Will the ‘Bidenomics’ hot streak continue?

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Aug 04, 2023 View in browser   By Zachary Warmbrodt Presented by Structured Finance Association Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro. QUICK FIX Welcome to Jobs Day, where we’re expecting to learn that the U.S. economy turned out another solid month of employment growth in July. It could be the latest in a string of data points that have pushed economists to scrap their recession forecasts, though risks including rising gasoline prices loom. Let’s get into it. What the experts predict Economists generally expect the July numbers to show an increase of about 200,000 jobs and an unemployment rate of about 3.6 percent. That would be a near-repeat of June. It would also support the belief that the economy is cooling but not at risk of major layoffs as the Federal Reserve weighs raising interest rates even more to fight inflation. Things seem OK, but do voters feel it? No. About 51 percent of Americans believe the economy is in a downturn and getting worse, according to a CNN poll released Thursday. CNN polling reveals that 63 percent of Americans disapprove of President Joe Biden’s handling of the economy, with a majority of voters dissatisfied since late 2021. It’s at odds with a number of key economic indicators. The so-called misery index — the combination of the U.S. unemployment and inflation rates — has been falling for about a year. In June it hit its lowest level since March 2020. Bank of America this week became the first large Wall Street bank to reverse its forecast that the U.S. will experience a recession. It’s joining the camp that believes the Fed can pull off a “soft landing.” “People are employed, they have money, they are spending money,” Bank of America CEO Brian Moynihan said in a Bloomberg Television interview. “It looks like we are reaching a pretty good equilibrium.” What could go wrong?  Potential warning signs are showing up in manufacturing, banking and energy. Manufacturing activity contracted in July for the ninth consecutive month, while manufacturing employment hit its lowest level since July 2020, according to the Institute for Supply Management. A Fed survey showed banks expect to tighten credit standards across all loan categories in the second half of the year, after they pulled back on commercial and industrial lending. Deutsche Bank Research said the four previous times the survey showed such tightening were all associated with recessions. The bigger threat in the near term is shaping up to be rising gasoline prices, driven in part by global oil supply cuts and a U.S. heat wave that’s curtailed refinery output (keep in mind refineries are essentially giant, volatile chemistry sets). The national average gasoline price Thursday was $3.28, more than 28 cents higher than a month ago. Oil prices rose Thursday after Saudi Arabia extended production cuts ahead of an Opec+ meeting today. “We’re going to be going from disinflation potentially back to inflation when we talk about the price of gasoline — that’s something that could happen as soon as September,” GasBuddy analyst Patrick De Haan said in a new POLITICO piece on what’s happening at the pump. “[Fed officials] shouldn’t put their guard down when it comes to energy prices.” Happy Friday — We hope you have a relaxing August weekend. If you get bored, please reach out: Zach Warmbrodt, Sam Sutton.   A message from Structured Finance Association: Did you know? Your mortgage, credit card, or small-business or car loan probably has a lower interest rate because of securitization, the bundling of your loan with other loans for added safety by members of the Structured Finance Association. Learn more at www.structuredfinance.org.   Driving the day Elon Musk plots trading hub — Semafor reports that X, formerly known as Twitter, is seeking proposals from financial data providers on potential “financial content, real-time stock data, and other features.” Pitches were due last week. Buffett unfazed by Fitch downgrade — CNBC reports that Warren Buffett is shrugging off Fitch’s U.S. credit downgrade. His Berkshire Hathaway plans to keep scooping up Treasurys. “Berkshire bought $10 billion in U.S. Treasurys last Monday,” he said. “We bought $10 billion in Treasurys this Monday. And the only question for next Monday is whether we will buy $10 billion in 3-month or 6-month.” Pershing Square CEO Bill Ackman said this week he’s shorting long-term Treasurys, citing “large deficits as far as the eye can see.” Sen. Joe Manchin is one of the few Democrats who isn’t dismissing the Fitch downgrade, calling it “a stark warning that cannot be ignored.” He told CNBC that he welcomes the call to get the government’s “financial house in order.” What’s next for regional banks — FDIC Chair Martin Gruenberg will lay out ways to improve the resolution process for large banks — but not global significant ones — in an Aug. 14 Brookings Institution speech and Q&A.   A NEW PODCAST FROM POLITICO: Our new POLITICO Tech podcast is your daily download on the disruption that technology is bringing to politics and policy around the world. From AI and the metaverse to disinformation and cybersecurity, POLITICO Tech explores how today’s technology is shaping our world — and driving the policy decisions, innovations and industries that will matter tomorrow. SUBSCRIBE AND START LISTENING TODAY.     China Tim Scott’s tough China talk doesn’t match record — Our Gavin Bade reports that the South Carolina Republican has been one of the biggest roadblocks to new rules restricting U.S.-China trade, despite his rhetoric on the campaign trail. Scott has “only been willing to support new China policies if there’s very little cost, effectively saying that it isn’t worth it to stand up to China,” said Derek Scissors, a senior fellow at the American Enterprise Institute. Top Republican wants China curbs to cover stocks — The FT reports that Rep. Mike Gallagher, the chair of the House China committee, is urging Biden to restrict U.S. access to Chinese stocks and bonds in upcoming outbound investment restrictions. Gallagher wants to ensure the long-awaited limits aren’t confined to private equity and venture capital. “Public market investments represent the majority of U.S. capital flows to the People’s Republic of China,” Gallagher wrote in a Thursday letter to Biden. “Any rules that exempt them will fail to address the bulk of the national security threat.” One more nugget from the FT: A Japanese official said U.S. outbound investment screening could be watered down from tougher drafts. “It’s almost as if they’re suddenly afraid of upsetting China,” the official said.   A message from Structured Finance Association:   Economy Saudi Arabia may cut further — Reuters reports that Saudi Arabia will continue pumping oil at reduced levels through September. The 1 million barrel-per-day reduction it has in place today may be “extended and deepened.” Opec+, which has agreed to limit supply into 2024, is not expected to tweak oil policy when a panel of its members meets Friday. Regulatory Corner Bankers urge CFPB to halt rule after court decision — The American Bankers Association and the Texas Bankers Association are calling on the CFPB to pause a small business data reporting rule for all banks, after the groups won a reprieve for their members in federal court. “While most FDIC-insured banks fall within our membership, there are some that do not,” they said in a letter to CFPB Director Rohit Chopra. The CFPB declined to comment.   HITTING YOUR INBOX AUGUST 14—CALIFORNIA CLIMATE: Climate change isn’t just about the weather. It's also about how we do business and create new policies, especially in California. So we have something cool for you: A brand-new California Climate newsletter. It's not just climate or science chat, it's your daily cheat sheet to understanding how the legislative landscape around climate change is shaking up industries across the Golden State. Cut through the jargon and get the latest developments in California as lawmakers and industry leaders adapt to the changing climate. Subscribe now to California Climate to keep up with the changes.     Climate GAO floats flood insurance assistance — The GAO in a report this week recommended that Congress consider providing means-tested assistance to policyholders of the National Flood Insurance Program, which recently implemented a major revamp of how it calculates premiums. GAO framed it as a potential improvement on the program’s current affordability safeguard, which is an 18 percent cap on annual premium hikes. GAO warned that the cap perpetuates the NFIP’s long-running financial shortfalls. The watchdog also said it’s a poor way to address affordability because policyholders who don’t need the help still get it.   A message from Structured Finance Association: When loans are bundled together – a process called securitization – the result is less risk and lower interest rates for American families and small businesses. Securitization provides $15.6 trillion in financing and last year funded over half of U.S. household debt. Members of the Structured Finance Association give individuals and businesses access to essential credit at a lower price through securitization. Learn more at www.structuredfinance.org.     Follow us on Twitter Mark McQuillian @mcqdc Victoria Guida @vtg2 Katy O'Donnell @katyodonnell_ Zachary Warmbrodt @Zachary Sam Sutton @samjsutton   Follow us

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