June 11, 2017 – Markets weathered a trifecta of global events this week; ECB rate decision, UK election and Comey testimony.  The ECB left interest rates unchanged although it tweaked its closely watched forward guidance by dropping a reference made in earlier policy statements that rates could be lowered in the future. Markets viewed this omission as the ECB’s first step toward scaling back its aggressive quantitative easing (QE) program. It also confirmed that it will continue QE until the end of the year, or beyond if necessary.  

In the UK, British Prime Minister Theresa May fell eight votes short of the 326 needed to secure a majority – a hung Parliament.  In April this year, May stunned the political world calling for a “snap” election to be held on June 8.   Acting from a position of strength, she hoped to gain a greater majority in Parliament, win an election on her own (she replaced David Cameron after the Brexit vote) and strengthen her hand in Brexit negotiations with the European Union, due to start on June 19.  Her opponent, Labour’s Jeremy Corbyn, focusing on welfare issues that appealed to young voters, benefitted from a 20 point rise in turnout among 18-24 year olds vs the UK’s 2015 general election.  The results leave May in a precarious position and she now will attempt to strike a deal with Northern Ireland’s right-wing Democratic Unionist Party (DUP) in order to gain the seats necessary to govern.  Finally, former FBI director James Comey testified before the Senate Intelligence Committee. Markets were anxious that he would disclose details about his interactions with President Donald Trump and Russia’s alleged involvement in the U.S. election that could further derail the administration’s pro-growth agenda. The hearing shed little new information, as Comey’s remarks largely echoed a written statement he had released the day before.

Markets took all the events in stride. The S&P 500 retreated slightly from the previous week’s record high while the bellwether US 10 Year Treasury note ended the week at 2.20%, up six basis point from 2017 lows.  

Alternative Lenders continue to tap the capital markets for funding via rated securitizations taking advantage of the strong demand for paper by investors.  Kroll Bond Rating Agency, assigned preliminary ratings to three classes of notes to be issued by first time issuer Upstart Securitization Trust 2017-1 (“UPST 2017-1”). Classes A, B and, C were assigned preliminary ratings of, A-,  BBB-, and BB-, respectively.  Consumer Loan Underlying Bond (CLUB) Credit Trust 2017-NP1 (CLUB 2017-NP1), filed form 15G with the SEC. This will be the first securitization of 2017 for Lending Club.  Finally, on Thursday, the House of Representatives voted 233 to 186 (along party lines) to pass the Financial Choice Act (FCA). The FCA rolls back many of the Dodd-Frank reforms instituted under the Obama administration.  The FCA addresses many concerns of the banking industry introduced by the Dodd-Frank bill of 2010 and although it is unlikely to advance in the Senate, passage of the FCA does advance a deregulation agenda supported by the Trump administration. Furthermore, certain elements of the FCA may be extracted from the legislation and passed separately. Over the next four years banks will be the beneficiary of less stringent regulation.  

Opinions expressed within the commentary are general opinions of Chris Lalli and Jae Lim and are not opinions of CapAccel or SF Sentry Securities, Inc. Nothing in this commentary should be viewed as solicitation to buy or sell specific securities or a recommendation to participate in any transactions. Securities offered through SF Sentry Securities, Inc., member FINRA/SIPC.

Sources:  Orchard Platform, TIAA-CREF, Wall Street Journal