| | | | |  | | By Sam Sutton | | Presented by |  | | | 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.
| | Inflation posed a huge threat to the Democratic Party’s chances of holding onto the White House in November. Now they have to contend with recession fears as well. The labor market and price growth have cooled enough that Federal Reserve Chair Jerome Powell is openly contemplating slashing rates — an outcome that markets would have celebrated as recently as a month ago. But last week’s weak employment data, coupled with the unwinding of popular tech and currency-related trades that powered market gains over the last year, amplified concerns that Powell and other Fed policymakers waited too long to keep the economy from sputtering out. Markets across the globe fell sharply on Monday as traders reckoned with the possibility that the U.S. economy could stall. Stocks, crypto markets and certain commodities could remain volatile, analysts warned. There aren’t many major economic indicators on the calendar between now and next week when the Labor Department will report the producer and consumer price indices for July. In the meantime, the sell-off should be taken as a sign that “we have clearly shifted the recent economic narrative from ‘bad news is good news’ (markets rising in anticipation of more Fed rate cuts) to ‘bad news is bad news’ (markets falling in reaction to concerns about weaker jobs market and recession/hard landing,” Wells Fargo Investment Institute President Darrell Cronk told clients in a research note on Monday. To be clear: The U.S. is not in a recession. The economy grew by a healthy 2.8 percent last quarter, unemployment is below historic averages and recent corporate earnings have been solid, overall. Goldman Sachs economists on Sunday raised the likelihood of a U.S. slump occurring in the next 12 months, but they still peg the probability at just 25 percent. Nomura’s Senior U.S. Economist Jeremy Schwartz set similar odds, but said “markets have overreacted about the possibility of a recession being imminent.” Economic projections are never certain — remember this headline from 2022? — but if the economy slows quickly, it will hurt Vice President Kamala Harris’ argument that Biden administration policies were stabilizing forces in the face of high inflation and soaring borrowing costs. It would also create fresh challenges for a campaign that is still recasting its economic messaging on the fly. Former President Donald Trump, who often treats the stock market as a real-time barometer of the economy’s health, went on the attack on Monday claiming that the sell-off was a “KAMALA CRASH” and that “THE GREAT DEPRESSION OF 2024!” would follow. The political consequences of a rapid economic downturn — however unlikely — would be devastating for Harris’s campaign. But near-term volatility in the stock market would matter less than some headlines might suggest. “I have studied economic factors that influence political outcomes for years now,” pollster Frank Luntz wrote on X. “I can state categorically that the stock market doesn’t matter – it didn’t help Trump when it was up, and it will not hurt Harris when it is down.” IT’S TUESDAY — Today’s the day we should be getting a vice presidential announcement. Have thoughts? Send tips and suggestions to Sam Sutton at ssutton@politico.com.
| | A message from the Georgetown Psaros Center for Financial Markets and Policy: The Georgetown Psaros Center for Financial Markets and Policy’s annual Financial Markets Quality (FMQ) Conference will convene leaders at the intersection of finance and policy on September 17. This year’s panels will discuss market structure, innovation in ETFs, financial regulation, and crypto in the financial markets. Learn more about FMQ’s schedule by visiting the Georgetown Psaros Center website. | | | | | The U.S. trade deficit will be reported at 8:30 a.m. … More on the market turmoil — Major trading platforms suffered outages on Monday as stocks sank, Declan Harty reports. — A big source of the downturn? The carry trade. Investors funded risky bets with yen, which has remained weak due to Japan’s low interest rates. The Bank of Japan raised rates last week, and Powell signaled that rate cuts in the U.S. were imminent. Once the yen strengthened against the dollar, investors who borrowed yen to fund their bets “were forced to buy more of the currency by bankers insisting on additional collateral,” wrote The WSJ’s Ryan Dezember. “That is pushing the yen even higher, prompting more margin calls.” — The Cboe Volatility Index — known as “the fear gauge” — jumped to a high of 65 before the market open, per The WSJ’s Chelsey Dulaney. It closed at 38.57, its highest close since the pandemic. — A blip or a trend? After reporting its worst losses since 1987, the Nikkei is projected to open with a bounce on Tuesday, Wayne Cole of Reuters reports.
| | | | During unprecedented times, POLITICO Pro Analysis gives you the insights you need to focus your policy strategy. Live briefings, policy trackers, and and people intelligence secures your seat at the table. Learn more. | | | | | | | | Emergency cuts? — Some traders are betting that the Fed will intervene and cut rates in an emergency meeting before it’s scheduled to convene in September. That’s unlikely, writes The NYT’s Jeanna Smialek. “We’ve got to be monitoring the real side of the economy: There’s nothing in the Fed’s mandate that’s about making sure the stock market is comfortable,” Austan Goolsbee, president of the Federal Reserve Bank of Chicago, told Smialek. — “Policy adjustments will be necessary in the coming quarters,” San Francisco Fed President Mary Daly said Monday in a moderated discussion co-hosted by the Hawaii Executive Collaborative, per Bloomberg’s Laura Curtis. “We have now confirmed that the labor market is slowing, and it is extremely important that we not let it slow so much that it tips itself into a downturn.” No recession (at least not yet) — The Fed’s quarterly survey of senior loan officers found that there was basically “unchanged demand for commercial and industrial (C&I) loans to firms of all sizes” during the second quarter. It’s the first time in two years that loan officers didn’t report weaker demand, per Reuters.
| | | | A message from the Georgetown Psaros Center for Financial Markets and Policy:   | | | | | Huge antitrust ruling — The Justice Department and several dozen state attorneys general won a major antitrust case against Google on Monday, Josh Sisco reports. “Google is a monopolist, and it has acted as one to maintain its monopoly,” U.S. District Judge Amit Mehta wrote in a 286-page ruling. — “This pro-competition ruling is a victory for the American people. As President Biden and Vice President Harris have long said, Americans deserve an internet that is free, fair, and open for competition,” White House Press Secretary Karine Jean-Pierre said in a statement. “The Biden-Harris agenda is building an economy that ensures entrepreneurs and small businesses have a fair shot at the American Dream.” More Chinese tech restrictions — Ari Hawkins and Oriana Pawlyk report that the Biden administration could soon crack down on Chinese software for driverless cars. Fannie stays put — Fannie Mae, the government-controlled mortgage giant, will stay in downtown D.C. after all, having modified its lease agreement with Carr Properties for its Midtown Center offices, Katy O’Donnell reports. “Our reduced office footprint will allow us to continue to best meet the needs of our employees and business operations while being fiscally responsible,” the company said in a statement. — The WSJ’s Gina Heeb reports that Fannie Mae and Freddie Mac are set to impose tougher standards on commercial real estate lenders and brokers. Sandbox — A bipartisan group of lawmakers led by Sens. Mike Rounds (R-S.D.) and Martin Heinrich (D-N.M.) plus Reps. French Hill (R-Ark.) and Ritchie Torres (D-N.Y.) are pitching a bill that would require regulators to create “regulatory sandboxes” for financial firms to experiment with artificial intelligence, reports Brendan Pedersen for Punchbowl.
| | | | SUBSCRIBE TO GLOBAL PLAYBOOK: Don’t miss out on POLITICO’s Global Playbook, our newsletter taking you inside pivotal discussions at the most influential gatherings in the world. Suzanne Lynch delivers the world's elite and influential moments directly to you. Stay in the global loop. SUBSCRIBE NOW. | | | | | | | | | Moritz unloads — Sequoia Capital Chair Michael Moritz took to The FT’s opinion page to argue that many of his peers in Silicon Valley are making a mistake in supporting Trump. “They are, I suspect, seduced by the notion that because of their means, they will be able to control Trump. And, I imagine they are also committing another cardinal error: deluding themselves that he will not do what he says or promises.”
| | A message from the Georgetown Psaros Center for Financial Markets and Policy: Join global experts and leaders at the Georgetown Psaros Center for Financial Markets and Policy’s annual FMQ Conference hosted on the Georgetown University campus. This year’s conference theme is Future of Financial Markets: Innovation and Uncertainty, where attendees will spend the day hearing from esteemed industry professionals and policymakers on a range of topics affecting the future of finance and policy.
From regulatory trends to technological advancements, FMQ 2024 offers unparalleled opportunities to network, collaborate, and gain actionable knowledge as panels will focus on market structure, innovation in ETFs, financial market regulation, and cryptocurrency.
Don't miss this opportunity to gain valuable perspectives from leaders at the forefront of shaping global financial practice and policy. Secure your place at FMQ 2024 and be at the forefront of shaping the future of financial markets. Register to reserve your spot today. | | | | | | | Follow us on Twitter | | | | Follow us | | | | |
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