Investors see hope in a debt limit deal

Investors were holding their breath on Friday morning amid signs that the White House and top House Republicans are closing a deal to raise the debt limit and avoid a government default. Equity futures are showing modest gains, while Treasury bond yields due June 8 have declined, suggesting bond traders expect a deal soon.

According to reports, a deal could arrive as early as Friday, paving the way for Congress to vote on Tuesday. It is clear that this is coming to a head, and this being Washington, many obstacles could still arise.

How close is “close”? The negotiators have narrowed their differences and are just $70 billion in spending cuts from a deal, according to Reuters. Spokesman Kevin McCarthy said Thursday that he will stay in Washington over Memorial Day weekend to ensure a deal is reached.

Details emerging suggest that both parties could claim some wins:

  • Domestic spending over two years would be capped, although how much remains a point of contention. (Republicans initially wanted 10 years.) Defense spending would be allowed to increase by 3% a year, according to President Biden’s budget request.

  • In a victory for the Republicans, Congress would withdraw $10 billion of the $80 billion it had allocated to the IRS to beef up enforcement.

  • Tighter job requirements for social safety net programs and an overhaul of how domestic power and energy projects are approved are still being discussed.

It is not yet clear whether such a deal has enough support in Congress. On the right, Republicans including Senator Mike Lee of Utah and the 35 House legislators associated with the House Freedom Caucus are demanding even deeper spending cuts. To the left, Representative Pramila Jayapalthe Washington Democrat who leads the 101-member House Progressive Caucus predicted “a huge backlash” if the White House caved to Republican demands.

For his part, McCarthy told reporters, “I don’t think everybody is going to be happy at the end of the day.”

The stakes are getting higher. The Treasury Department said on Wednesday that its cash balance had fallen to just under $50 billion from $140 billion on May 12. Treasury Secretary Janet Yellen said the government could run out of cash by June 1.

Meanwhile, Wall Street is also keeping an eye on other economic developments. At 8:30 am ET, the Commerce Department will publish its latest personal consumption spending data, which tracks inflation; a strong reading could help convince the Fed to be less aggressive in raising interest rates next month.

The Supreme Court further restricts the power of the EPA. The high court limited the agency’s authority over wetlands, in the second ruling last year to circumscribe the regulator’s powers. But Justice Brett Kavanaugh backed up fellow liberals in warning that a majority-backed test to determine EPA jurisdiction contradicts previous Supreme Court rulings and could lead to more pollution.

Carl Icahn claims a partial seat in his fight with Illumina. Shareholders of the gene sequencing company supported the activist investor’s effort to topple its chairman, though they rejected its other two board candidates; Illumina shares fell 9 percent on Thursday. Meanwhile, shares of Icahn’s publicly traded investment vehicle, which has been criticized by a short seller, fell to one-year lows on Thursday.

Norway’s sovereign wealth fund is on the side of environmental activists. The $1.4 trillion investor said he would support proposals from Chevron and Exxon Mobil shareholders urging the two to reduce their greenhouse gas emissions. But Norway’s fund has been criticized by activists for not making similar demands on European oil giants like BP and Total.

Elon Musk’s brain implant company may conduct human trials. The FDA will allow Neuralink to test its devices — which can decipher brain signals and connect them to computers — on people. Musk’s start-up is among the most ambitious companies in the nascent sector, but it has faced scrutiny over allegations of animal cruelty.

It’s official: Lazard announced on Friday that Peter Orszag, who leads its core financial advisory business, will succeed Ken Jacobs as its CEO on Oct. 1. (Mr. Jacobs, who held the position for 14 years, will remain executive chairman and continue to advise clients.)

Orszag, a former Obama administration official who appears regularly on CNBC and Bloomberg Television, will oversee a 175-year-old financial institution with a long history of advising big corporate deals — at a time when its core businesses face enormous challenges.

Mr. Orszag has been the heir apparent for some time. While Lazard did not say when its succession planning began, Orszag, 54, wrote to employees on Friday morning that the move came after a “selection process that has been going on for some time.”

An economist by training, he rose through the ranks in Washington and on Wall Street — he worked for Bill Clinton and Barack Obama, as well as Citigroup — giving him a useful background for running one of the world’s most prominent independent banks.

But he will face a tough time for investment banks. Deal completions were down 40% year-over-year on the year to Thursday, according to Refinitiv. And rising interest rates, tougher antitrust enforcement and a slowing economy are giving rise to a resurgence in high-value mergers and acquisitions. unlikely soon.

That hit Lazard, which said last month it was laying off 10% of its workforce; the bank’s stock has dropped 11% since then. The company is not alone: ​​Rivals such as Goldman Sachs and Morgan Stanley have also cut staff.

One of Orszag’s top priorities is growing Lazard’s asset management business, which manages more than $200 billion in assets and represents 40% of its business. Asset management has become popular with Wall Street banks as a steady source of revenue that can offset volatility in investment banking; Mr. Orszag told employees that growth could come from acquisitions.

In the internal memo, Mr. Orszag also wrote that the company’s culture “must continue to evolve to support our growth and ambition, while retaining many of our best qualities that trace back to our roots.” (One priority he mentioned was “diversity and flexibility for working from home.”)

The company will announce other changes to its management before October. One name to watch closely is Ray McGuire, the former Citi founder Lazard hired in March.

Jim Farley, the CEO of Ford. At a Twitter Spaces event on Thursday with Tesla CEO Elon Musk to announce a charging station alliance, Farley acknowledged that electric car makers may need to rethink battery design to reduce charging times and costs. vehicle prices.

Microsoft chairman Brad Smith has become the latest tech executive to call on governments to create new rules to police the development of artificial intelligence. His calls come amid a boom in commercial efforts to advance technology that is driving a stunning stock market rally.

It’s the latest sign that the tech industry is banking on reaching out to regulators as the best way to avoid more onerous regulation — but it’s unclear whether governments will create the rules these companies would like.

“Government needs to act faster” Smith told The Times’ David McCabe, proposing measures such as mandating an emergency brake for AI systems used in critical infrastructure and licenses to create “highly capable” AI models.

But Smith also acknowledged that AI developers need to show restraint in creating new products with potentially broad and negative societal consequences, and said Microsoft was not trying to shift the blame to government regulators. “There is not an iota of abdication of responsibility,” he said.

The message echoes calls from other top AI executives. Sam Altman, CEO of OpenAI (which counts Microsoft as a major investor and business partner), told lawmakers last week that Congress should create a new AI regulator. And Sundar Pichai, head of Alphabet, urged transatlantic regulators to work together to create effective new rules.

Proactively calling for more regulation is a playbook used by other industries, including social media and crypto, with mixed results: Congress has largely failed to write many new laws to oversee social media, to the dismay of several lawmakers.

But AI executives’ tolerance for new regulations only goes so far. Altman warned on Thursday that OpenAI could withdraw services like ChatGPT from European markets if Brussels moves forward with expansive AI legislation. “We will try to comply, but if we cannot, we will stop operating,” he said.

In other AI news: JPMorgan Chase is developing a chatbot to help clients make investment decisions, according to CNBC. And tech evangelist Cathie Wood lost $560 billion in paper earnings when she sold her Nvidia stakes earlier this year.



  • The Supreme Court ruled that states cannot keep any windfall gains made from seizing private property and selling it to recoup tax debts. (NYT)

  • Commerce Secretary Gina Raimondo and her Chinese counterpart Wang Wentao have found themselves amidst tensions over China’s ban on US chipmaker Micron. (WSJ)

  • The SEC’s record $279 million award was allegedly paid to an informant whose evidence led to a bribery settlement against Ericsson. (WSJ)

best of the rest

  • A judge has thrown out a lawsuit against Leon Black, the billionaire co-founder of Apollo, accusing him of sexual misconduct. (FT)

  • Unpaid taxes and lost bottles of expensive wine: Customers want to know what happened at Sherry-Lehmann, New York’s iconic wine store. (NYT)

  • Within a plan by Sergey Brin, the billionaire co-founder of Google, to bring back aircraft. (Bloomberg Business Week)

  • Finland was so awash in nuclear and hydropower this week that some of its spot energy prices turned negative. (Informant)

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