Tuesday, July 2, 2024

Investors are starting to place their Trump bets

Delivered daily by 8 a.m., Morning Money examines the latest news in finance politics and policy.
Jul 02, 2024 View in browser
 
POLITICO Morning Money

By Sam Sutton

Programming note: We’ll be off this Thursday and Friday for the Fourth of July but will be back in your inboxes on Monday, July 8. 

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QUICK FIX

Wall Street traders are starting to position their portfolios for a former President Donald Trump victory in November.

As President Joe Biden stumbled through Thursday night’s debate — kicking off a political firestorm that could mark the end of a 50-year political career — analysts at State Street found that market participants started pricing in a greater likelihood of Trump securing a second term.

“It actually started during the debate,” Noel Dixon, a global macro strategist at State Street, told MM.

Spreads between two-year and 10-year Treasury notes were becoming more sensitive to Trump’s favorability, according to State Street’s MediaStats Election Indicator, likely because “inflation expectations are going up,” said Dixon. The presumption is that Trump’s policies — which include across-the-board tariffs and mass deportations — would cause prices to rise.

Trump had a narrow swing-state polling advantage over Biden even before the debate cast doubt on the president’s physical and mental capabilities. As Biden allies and top Democrats scramble to do damage controland preserve their own political careers — market participants are starting to lock in on what policies Trump could implement should he return to the White House.

Many on Wall Street are bullish about Trump’s plans to lower taxes and slash regulation. But major changes to immigration and trade policies would likely force investors to contend with “the risk of higher inflation and lower growth (aka ‘stagflation’),” Morgan Stanley strategists Matthew Hornbach and Guneet Dhingra wrote in a post-debate research note.

Morgan Stanley is recommending derivative investments that would perform well as the yield curve steepens amid “heightened risks and uncertainty during election season” and Federal Reserve interest rate cuts. With Trump’s advantage over Biden growing after the debate, Barclays is also now recommending investors explore hedges against future inflation, Bloomberg reported. Yields on 10-year Treasury notes jumped on Monday as conviction over the likelihood of a Trump victory solidified.

To be sure, while the policy changes under Trump are now more likely, “there is substantial uncertainty regarding how far those changes would go,” Goldman Sachs economists Alec Phillips and Tim Krupa wrote in a research note.

And though the outcome of a Biden-Trump matchup looks more certain, ongoing speculation about who will ultimately be at the top of the Democratic ticket come November means that “multiple sources of uncertainty remain.”

IT’S TUESDAY — I’ll be taking R&R in Northern California for the next 10 days. As always, send tips and suggestions to ssutton@politico.com or on Signal at 925.216.7576.

 

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Driving the Day

Federal Reserve Chair Jerome Powell, European Central Bank President Christine Lagarde and Roberto Campos Neto, governor of Banco Central do Brasil, will speak at a Forum on Central Banking event at 9:30 a.m. … Job openings for May will be released at 10 a.m. …

Immunity — The Supreme Court on Monday ruled that Trump has immunity from criminal prosecution for some actions he took as president while trying to reverse the outcome of the 2020 election, Josh Gerstein and Kyle Cheney report. In the majority opinion, Chief Justice John Roberts wrote that former presidents have “absolute” immunity from criminal prosecution over actions that fall within their “core constitutional powers.”

“There is no immunity,” Roberts wrote, for “unofficial acts.”

— Biden attacked the ruling in a short speech from the White House on Monday evening: “This decision today has continued the court's attack in recent years on a wide range of long-established legal principles,” he said. “From gutting voting rights and civil rights to taking away women's right to choose, to today's decision that undermines the rule of law of this nation.”

Here comes JOLTS — The Labor Department will release its monthly job openings report for May at 10 a.m. The median estimate is that there were 7.9 million open positions that month, which would represent a continuation of a gradual decline from a peak of 12.2 million in March 2022.

Bankers on the Hill — Zach Warmbrodt scoops that JPMorgan Chase, Bank of America and Wells Fargo executives are expected to testify about fraud concerns on the Zelle payment system at a Senate hearing on July 23.

Synapse’s missed connections — Senate Banking Chair Sherrod Brown, Finance Chair Ron Wyden and Sens. Tammy Baldwin and John Fetterman are urging partners and investors of the collapsed fintech company Synapse to return money from tens of thousands of frozen accounts of affected customers, Eleanor Mueller reports.

Lawyer up — The Supreme Court also ruled that a North Dakota truck stop could sue the Federal Reserve over its 2011 debit card swipe fee rule, Victoria Guida reports. The court’s 6-3 majority ruling held that the Administrative Procedure Act’s six-year statute of limitations “does not accrue … until the plaintiff is injured by final agency action.”

In other words, businesses may soon begin suing federal agencies over regulations that are decades old. Justice Ketanji Brown Jackson in her dissent argued that the decision would authorize “a tsunami of lawsuits” with “the potential to devastate the functioning of the Federal Government.”

Biden’s student loan reprieve — An appellate court granted an emergency motion that lifted a block on components of the Biden administration’s student debt relief plan, Rebecca Carballo reports.

Crypto

Stabenow plans July 11 crypto hearing — Senate Agriculture Chair Debbie Stabenow (D-Mich.) is planning a July 11 hearing on cryptocurrency regulation, Meredith Lee Hill reports. Stabenow is trying to pass her own crypto bill before she retires at the end of this term.

Khanna nudges White House — As Trump woos the crypto industry, California Democratic Rep. Ro Khanna invited White House chief of staff Jeff Zients to participate in a crypto roundtable on cryptocurrency next month, Eleanor Mueller scooped.

Silvergate crashed — Silvergate Capital Corp., the company behind a crypto-friendly bank that crashed in early 2023, agreed to pay $63 million in penalties to settle charges over alleged failures with its anti-money laundering program, Michael Stratford and Declan Harty report.

Wall Street

BlackRock bets big on data — BlackRock’s pending $3.2 billion acquisition of the data provider Preqin reflects a belief they “could index the private markets,” CEO Larry Fink told investors and analysts on Monday, per Bloomberg’s Silla Brush.

A Euro contagion? — The far-right National Rally’s dominance in the first round of President Emmanuel Macron’s snap elections in France could be the beginning “of extreme political instability and fiscal profligacy,” Hugo Dixon writes for Reuters. “Other highly indebted eurozone members, especially Italy, could suffer contagion. The single currency would then be on the ropes.”

ICYMI — The WSJ’s Shalini Ramachandran and Khadeeja Safdar report that Klaus Schwab, the founder of the World Economic Forum in Davos, oversaw a toxic work environment that was hostile to women and Black people.

Jobs report

Kate Harris is now COO of Jain Global Fundamental Equities, a financial firm that launched Monday. She most recently was COO of Skye Global Management and is an alum of New York State Executive Chamber and the Obama administration. — Daniel Lippman 

Michaela Balderston has been promoted to be chief communications officer at Lead Edge Capital. — Daniel Lippman

 

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