The Week Ahead In Beltway Drama

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With politics suddenly taking a key role in daily market gyrations, and robots most certainly not accustomed to trading off D.C. headlines, here is the upcoming week's key events out of the Beltway.

Monday, April 11

  • FY2011 fiscal compromise filed in House of Representatives. What is known is that the compromise package will cut $38.5 billion from current levels, including the $12bn that has already been cut in prior continuing resolutions and the most recent one enacted on Saturday to avoid a shutdown. This expected to break down into $3bn in cuts to defense, $18bn in cuts to mandatory spending, and $17bn in cuts to other non-defense discretionary programs. 
  • Sens. Mark Warner (D-VA) and Saxby Chambliss (R-GA) briefing on “Gang of Six” fiscal reform efforts.  Warner and Chambliss are leading efforts to craft bipartisan budget legislation similar to the fiscal commission’s proposals. There has been speculation that the proposal could be released this week. Senate Budget Committee Kent Conrad (D-ND) has hinted that this proposal could be used in formulating his FY2012 bugdet resolution, which been delayed partly in anticipation of this proposal.

Tuesday, April 12

  • Derivatives regulation. SEC Chair Schapiro, CFTC Chair Gensler, Fed Governor Tarullo, Asst. Treasury Sec. Miller and industry representatives will testify in the Senate Banking Committee. 
  • Nuclear energy hearing. EPA Administrator Jackson and NRC Chairman Kaczko testify in the Senate EPW Committee on the implications of the situation at the Fukushima plant and implications for the US. 
  • FDIC meeting on swap dealer margin and capital requirements, assessments for large and complex institutions, and deposit insurance fund losses.

Wednesday, April 13

  • President Obama speaks on fiscal proposals.  It isn’t yet clear how specific the president’s proposals will be; the options range from laying out a specific set of proposals, perhaps in some cases pulled from the fiscal commission’s recommendations, to simply laying out principles for reform. That said, it seems unlikely that the White House would want to be any more specific than the broad strokes outlined in the budget resolution released last week by House Budget Committee Chairman Paul Ryan (R-WI). The Ryan proposal includes specific projections of spending level by budget category (i.e. the top line levels for Medicare, Medicaid, Social Security, defense spending, etc) but does not actually include policy specifics (the budget resolution never includes policy specifics, since the resolution serves only as a non-binding outline for Congress to use in the budget process, and never becomes law).   The biggest news in the president’s proposal is likely to be on healthcare; both parties have essentially net reductions in Social Security spending over the next ten years off the table, and while the president is likely to rely on tax policy to close some of the gap, he has already outlined some of those proposals in his February budget (letting top tax brackets revert to pre-2001 levels, limiting certain deductions, etc).  
  • House vote on FY2011 fiscal compromise package.  There is little doubt that the bill will pass, though it may have to rely more heavily on Republican votes than previous short-term extensions have in the last several weeks. 

Thursday, April 14

  • Senate votes on FY2011 compromise. The timing of the Senate vote isn’t entirely clear, but is generally expected Thursday. Were the Senate to follow the usual procedure for a major bill, passage would take a minimum of two days and perhaps as long as five days from the time it receives the bill from the House. However, it is generally expected that lawmakers opposed to the compromise will nevertheless allow a final vote to occur quickly in order to avoid any risk of a government shutdown.  The temporary funding measure enacted over the weekend lasts through April 15.
  • Muni debt hearing.  No word yet on who will testify at this hearing in the House Oversight Committee. 
  • Risk retention. House Financial Services will hold a hearing on the recent proposed rule, which calls for mortgages to include a 20% down payment among other factors in order to avoid the risk retention requirement set out under the Dodd-Frank Act.

Friday, April 15

  • House votes on FY2012 budget resolution.   The budget resolution is likely to pass the House along more or less party lines. After the House vote, no further action on the resolution will occur until the Senate passes its own resolution; so far there has been no Senate proposal.

source: Goldman