Cohn Resignation Adds Further Uncertainty to Future Policy

 

Cohn, Cohn, Gone…

US financial markets opened the trading session in risk-off mode after President Trump’s top economic advisor, Gary Cohn, announced his resignation from the White House yesterday evening.  Cohn’s disagreement with Trump’s tariff plan was ultimately the straw that broke the camel’s back, but in the past, the two had clashed over other major policy decisions such as the United States’ withdrawal from the Paris climate accord last year.  Throughout his 14-month term, Cohn’s greatest achievements centered around his heavy involvement with tax reform and the restructuring of several financial regulations.  Turnover in the Trump administration is now at a record-setting pace, as 43% of the senior staff has left the White House since Trump took office. 

 

 

US Treasurys rallied overnight and through the majority of day before paring gains in the afternoon.  Yields/swap rates are poised to finish the session near unchanged, with the 10-year note holding at 2.88%.  Major US stock indices were mixed on the day, with the Nasdaq rising 0.3%, while the DJIA declined 0.3% and the S&P 500 was essentially flat.  Crude oil futures were not spared in the flight to safety, as WTI crude fell 2.15% to $61.25/barrel.  A report from the Energy Information Administration’s, which displayed a 2.41-million barrel build in US crude stockpiles, added to the bearish sentiment generated by the flareup in political uncertainty. 

 

 

Robust ADP Payrolls, Again

The ADP national employment report was released today, showing 235,00 new hires by private employers in the US in February, exceeding expectations of 200,000.  The figure represents a third consecutive month of robust employment metrics, as January’s upwardly revised number reached a ten-month high of +244,000.  Steady employment gains were observed across most major industries, with payrolls in leisure/hospitality (+50k) and professional/business services (+46k) generating the most additions.  Often a leading indicator for the Labor Department’s more comprehensive employment report, today’s ADP figure foreshadows steady gains in Friday’s nonfarm payroll data, where median forecasts point to a 200,000 nonfarm payroll addition and 4.0% unemployment rate.

 

 

Other key economic data on the day included a report from the Commerce Department which indicated a widening of the US trade deficit in January.  The overall trade gap expanded to its widest level in the past nine years, up 5% to $56.6 billion ($55.0 billion expected) for the month, as exports declined 1.3% and imports remained flat.  Breaking down the data a little further, the trade deficit with China increased to its highest levels since 2015, as the goods deficit with Canada rose to its widest in the past four years.  Commenting on China’s trade flows, this morning President Trump tweeted that China has been asked to develop a plan for a $1 billion reduction in their massive trade surplus with the US.

 

 

Less Stress for Banks

In regulatory news, the promised revisions of the Dodd-Frank law took a promising step forward this week. The Senate voted 67-32 in favor of beginning a debate to soften the regulations viewed as too restrictive and harmful to banks. Specifically, proposed revisions include an increase in the threshold at which banks are considered systemically important financial institutions (SIFIs) from $50 billion to $250 billion, alleviating pressure on many mid-size and larger banks. The bill would also potentially remove the annual stress test requirements conducted by the Federal Reserve at the largest financial institutions.  While these changes are facing some opposition, the early vote count indicates that there is enough Democratic support available for the bill to advance.