Perhaps sensing that markets weren’t particularly enamored on Monday with the prospect of $500 oil and a bloody war with Iran, Donald Trump slipped in a few subtle bullish catalysts ahead of the Asia open on Tuesday.
First, he re-announced the trade deal with Japan, which was originally tipped after the G-7 late last month.
“I am pleased to report that my Administration has reached an initial trade agreement regarding tariff barriers with Japan and I intend to enter into the agreement in the coming weeks”, Trump told Congress, in a laughably short statement issued Monday evening in the US. “In addition, I also will be entering into an Executive Agreement with Japan regarding digital trade”.
Read the sparse details from the original announcement: US, Japan Strike Trade Deal In Principle, Trump Says
Trump gave no indication as to whether he intends to drop the threat of additional auto tariffs on Japan. A decision on those proposed duties is due sometime in the next couple of months. The USTR told the media it had nothing to add beyond the statement, which provided nothing in the way of new details about what, exactly, Trump and Abe agreed to last month in France.
After that, the ubiquitous “people familiar with the matter” suggested a planned September 17 vote by the FDIC on a swaps proposal will probably mean the elimination of a Dodd-Frank rule that required banks to post billions in margin on derivatives trades with affiliates.
Initially, the FDIC didn’t say exactly what it was they were voting on this week, but sources who spoke to Bloomberg on Monday afternoon made it clear that the margin rule is about to be relegated to dustbin of history.
Basically, the rule was aimed at walling off customer deposits at subsidiaries by mandating that banks set aside money for swaps with their affiliate entities. Not surprisingly, Wall Street has never been enamored with that, as it’s forced dealers to cordon off nearly $40 billion in collateral that might otherwise be used for… well, use your imagination.
Does any of this matter? Maybe. Despite being pre-announced last month, the trade “deal” with Japan is incrementally positive, although the real celebration will start when Trump rules out auto tariffs once and for all.
As far as the scrapping of the margin rule, let’s just say it ain’t bearish. Or at least not until it leads to the accumulation of hidden risk on balance sheets which subsequently blows up in someone’s face.
