Monday 24 December 2018

US Treasury secretary has sought to calm market jitters about White House dysfunction & government’s partial shutdown

US markets: Mnuchin to convene crisis team amid White House chaos
Treasury secretary talks to bank CEOs and calls together working group created after 1987 market crash

Traders and financial professionals work ahead of the closing bell on the floor of the New York Stock Exchange

25 December, 2018

The US Treasury secretary has sought to calm market jitters about White House dysfunction and the government’s partial shutdown, calling the heads of the nation’s six largest banks and gathering the “plunge protection team” that formed after the crash of 1987.

Steven Mnuchin called the bank CEOs on Sunday in an apparent attempt to reassure financial markets. In the unusual move, Mnuchin disclosed that he had spoken to the heads of Bank of America, Citi, Goldman Sachs, JP Morgan Chase, Morgan Stanley and Wells Fargo.

He said the CEOs all assured him they had ample money to finance their normal operations, even though there haven’t been any serious liquidity concerns rattling the market.

On Monday, Mnuchin will convene the president’s working group on financial markets, a group that includes Jerome Powell, the chairman of the Federal Reserve, and the head of the Securities and Exchange Commission. The group, created following the stock market crash of October 1987, is known more commonly as the “plunge protection team” and met in 2009 in the latter stages of the financial crisis.

With investors worried about a litany of factors, including a partial federal government shutdown, the US-China trade dispute, interest rate rises and Donald Trump’s dispute with the Fed’s chairman, Jerome Powell, US stocks have plunged in December. The S&P 500 has suffered its largest monthly loss so far since the financial crisis a decade ago and is on pace for the largest loss in any December since the Great Depression.

Asian stocks were subdued on Monday as investors fretted about US political instability at a time when the global economy was showing signs of faltering. Moves were limited by a holiday in Japan while many bourses are set to close early for Christmas. MSCI’s broadest index of Asia-Pacific shares outside Japan lost 0.5% to its lowest in seven weeks. Yet Chinese blue chips managed to edge up 0.2%, while E-Mini futures for the S&P 500 recouped early losses to rise 0.4%.

Oliver Pursche, a board member at Bruderman Asset Management, said: “More than anything else right now Washington and politics are absolutely driving investor sentiment and market direction and that can turn on dime.”

The US economy has been growing steadily since 2009, something most experts believe will continue, but there are signs things are slowing down in Europe and China.

Over the weekend, a flurry of reports claimed Trump had discussed the possibility of firing Powell. Such an unprecedented move would trigger further instability in the markets. US officials scrambled to deny Trump had suggested ousting Powell, who was appointed by the president barely a year ago.

Mnuchin, tweeted that he had spoken to the president, who insisted he “never suggested firing” Powell, and did not believe he had the right to do this.

However, Trump also declared – via Mnuchin – that he “totally disagrees” with the Fed’s “absolutely terrible” policy of raising interest rates and unwinding its bond-buying stimulus programme, piling further pressure on the US’s independent central bank.

Most economists and investors assert that any attempt by Trump to fire Powell would have significant repercussions in financial markets, which have long operated on the principle that the US central bank’s independence is integral to its mission and to market stability.

Rick Meckler, partner at Cherry Lane Investments, said Mnuchin’s acknowledgement that the White House does not have the ability to remove Powell was more reassuring for investors than trying to say it did not want to remove the Fed chair. “The administration hasn’t been all that stable when it comes to changing their mind,” he said. “Politically, these are very strange times.”

AP and Reuters contributed to this report

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