Market Morning: Fed Debates, Johnson Loses, Hong Kong Wins, Italy Gets New Government

To Cut Or Not to Cut? Lagarde Answers the Question

Federal Reserve officials are prevaricating over whether to cut dollar interest rates at the next Federal Open Market Committee meeting on September 17-18. St. Louis Fed President James Bullard is the most dovish (from the inflation side) and hawkish (from the saver side) calling for a 50 basis point cut, while Boston Fed President Eric Rosengren, while not exactly pro saving, doesn’t see any reason to hurt savers any further at this time by cutting rates again, rates which are already well below the official inflation rate anyway. His reasoning is that the economy seems to be doing basically OK, so if it ain’t broke, don’t fix it.

SEE: Cannabis Stock News Daily Roundup September 3

Meanwhile, Christine Lagarde, Mario Draghi’s successor as head of the European Central Bank, came out extremely inflationary today when she defended a highly accommodative (for borrowers, but highly restrictive for savers) policy for an extended period of time. She even defended negative interest rates, which straight out pull money out of savings accounts, on the grounds that they help create jobs for other people, except those too old to work who must rely on savings that are being constantly eroded by negative real interest rates in Europe already. In some cases rates are even nominally negative, like in Germany. She believes that had the ECB not confiscated money from savers, the crisis would have been a lot worse.

Johnson Loses Brexit Vote, Wants Elections

The British Parliament continues to boil over. Prime Minister Boris Johnson has lost his majority in parliament when one Conservative MP defected over to the Liberal Democrats, and then he lost a vote on a bill that will supposedly force him to request an extension to Brexit. This despite Johnson threatening to expel any rebel MPs from the party in the event they vote against the government which he has actually done. At this point Johnson is calling for new elections, which he will need a 2/3rds parliamentary majority to pass. The problem with that is that Labour head and opposition leader Jeremy Corbyn has insisted that he will not support new elections unless the Benn Bill, the bill requiring Johnson to request an extension, becomes law. And the problem with that is that even if it does become “law”, Johnson said he would not ask for an extension anyway. He’ll just wait for elections on October 15 and if he wins, that would mean the British people don’t want an extension. Stay tuned for tomorrow’s Brexit news, which could be anything. (NYSEARCA:EWU)

Hong Kong’s Carrie Lam Cheng Yuet-ngor Withdraws Chinese Extradition Bill

The protestors in Hong Kong won a bone. Unelected Hong Kong Chief Executive Carrie Lam Chen Yuet-ngor has finally and formally withdrawn the hated extradition bill that was the catalysts for three months of protests in Hong Kong that have since turned violent. The question now is whether this is enough to quell the protesters. They may also want other things, like, for example, the ability to elect their leaders and such. This way, there won’t be much of a threat of the bill being reintroduced in Hong Kong’s legislature. Markets are responding positively in the hope that Hong Kong can go back to its normal everyday capitalist ways. Hong Kong’s Hang Seng is certainly sanguine about the partial capitulation, up nearly 5% on the day. Stocks across the world are responding in kind with the S&P 500 up 0.8% in the premarket and tech stocks rallying about 1%. The Shanghai Composite also seems happy for a chance to get back to some normalcy, up 0.93%. If protesters feel emboldened by Lam’s concession though and come out in even stronger force, these moves could quickly reverse. (NYSEARCA:EWH) (NYSEARCA:FXI)

Moving Over to Italy…

One European country that may be stabilizing, for now, is Italy. A new government coalition consisting of two parties really into spending lots more money, the populist Five Star Movement and the left wing Democratic Party, has been installed. Thanks to an online vote of Five Star Movement party members, there will be no need for new elections in Italy, at least for the next few minutes, or hours, or possibly even days. That’s because the new coalition is going to have to get the approval of its 2020 budget from the European Commission, a group of people who are not going to fall in love with Italy’s new budget proposals, which include a new minimum wage, a “Green New Deal”, tax cuts, and spending increases on education, welfare, and research (excluding research into the problems of going into debt that way exceeds the size of one’s economy). One area that will include a tiny bit of spending cuts though is a promise in the coalition agreement to cut the number of MPs and Senators in Italy’s sprawling parliament. At present the legislature comprises just under 1,000 people, and they argue a lot and they’re really noisy. Maybe some downsizing can help quiet Rome down a bit. (NYSEARCA:EWI)

Imminent Caesars Eldorado CEO Subpoenaed by SEC

The name’s Reeg. Tom Reeg. And he’s been subpoenaed by the Securities and Exchange Commission. He is chief executive affocer of Eldorado Resorts (NASDAQ:ERI), a casino chain that is in the process of buying Caesars Entertainment (NYSE:CZR), for $17 billion. The subpoena was issued in May, seeking information about a company, IRadimed (NASDAQ:IRMD), a microcap medical equipment stock tied to an Eldorado board member. The move is not expected to endanger the merger. Eldorado’s President and Chief Operating Officer also got subpoenaed.

 

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