurance Program that they say is better for consumers than recent legislation passed by the House Financial Services Committee. The bill is sponsored by three senators Bob Menendez, D-N.J., John Kennedy, R-La., and Bill Cassidy, R-La., and several members of the House, including Reps. Frank Pallone, D-N.J., and Bill Pascrell, D-N.J. 

Housing and GSEs

FDIC Plan Would Ease Requirement for Banks Selling Mortgage Securities
Lalita Clozel, The Wall Street Journal

A regulator proposed easing a hurdle for banks to sell pools of home-mortgage obligations, as part of an effort to spur competition in a market dominated by government-backed entities such as Fannie Mae and Freddie Mac. The Federal Deposit Insurance Corp. on Tuesday released a plan that would ease disclosure requirements implemented in 2010 after the financial crisis that discouraged banks from packaging and reselling mortgage-backed securities, a nearly $10 trillion market.

Former Freddie Mac CEO says GSEs should be regulated like utilities
Kathleen Howley, HousingWire

Two weeks into his new gig as a senior fellow at Harvard University’s Joint Center for Housing Studies, Donald Layton, who was the CEO of Freddie Mac until the end of June, is speaking out – in favor of regulation. The title of Layton’s first major paper since joining Harvard is: “Why is the administration not talking about utility-style regulation of g-fees?”

Taxes

French Defiance to Trump on Digital Tax Casts Shadow Over G-7
William Horobin and Helene Fouquet, Bloomberg

A French-U.S. clash over digital taxation overshadowed the start of a Group of Seven finance chiefs meeting as France refused to flinch on its plan to impose levies that will hit American tech giants. Just hours before an encounter with U.S. Treasury Secretary Steven Mnuchin at the G-7 near Paris, French Finance Minister Bruno Le Maire pledged to forge ahead with a 3% levy on digital revenues of large companies.

Bipartisan House Coalition Strikes Against Health Law’s Cadillac Tax
Richard Rubin and Stephanie Armour, The Wall Street Journal

The House of Representatives is poised to vote to repeal the “Cadillac tax” on high-cost employer health insurance, removing a piece of the Affordable Care Act that never took effect. Wednesday’s scheduled vote could deliver a victory to labor unions and employers that teamed up against the tax. 

Senate ratifies long-stalled tax treaty
Naomi Jagoda, The Hill

The Senate on Tuesday ratified a protocol updating a tax treaty between the U.S. and Spain — the first of four agreements that are slated to get a vote this week after they were stalled for years. The protocol with Spain was approved by a vote of 94-2. Sen. Rand Paul (R-Ky.), who has long objected to the treaties the Senate is considering, and Sen. Mike Lee (R-Utah) were the only two “no” votes.

Financial Technology

‘I don’t trust you guys’: Libra divides Republicans amid Facebook furor
Zachary Warmbrodt, Politico 

Facebook’s plan to spearhead a new digital currency is splitting Republicans over whether they trust the social media giant to become a new force in finance, amid concerns over privacy violations and fears of bias against conservatives. The latest GOP rift over Big Tech emerged at a Senate Banking Committee hearing Tuesday on Facebook’s planned Libra currency, which the company and several partners are looking to launch next year.

Bitcoin Loses Almost a Third of Its Value as Libra Hype Fades
Steven Russolillo, The Wall Street Journal

Facebook Inc. FB -0.03% ’s struggle to convince lawmakers it can create a viable cryptocurrency is rubbing off on bitcoin. The world’s most popular cryptocurrency has fallen sharply as regulatory scrutiny of Facebook’s ambitious plan to release its own digital coin, called Libra, has spoiled bitcoin’s big rally this year.

PayPal-backed blockchain aims to help banks verify digital IDs
Penny Crosman, American Banker

A startup blockchain backed by PayPal and the Omidyar Network aims to help financial institutions quickly verify digital identities. IDKeep, which went live Tuesday, was designed by Cambridge Blockchain and LuxTrust, a startup backed by the Luxembourg government and several banks.

Opinions, Editorials and Perspectives

Congress: Crypto is Bigger than Facebook
Harold Ford Jr., Morning Consult

Over the last decade, both Democrats and Republicans have struggled to find common ground on the issues impacting America’s tech sector. From net neutrality to data privacy protections, both consumers and businesses have largely been bewildered about where policy is heading. 

The $40 billion gift that Wall Street doesn’t deserve
Graham Steele, American Banker

The esoteric financial products known as derivatives are so risky that they were once called “financial weapons of mass destruction.” Derivatives were central to the near-failures and bailouts of the giant hedge fund Long-Term Capital Management in 1998 and the insurer AIG in 2008.

Research Reports

Monetary Policy and Financial Conditions: A Cross-Country Study
Tobias Adrian et al., The Federal Reserve Bank of New York

Loose financial conditions forecast high output growth and low output volatility up to six quarters into the future, generating time-varying downside risk to the output gap, which we measure by GDP-at-Risk (GaR). This finding is robust across countries, conditioning variables, and time periods. 

Morning Consult