Investors Exhale as Debt Limit Deal Clears a Big Hurdle

The debt deal clears the House

The debt-ceiling deal is a step closer to becoming law after its breezy passage in the House last night, making the prospect of a U.S. default all the more remote. Investors expressed relief, sending global markets and U.S. stock futures higher this morning.

The bill now heads to a final vote in the Democratic-controlled Senate. The House vote was always seen as riskier, but the bill’s passage in the upper house is by no means a fait accompli. A single member could gum up the legislation — watch Senator Rand Paul, Republican of Kentucky, who wants bigger spending cuts, and Senator Bernie Sanders, independent of Vermont, who said he would vote against the deal. But Senate leadership hopes to get the bill to President Biden’s desk by this weekend, with Senator Mitch McConnell, the top Republican, saying he would back it “without delay.”

Speaker Kevin McCarthy has emerged in decent shape. Yes, he needed Democrats to carry the bill over the line. And some fiscal hawks in his party see the deal as a betrayal. (An analysis by The Times shows the agreement will lead to $1 trillion in deficit reductions; the Republicans originally demanded a $4.8 trillion cut.)

But Mr. McCarthy held onto backing from conservative party members including Representative Jim Jordan of Ohio.

President Biden has also won plaudits for reaching an agreement, with commentators calling it a win for him and another example of his “deal-making prowess.”

Time is still tight. As of Tuesday, the Treasury’s cash balance had dwindled to $37.4 billion, a six-year low. Treasury Secretary Janet Yellen has calculated that the government would run out of cash as soon as Monday if a deal is not passed by then.

Despite all the drama in Washington, markets were fairly muted. The S&P 500 finished slightly higher in May, suggesting that investors never priced in the doomsday scenario of a default. That’s a far cry from the topsy-turvy trading that rocked the market during the last big debt-ceiling standoff in 2011, when stocks and the dollar fell.

Here are the other big winners and losers from last month:

Tech stocks, driven by investor enthusiasm for artificial intelligence, led the way. The FANG+ Index, which includes A.I.-adjacent stocks such as Nvidia, Meta and Google, climbed nearly 15 percent. Meanwhile, commodity prices fell on concerns that the global economy, especially China, is headed for a downturn. West Texas Intermediate and Brent crude oil prices have declined in each of the past five months.

Also lifting investors’ mood this morning is news that two voting members of the Fed on Wednesday endorsed the idea of the central bank pausing rate increases this month.

HERE’S WHAT’S HAPPENING

Amazon will settle charges that it violated rules on children’s privacy. The tech giant will pay $25 million to resolve civil claims by the F.T.C. and the Justice Department that it kept sensitive information collected from children via Alexa-enabled devices for years. Meanwhile, about 2,000 Amazon workers walked off the job on Wednesday to protest issues including the company’s return-to-office mandate and recent layoffs.

The Biden administration is reportedly divided over rules for artificial intelligence. Some officials back stronger measures to rein in the likes of ChatGPT, in line with their European counterparts, while others worry that regulation could hurt American innovation, according to Bloomberg. That split contributed to a lack of consensus at a meeting of trans-Atlantic tech policymakers in Sweden on Wednesday.

Eurozone inflation falls faster than expected. Prices in the 20-country bloc rose at an annualized rate of 6.1 percent last month, down from 7 percent in April and the double-digit increases of the fall. But prices for food and services continued to climb, making it more likely that the European Central Bank will keep raising interest rates.

Sean Combs sues Diageo, claiming racial discrimination. A beverage company owned by the music mogul accused Diageo of neglecting the DeLeón tequila brand that they co-own — and said the drinks giant had pigeonholed DeLeón as “urban” and “Black.” Mr. Combs’s company claimed that Diageo instead favored other brands like Casamigos, which was co-founded by George Clooney; Diageo denied the claims.

Dimon deflects blame for JPMorgan’s Epstein ties

With JPMorgan Chase facing accusations that it ignored warning signs about Jeffrey Epstein, top executives — including the bank’s chief, Jamie Dimon — said in sworn testimony that they knew almost nothing about the convicted sex offender.

What emerged from depositions of Mr. Dimon and a top lieutenant, Mary Erdoes, was the impression that top executives didn’t talk to one another about one of the bank’s most notorious clients.

Mr. Dimon said that he had barely heard of Mr. Epstein before his arrest on federal sex trafficking charges. (This was despite Mr. Epstein making frequent appearances in the tabloids.) Mr. Dimon said he “wouldn’t mind personally apologizing” to Mr. Epstein’s victims, though he maintained that JPMorgan wasn’t liable for the financier’s crimes.

And Ms. Erdoes, JPMorgan’s asset management chief, asserted that she had only met Mr. Epstein twice, with the second time being to dismiss him as a client in 2013.

Both executives sought to blame others for JPMorgan’s long ties to Mr. Epstein. Ms. Erdoes said ending ties with him became easier after Jes Staley, who formerly led the private banking division, left the firm earlier in 2013. Ms. Erdoes called Mr. Staley “Mr. Epstein’s advocate in the bank,” and in his absence, “I was exiting Mr. Epstein.”

For his part, Mr. Dimon suggested that ultimate authority for dropping Mr. Epstein as a client lay with Steve Cutler, JPMorgan’s former general counsel. Mr. Dimon added that he believed Mr. Cutler and Ms. Erdoes “were both trying to do the right thing.”

Next up is Mr. Staley’s deposition, which could come as soon as next week. In legal documents, Mr. Staley has claimed that he spoke with Mr. Dimon several times about keeping Mr. Epstein as a client, according to The Wall Street Journal, something JPMorgan denies.

Climate proposals stumble badly at oil giant meetings

Investors in Chevron and Exxon Mobil on Wednesday overwhelmingly rejected an array of shareholder proposals meant to force the oil producers to cut greenhouse-gas emissions and disclose more climate-related data.

The abysmal results underscore how efforts to make the fossil-fuel industry greener have been losing steam, reinforcing what climate shareholder activists told DealBook was existential angst about how little ground their movement was gaining.

Nearly all of the proposals failed to gain more than 20 percent support. That reflected a broad pushback on efforts to force Chevron and Exxon to decarbonize and publish emissions targets in line with the Paris climate accords. (Some of the measures failed despite support from major investors like Norway’s $1.4 trillion sovereign wealth fund and the British asset manager Legal & General.)

Big investors have been playing down support for E.S.G., the investment movement that focuses on environmental, social and corporate governance issues, amid pressure from conservative lawmakers across the United States. (It isn’t clear how money managers like BlackRock and Vanguard, which had publicly promoted E.S.G. stances in recent years, voted on the latest proposals.)

Meanwhile, U.S. oil companies have ramped up their fossil-fuel production, citing growing demand amid the war in Ukraine and rising inflation. Chevron has even doubled down on traditional fuels by agreeing to buy PDC Energy, a shale producer, for $6.3 billion.

Activists fumed about the results, which capped a sharp reversal in their movement’s fortunes since the hedge fund Engine No. 1 won three seats on Exxon’s board in 2021. “It’s incomprehensible that most investors still accept the U.S. supermajors’ refusal to cut emissions this decade,” Mark van Baal, the founder of the environmental advocacy group Follow This, said after the meetings.

“We did not have a systemic issue with harassment — ever. … But what we did have was a very aggressive labor movement working hard to try and destabilize the company.”

— Bobby Kotick, the C.E.O. of Activision Blizzard. In an interview with Variety, he defended the video game maker’s workplace culture, as lawsuits and investigations over harassment and gender equity loom over the company. Kotick also said that he had wanted to buy Time Warner in 2018.

Harvey Pitt, former S.E.C. chair, dies

Harvey Pitt, who became the S.E.C.’s youngest general counsel and later returned as chair died on Tuesday at the age of 78. Mr. Pitt was appointed by President George W. Bush in 2001, ran the agency in the turbulent period after the Sept. 11 attacks and implemented new regulations passed in the wake of the Enron accounting scandal.

Mr. Pitt’s dream job turned into a nightmare. He lasted only 18 months as chair, resigning following a series of political missteps. These included failing to disclose that his pick to head a new accounting board created after the Enron scandal had led the audit committee of a company mired in its own accounting scandal. Months prior, Mr. Pitt was widely ridiculed for trying to insert a provision into legislation that would raise his pay and elevate his status. He later said his role became politicized after the Enron scandal.

Mr. Pitt returned to the private sector, but the S.E.C.’s role remained a focus for him. He started and led Kalorama Partners, a law and consulting firm, and taught at Georgetown for many years. But the agency always remained top of mind. “Even in the last year, he has made himself available to offer advice,” S.E.C. commissioners wrote in a joint statement on Wednesday. “Harvey loved this agency.”

THE SPEED READ

Deals

The electric vehicle maker Lucid plans to sell $3 billion worth of stock, with much of that going to its majority owner, Saudi Arabia’s sovereign wealth fund. (CNBC)

WE Soda, a major producer of a key glassmaking component, plans to go public on the London Stock Exchange, bucking a trend of companies shunning the British stock market. (FT)

Policy

Meta asked a federal court to block the F.T.C. from imposing sanctions on the company for alleged privacy violations; it also threatened to pull news from its platforms in California if the state passed a law requiring tech companies to pay publishers. (WSJ)

Defense Secretary Lloyd Austin warned that incidents with the Chinese military could “spiral out of control” after a fighter jet carried out an “aggressive” maneuver near a U.S. military plane. (FT)

Best of the rest

Is the “great resignation” over? (CNBC)

Adidas began selling off its remaining stock of Yeezy sneakers on Thursday, as the sportswear giant seeks to dissolve its ties to rapper Kanye West. (WSJ)

Elon Musk is again the world’s richest person, after a drop in LVMH’s stock price cost Bernard Arnault his crown. (Bloomberg)

Delta faces a potential class-action lawsuit over its claims to be a carbon-neutral airline. (Quartz)

The president of Boston University accused students who booed David Zaslav, the Warner Bros. Discovery C.E.O. who delivered the school’s commencement address, of participating in “cancel culture.” (Hollywood Reporter)

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Andrew Ross Sorkin is a columnist and the founder and editor at large of DealBook. He is a co-anchor of CNBC’s “Squawk Box” and the author of “Too Big to Fail.” He is also a co-creator of the Showtime drama series “Billions.” @andrewrsorkin • Facebook

Ravi Mattu is the managing editor of DealBook, based in London. He joined The New York Times in 2022 from the Financial Times, where he held a number of senior roles in Hong Kong and London. @ravmattu

Bernhard Warner joined the The Times in 2022 as a senior editor for DealBook. Previously he was a senior writer and editor at Fortune focusing on business, the economy and the markets. @bernhardwarner

Sarah Kessler is a senior staff editor for DealBook and the author of “Gigged,” a book about workers in the gig economy. @sarahfkessler

Michael de la Merced joined The Times as a reporter in 2006, covering Wall Street and finance. Among his main coverage areas are mergers and acquisitions, bankruptcies and the private equity industry. @m_delamerced • Facebook

Lauren Hirsch joined The Times from CNBC in 2020, covering deals and the biggest stories on Wall Street. @laurenshirsch

Ephrat Livni reports from Washington on the intersection of business and policy for DealBook. Previously, she was a senior reporter at Quartz, covering law and politics, and has practiced law in the public and private sectors.   @el72champs

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