Markets Cheer Trump’s Treasury Secretary Pick

Summary

WSJ What’s News: Markets Cheer Trump’s Treasury Secretary Pick (November 25, 2024)

In this comprehensive episode of WSJ What’s News, The Wall Street Journal delves into significant political appointments, global climate finance developments, blockbuster movie successes, and the evolving landscape of commercial real estate. Hosted by Kate Bullivant, the episode provides insightful analysis and expert opinions to keep listeners informed about factors influencing markets and the broader economic environment.

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1. Trump Nominates Scott Besant as Treasury Secretary

The episode opens with the announcement that Donald Trump has nominated Scott Besant, a prominent hedge fund manager and one of his most vocal supporters in the finance sector, to lead the Treasury Department. This move elevates Besant to a pivotal role in the administration, tasked with transforming Trump’s campaign promises into actionable economic policies.

Alex Frangos, Europe Finance Editor for WSJ, offers a detailed analysis of Besant's nomination:

“Besant historically hasn't been a pro-tariff person. He has obviously come as a Trump supporter and seems willing to implement, but that gives a little bit of breathing room for people to think that maybe he's somewhat practical about how tariffs are going to work and that he's described them as a tool that you use to get to the bargaining table and get to a place where you have good trade relations.” ([02:18])

Frangos highlights that Besant's pragmatic stance on tariffs may reassure Wall Street, which fears that tariff policies could destabilize markets, increase volatility, and reignite inflation. The nomination has already positively influenced market sentiments, with the dollar experiencing a slight decline, bond yields decreasing, and stock futures showing an upward trend.

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2. Deputy Secretary of Defense Potential Appointees

Donald Trump is also considering two investors for the role of Deputy Secretary of Defense, the second-highest civilian position at the Pentagon. The potential candidates are Trey Stevens, a partner at venture capital firm Founders Fund, and Steven Feinberg, co-CEO of Cerberus Capital Management.

The selection of either Stevens or Feinberg is anticipated to benefit the burgeoning defense startup ecosystem. Both candidates have substantial investments and leadership experience within the defense sector, which could spearhead the management of the defense budget and foster innovation among new military-oriented enterprises. While Feinberg's spokesperson has confirmed he hasn’t been offered a position, Stevens and Founders Fund have declined to comment, and Trump’s office has not provided a response to requests for comment.

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3. Appointment of Laurie Chavez de Rima as Labor Secretary

In another significant appointment, Trump has nominated Laurie Chavez de Rima as Labor Secretary. Chavez de Rima is noted for being a rare pro-union Republican, a move that comes amidst internal debates within the Republican Party regarding labor policies. This nomination reflects a potential shift in the GOP’s traditional stance towards organized labor, which was a topic of discussion on the show’s recent episodes.

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4. Global Climate Finance Agreement Amid Political Uncertainty

Over the weekend, the United States, Europe, and several other wealthy nations reached an agreement to increase annual climate financing to at least $300 billion by 2035. This accord concluded the climate talks in Azerbaijan but faced criticism from developing countries, particularly India, for being insufficient and delayed.

Chandni Rayna, an Indian delegate, expressed strong dissatisfaction:

“The amount that is proposed to be mobilized is abysmally poor. It's a paltry sum. It is not something that will enable conducive climate action that is necessary for the survival of our country and for the growth of our people, their livelihoods.” ([04:08])

Matthew Dalton, a Journal reporter present in Azerbaijan, points out that the potential for a second Trump presidency introduces uncertainty regarding the US’s commitment to this pact:

“The US is supposed to be the single largest funder of these efforts, so if Trump is going to pull out of the Paris Accord, he's also going to slash funding, presumably for climate finance projects. That's probably going to be supported by the Republican-controlled House and Senate, at least over the next two years.” ([04:30])

Scott Besant adds further concerns about the feasibility of the agreement without active US participation:

“The agreement says $300 billion a year by 2035, but there's 10 years in between that and so there's got to be some kind of steady increase for the next four years. That's going to be very difficult without the US really engaged.” ([04:39])

The episode underscores the fragility of international climate commitments in the face of changing US political landscapes and administration priorities.

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5. Box Office Triumphs: 'Wicked' and 'Gladiator 2' Boost Theater Revenues

Hollywood delivered strong performances this weekend with Universal Pictures' adaptation of the stage show "Wicked" grossing an impressive $114 million in its opening weekend. Additionally, Paramount Pictures’ "Gladiator 2" earned around $55 million, collectively providing a much-needed uplift for theater owners amidst fluctuating box office revenues.

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6. European Banking Sector Sees Major Deal with UniCredit’s Acquisition of Banco BPM

In European financial news, Italy's UniCredit has launched a $10.5 billion offer to acquire Banco BPM, aiming to create the eurozone's largest bank by market value. This strategic move, pending regulatory approval, is projected to conclude by June and signals a surge in deal-making activity among European lenders. The acquisition is buoyed by the gradual decline of high interest rates, which fosters a conducive environment for mergers and acquisitions within the banking sector. Banco BPM’s shares responded positively, rising at the Milan open following the announcement.

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7. Deep Dive into Commercial Real Estate with Experts

One of the episode’s highlights features an in-depth discussion on commercial real estate (CRE), a topic of increasing relevance in the post-pandemic economic landscape. Rebecca Rocky, Deputy Chief Economist at Cushman & Wakefield, provides expert insights into the current trends and future outlook of CRE.

Key points discussed include:

• Shift in CRE Investment Focus: While traditional office spaces face challenges due to the rise of remote work, sectors like data centers, industrial multifamily properties, and warehouses are experiencing sustained demand. Rocky notes, “...over time there's going to be a scarcity of supply” in these high-demand sectors ([08:27]).

• Mixed Outlook for Office and Retail Spaces: Despite growth in certain CRE segments, the broader outlook remains cautious. Properties such as old office buildings and rundown malls continue to struggle, posing refinancing challenges, especially in a high-interest-rate environment. Rocky emphasizes the ongoing risks: “...the fundamental question of nobody really wants to be in this building are going to persist and that could all get worse again depending on what happens with interest rates” ([09:18]).

• Investment Exposure and Risk Management: For investors, understanding exposure to different CRE segments is crucial. While Real Estate Investment Trusts (REITs) offer exposure to high-quality properties, investments in riskier segments like lower-tier offices or debt instruments related to CRE require careful portfolio assessment. Rocky advises, “...it's a good excuse to do a kind of health checkup on your portfolio and understand a little bit of what part of commercial real estate you actually are exposed to” ([11:00]).

The discussion concludes with responsible financial advice, urging investors to evaluate their CRE investments meticulously to navigate the complexities of the current market.

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Conclusion

This episode of WSJ What’s News provides a multifaceted exploration of critical developments affecting markets and the economy. From high-stakes political appointments and international climate agreements to significant cultural milestones and sector-specific analyses, the episode equips listeners with valuable knowledge to comprehend and anticipate market movements. The expert commentary and detailed breakdowns ensure that even those who haven’t listened to the podcast can grasp the essential insights and implications discussed.

Transcript

[Scott Besant]

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[Kate Bullivant]

Markets. Welcome Scott Besant's nomination for treasury secretary.

[Alex Frangos]

Wall street is interpreting that as here's someone who's somewhat practical in how they approach Trump's very I'm a tariff man kind of policy.

[Kate Bullivant]

Plus Wicked defies Gravity at the box office. And WSJ's take on the week co host Telus Demos prescribes a health checkup for our investment portfolios. It's Monday, November 25th. I'm Kate Bullivant for the Wall Street Journal, filling in for Luke Vargas. And here is the AM edition of what's the top headlines and business stories moving your world Today, Donald Trump is eyeing two investors for the job of deputy secretary of defense, the second highest ranking civ role at the Pentagon, according to people familiar with the transition. Trey Stevens, a partner at venture capital firm Founders Fund, is on the list of people Trump is considering. And as the Journal has reported, Steven Feinberg, co CEO of Cerberus Capital Management, is also in the running. The selection of either of these candidates for the role, which would put them in charge of running the defence budget, could be welcome news for the hundreds of new defence startups that have entered the military market in recent years. Both men have invested into or founded companies in that space. A spokesman for Feinberg said he hadn't been offered any job in the administration. While Stevens and Founders Fund declined to comment, spokespeople for Trump didn't return requests for comment. Meanwhile, Trump has picked hedge fund manager Scott Besant to lead the Treasury Department, elevating one of his most vocal supporters in the finance world to a crucial role in his administration. Journal Europe finance editor Alex Frangos says Besant will be tasked with turning Trump's campaign trail promises into economic policy, as well as reassuring Wall street that the president elect's proposals won't be damaging for the economy.

[Alex Frangos]

The big question is going to be tariffs. That's the thing that scares Wall Street. People think it's economically disruptive, could cause markets to be volatile and cause inflation to come back up. But Besant historically hasn't been a pro tariff person. He has obviously come as a Trump supporter and seems willing to implement, but that gives a little bit of breathing room for people to think that maybe he's somewhat practical about how tariffs are going to work and that he's described them as a tool that you use to get to the bargaining table and get to a place where you have good trade relations. So there are some analysts out there saying that Besant is a more predictable pick, someone who may provide a somewhat calming influence on the administration. And so markets are taking that into account. The dollar has fallen a little bit, bond yields have come down a little bit, stock futures are up and Trump.

[Kate Bullivant]

Has also announced his pick for labor secretary, tapping Laurie Chavez de Rima, a rare pro union Republican. The choice comes amid a fight over labour policy inside the Republican Party with some members. As we discussed on our show on Friday morning, pushing for a rethink of the GOP's longstanding hostility toward organized labour, the US, Europe and a handful of other rich countries agreed over the weekend to triple their annual climate financing to at least $300 billion a year by 2035, wrapping up climate talks in Azerbaijan. Developing countries had been looking for a much more ambitious annual target of more than $1 trillion by 2030 and expressed outrage at a goal Indian delegate Chandni Rayna described as being too, too late.

[Matthew Dalton]

The amount that is proposed to be mobilized is abysmally poor. It's a paltry sum. It is not something that will enable conducive climate action that is necessary for the survival of our country and for the growth of our people, their livelihoods.

[Kate Bullivant]

Journal reporter Matthew Dalton is just back from Azerbaijan and he says the prospect of a second Trump presidency casts uncertainty over the this climate pact.

[Scott Besant]

The US is supposed to be the single largest funder of these efforts, so if Trump is going to pull out of the Paris accord, he's also going to slash funding, presumably for climate finance projects. That's probably going to be supported by the Republican controlled House and Senate, at least over the next two years. The agreement says $300 billion a year by 2035, but there's 10 years in between that and so there's got to be some kind of steady increase for the next four years. That's going to very difficult without the US really engaged.

[Kate Bullivant]

Wicked, the Universal Pictures movie adaptation of the stage show Smash, has collected a blockbuster $114 million in its opening weekend. The weekend's other new release, Paramount Pictures Gladiator 2, grossed around $55 million, with the two films giving theatre owners a much needed boost. And in news moving markets today, Italy's UniCredit has launched a $10.5 billion offer to buy smaller rival Banco BPM, a takeover that would create the eurozone's biggest bank by market value the deal is subject to regulatory approval, but UniCredit expects to complete it by June. It's the latest sign of increased dealmaking activity among European lenders as a tailwind from high interest rates begins to fade. Banco BPM shares jumped at the open in Milan. Coming up, if you're hungry for more insights and analysis to set you up for the week ahead in markets, you're in luck. The WSJ's take on the Week Co host Teles Demos joins us to explain why investors small and large should be paying attention to commercial real estate. That's after the break.

[Telus Demos]

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[Kate Bullivant]

If you hadn't heard, WSJ's take on the Week podcast is back. On Sundays, new hosts Telus Demos and Gunjin Banerjee get you ready for events likely to shape the trading week. They sit down with an outside guest to go deep on an economic trend we'd be wise to keep an eye on. Which is why we asked Telus to drop by to talk to our Luke Vargas about commercial real estate.

[Gunjin Banerjee]

Tell us. My initial thought was huh, okay, pretty bold CRE for episode two of the relaunch. And then I saw your very cheeky news peg and I was convinced.

[Rebecca Rocky]

Well, we at Take on the Week fear no topic. But actually CRE had a very familiar news hook, as we say in the biz, which is that Rockefeller center, an iconic holiday Americana commercial real estate property actually was recently part of a very big deal. So Rockefeller center refinanced itself and did a $3.5 billion financing and it turned out to be just a perfect way to talk about this really just sort of mega trend that has been going on for the last few years, which is looking at what is the future for downtown office retail property in the post pandemic world when more people are working from home. So this deal was a lens on that.

[Gunjin Banerjee]

Your guest for yesterday's episode was Rebecca Rocky, the deputy chief economist at Cushman Wakefield, the big commercial real estate services firm. And in the past I want to play a clip from her.

[Chandni Rayna]

The reality is commercial real estate was viewed as a niche asset class and it is actually not so niche anymore. It is about 12% of the asset base in the country, which is about $168 trillion in total. The allocations towards investing in commercial real estate have been growing structurally over the last 20 years and we expect that to continue now within CRE you're going to certainly have a little less of the pot going to office. You see a lot more interest in things like data centers, industrial multifamily things where there are long term drivers of fundamental demand and over time there's going to be a scarcity of supply.

[Gunjin Banerjee]

Tell us, some classes of commercial real estate it sounds like are thriving, but the broader outlook remains pretty mixed, right?

[Rebecca Rocky]

Absolutely. I think that there are still a lot of questions about properties that are okay to not great. Right. Everybody can think of an office park near their house or, you know, an older office building in their city where if you were taking out a lease for the next 10 years, would you want to be in that building? Right. Probably not. And so a rundown mall. Oh, absolutely right. Empty malls, all of those things are still out there. And some of those properties may have been able to what they call in the business, sort of kicking the can down the road or extend and pretend. Right. They refinanced it, they put up a little more money, maybe they did some improvements to the building that sort of keep things going for now. But the fundamental question of nobody really wants to be in this building are going to persist and that could all get worse again depending on what happens with interest rates. Right. It's much easier to refinance a okay property if you can do it cheaply. If you have to pay up for that financing, well, then you've got to figure out a way to make the maths math. And sometimes they don't.

[Gunjin Banerjee]

And it really was not long ago that the combination of high rates and default risks was prompting some serious fears about ripple effects across the whole economy.

[Rebecca Rocky]

Absolutely. In 2023, when there was a banking crisis, one issue was commercial real estate is a big lending space, especially for smaller banks. And so it was a worry for banking. There were people predicting that there were going to be waves of bank failures related mainly to commercial real estate. We have not seen that thankfully thus far, but I think it's going to continue to be a topic of focus, especially if we get into trickier situations like really high interest rates, like a struggling economy.

[Gunjin Banerjee]

Art, then tell us. So where then does this net out for investors who might want to dip their toes into cre?

[Rebecca Rocky]

Well, one thing that we talked about on the show is that a lot of investors might have exposure to. I don't know about you, but I don't own any large commercial properties in big cities or really any cities. No, I I wish might be nice, but some people are individually invested in things like real estate investment trusts or REITs, which are publicly traded stocks of entities that own properties. They might more likely be exposed to those sorts of things through their 401k or pension fund or something like that. But what's interesting about that is that REITs might be focused on those kind of class A properties, not those what they call class B or C properties, those less desirable offices, you know, the kind that don't have of on tap kombucha type things. The other thing is that a lot of people's CRE we've been talking about cre. Commercial real estate is a broad category. Office is sort of the squeaky wheel right now. And other CRE type investments might have exposure to things that are much hotter and more exciting. Data centers that power AI computing warehouses for e commerce. Right. And then of course, some of the exposure also comes from the debt side of things. Right? Commercial real estate produces a lot of bonds to finance it. So there might be funds that own those bonds and loans and those investments. Your risk there might be more related to what happens with interest rates and what it does than whether or not people are working from home or not and occupying those offices. Obviously it all gets related, but as an individual investor, it's a good excuse to do a kind of health checkup on your portfolio and understand a little bit of what part of commercial real estate you actually are exposed to.

[Gunjin Banerjee]

Ending on a note of very responsible financial advice. Tell us. I wouldn't expect anything less.

[Rebecca Rocky]

We gave you homework. Everybody listening and watching you. You got homework for this one.

[Gunjin Banerjee]

Good homework. Tell us. Demos is the co host of WSJ's take on the Week podcast, which you can catch every Sunday. Go and check out yesterday's episode now, wherever you get your podcast telos. Thanks so much.

[Rebecca Rocky]

Awesome. Thanks, Luke.

[Kate Bullivant]

And that's it for what's news for Monday morning. Today's show was produced by Daniel Bach with supervising producer Christina Rocha. And I'm Kate Bullivant for the Wall Street Journal, filling in for Luke Vargas. We'll be back tonight with a new show. Until then, thanks for listening.

[Daniel Bach]

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