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Delivered daily by 8 a.m., Morning Money examines the latest news in finance politics and policy. | | | | |  | | By Sam Sutton | Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our s each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro.
| | Israel is at war and the global economy is under threat. The surprise attack launched by Hamas militants from the Gaza Strip marked the largest civilian massacre in Israel's history, according to army spokesperson Doron Spielman. It has now mushroomed into a major conflict that has inflamed geopolitical tensions around the globe. The risks to energy and financial markets are immediate and real. Oil prices surged as Israeli forces launched a counteroffensive and as questions mounted around Iran’s involvement in Hamas’ attack plans. Analysts are bracing for oil and gas to spike further on “the fear that the conflict could draw in other players,” Andy Lipow, head of the energy consulting firm Lipow Oil Associates, told POLITICO’s Matt Daily and Manuel Quiñones. If violence spreads to the West Bank or parts of Lebanon controlled by Hezbollah — which is backed by Iran — “you can imagine a situation where the Iranians get more directly involved, or where the Israelis decide to take a swipe at the Iranians,” Eurasia Group President Ian Bremmer told MM. That’s unlikely for now, Bremmer says. And while he’s skeptical that Iran orchestrated the attacks, particularly given its diplomatic thaw with Saudi Arabia and its recent release of U.S. hostages, “it is absolutely a real scenario that this war eventually drags [Iran] in and oil spikes like crazy,” he added. That would pose a challenge to growth at a delicate time for both the U.S. and global economies. Growth forecasts were already clouded by the war in Ukraine, China’s slowing economy and the toll that inflation and rising interest costs are taking on businesses, governments and consumers. (These factors have also had a hand in keeping oil supplies tight: Saudi Arabia and Russia extended production cuts in September as demand from China, the world’s second largest economy, started to weaken.) It doesn’t appear that the fighting will end soon. Israeli Defense Minister Yoav Gallant on Monday tightened the blockade around Gaza. “We fight animals in human form and proceed accordingly,” he said in a statement. And while one Hamas spokesperson told Reuters that the group would be open to a possible cease-fire, another threatened to execute hostages as Israeli bombardments slammed into Gaza. Meanwhile, the Pentagon has already sent air defenses, weapons and munitions to back up Israel, according to POLITICO’s defense team. President Joe Biden and lawmakers in both parties have “closed ranks” to grant Israel whatever it needs following the attack. “It's very clear that the Biden administration has very strong interests in containing this,” Bremmer said. “Not least because if oil hits $150, you might as well kiss Biden's administration goodbye.” IT’S TUESDAY — Send tips, gossip and suggestions to Sam at ssutton@politico.com and Zach at zwarmbrodt@politico.com
| | | | A NEW POLITICO PODCAST: POLITICO Tech is an authoritative insider briefing on the politics and policy of technology. From crypto and the metaverse to cybersecurity and AI, we explore the who, what and how of policy shaping future industries. We’re kicking off with a series exploring darknet marketplaces, the virtual platforms that enable actors from all corners of the online world to traffic illicit goods. As malware and cybercrime attacks become increasingly frequent, regulators and law enforcement agencies work different angles to shut these platforms down, but new, often more unassailable marketplaces pop up. SUBSCRIBE AND START LISTENING TODAY. | | | | | | | | | Tuesday … The World Bank and International Monetary Fund meetings are underway in Marrakech, Morocco … The NFIB optimism index is out at 6 a.m. … Treasury Secretary Janet Yellen will deliver a speech in Morocco about efforts to reform multilateral development banks at 10:15 a.m. … Federal Reserve Gov. Christopher Waller delivers keynote remarks at George Mason University at 1:30 p.m. … Wednesday … Fed Gov. Michelle Bowman will speak at 4:15 a.m. at the Marrakech Economic Festival … The Producer Price Index for September will be released at 8:30 a.m. … White House Senior Adviser John Podesta will speak at a Brookings Institution event at 9:05 a.m. … Waller speaks at the E2 Summit at 10:15 a.m. … SEC Commissioner Caroline Crenshaw speaks at a Center for American Progress event at 12:35 p.m. … The Fed will release minutes from its September meeting at 2 p.m. … Thursday … The Consumer Price Index for September is out at 8:30 a.m. … Friday … Third-quarter earnings season kicks off with reports from BlackRock, Citi, JPMorgan Chase, PNC Bank and Wells Fargo … The Import Price Index for September is out at 8:30 a.m. … More on Israel — Former House Speaker Kevin McCarthy’s ouster and the tight window to avoid a government shutdown have limited the Congress’s ability to act as Israel clamors for military aid, Paul McLeary and Connor O’Brien report. And “those priorities will also need to compete with rush orders for Ukraine, which is already straining the capacity of companies in the U.S. and Europe to send arms to Kyiv and resupply inventories back home.” — Our Anthony Andragna: McCarthy “refused to weigh out a return to his former post, deferring that matter to the House Republican Conference … ‘Unfortunately, the House can do nothing without a speaker,’ he added in the aftermath of the attacks in Israel.” — Our Kelly Garrity: “House Foreign Affairs Chair Mike McCaul (R-Texas) called Sunday on his colleagues in Congress to quickly bring a resolution to the floor condemning Hamas — with or without a Speaker in place.” — In Beijing, Senate Majority Leader Chuck Schumer pressured President Xi Jinping and other Chinese officials to step up their condemnations of Hamas’s attack. Our Andrew Zhang reports: “‘A bunch of us made the request that China use its influence in Iran to not allow the conflagration to spread,’ Schumer said at a news conference later on Monday in Beijing, while also noting that China had ‘rectified’ his ask around Israel.” Oil price cap — Amid signs that the Group of Seven’s price cap on Russian oil has lost its potency, Treasury Secretary Janet Yellen told The Wall Street Journal: “We are looking at enforcement very carefully and we want to make sure that market participants are aware we take this price cap seriously, and, to the extent Western services are used, we mean business about abiding by the cap.” “The price cap has absolutely failed,” Fotios Katsoulas, lead analyst for tanker shipping at S&P, told POLITICO’s Gabriel Gavin. “Across the market we expect that all of the cargoes of Russian barrels are now trading above the price cap.”
| | Slow down — Our Adam Behsudi: The global economy is experiencing slow and uneven growth as it continues to be battered by high inflation, the impact of Russia’s war in Ukraine and rising geoeconomic tensions, the IMF said in its latest World Economic Outlook report. Global growth is expected to moderate this year at 3 percent, down from 3.5 percent in 2022, the report said. But even with the global economy expected to slow, the U.S.’s position remains strong with growth projected at 2.1 percent in 2023. The IMF revised its forecast up by 0.3 percentage points for 2023 and a half a percentage point for 2024. That’s due to stronger business investment in the second quarter and growing consumption. U.S. growth is expected to slow in 2024 however as the effects of the Federal Reserve’s rate hikes hit the economy. The report forecasts unemployment to climb to 4 percent by the end of next year, which would still be consistent with a so-called soft landing. “There is progress, but the job is not done yet,” Pierre-Olivier Gourinchas, the IMF’s chief economist, said of efforts by central banks to bring inflation down. Meanwhile, in China — Evergrande, a massive property developer, canceled a $19 billion debt restructuring at the last minute in a move that bond investors warn could “have “a catastrophic effect” on the sector, The Wall Street Journal’s Frances Yoon and Rebecca Feng report.
| | | | Enter the “room where it happens”, where global power players shape policy and politics, with Power Play. POLITICO’s brand-new podcast will host conversations with the leaders and power players shaping the biggest ideas and driving the global conversations, moderated by award-winning journalist Anne McElvoy. Sign up today to be notified of new episodes – click here. | | | | | | | | | Barr and the bankers — Fed Vice Chair for Supervision Michael Barr defended the plan to ratchet up capital requirements that he’s proposed for the nation’s largest banks at the American Bankers Association’s conference in Nashville Monday, downplaying its potential impact on lending. “The effective rise in capital requirements related to lending activities in the current proposal is a small portion of the estimated overall capital increase,” he said. “The bulk of the rise in required capital anticipated in the proposed rule is attributed to trading and other activities besides lending — activities that have generated outsized losses at large banks and areas where our current rules have shortcomings.” Financial Services Forum CEO Kevin Fromer, whose group represents the head of the largest U.S. banks, pushed back on Barr’s comments. “No one should downplay the costs of these increases to the economy,” Fromer said. — The Bank Policy Institute — along with the Forum, ABA, Institute of International Bankers and Securities Industry and Financial Markets Association — sent a letter formally requesting an extension on the comment periods on resolution-related proposals. Climate rules — Our Jordan Wolman: “Democratic Gov. Gavin Newsom signed two bills Saturday that would require large corporations operating in [California] to disclose both their carbon footprints and their climate-related financial risks starting in 2026.” Wall Street Paper losses — Bank of America’s investments in long-dated Treasuries and mortgage bonds at low rates are now “the subject of finger-pointing within the walls of the second-largest US bank,” according to Bloomberg’s Katherine Doherty. “Those holdings are showing huge paper losses and missing out on some of the best rates since 2007.” Higher for longer … and longer — The WSJ’s Eric Wallerstein: “The autumn bond rout is challenging Wall Street’s longstanding belief that the U.S. government can’t sell too many Treasurys … Few expect a U.S. default or a Treasury auction to fail—a practically unheard-of occurrence that traders warn could lead to a truly chaotic period in markets, likely with prices falling across the board for some period … But the latest surge has raised worries that the onslaught of new debt could pressure bond prices for years to come.” | | | | Follow us on Twitter | | | | Follow us | | | | |  |
