Investors See Hope for a Debt Limit Deal

A debt deal is in sight

Investors are holding their breath on Friday morning, amid signs that the White House and top House Republicans are closing in on a deal to raise the debt limit and avert a government default. Stock futures are showing modest gains, while yields on Treasury bills maturing on June 8 have fallen, suggesting bond traders expect an agreement soon.

According to reports, a compromise could come as soon as Friday, paving the way for Congress to vote as soon as Tuesday. That of course is getting down to the wire, and this being Washington, a lot of obstacles could yet emerge.

How close is “close”? Negotiators have narrowed their differences and are just $70 billion in spending cuts away from a deal, according to Reuters. Speaker Kevin McCarthy said on Thursday that he’ll stay in Washington during Memorial Day weekend to ensure a deal gets done.

Emerging details suggest that both parties would be able to claim some victories:

• Domestic spending over two years would be capped, though by how much remains a sticking point. (Republicans had initially wanted 10 years.) Defense spending would be allowed to rise 3 percent per year, in line with President Biden’s budget request.

• In a win for Republicans, Congress would take back $10 billion of the $80 billion it had allocated to the I.R.S. to bolster enforcement.

• Still being hashed out are stiffer work requirements for social safety net programs and an overhaul of how domestic energy and power projects are approved.

It’s still unclear whether any such deal has enough support in Congress. On the right, Republicans including Senator Mike Lee of Utah and the 35 House lawmakers associated with the House Freedom Caucus are demanding even deeper spending cuts. On the left, Representative Pramila Jayapal, the Washington Democrat who leads the 101-member House Progressive Caucus, predicted “a huge backlash” if the White House caved to Republican demands.

For his part, Mr. McCarthy told reporters, “I don’t think everybody is going to be happy at the end of the day.”

The stakes are getting higher. The Treasury Department said on Wednesday that its cash balance had sunk to just under $50 billion, down from $140 billion on May 12. Treasury Secretary Janet Yellen has said the government could run out of cash as soon as June 1.

Meanwhile, Wall Street is also keeping its eye on other economic developments. At 8:30 a.m. Eastern, the Commerce Department will publish its latest personal consumption expenditures data, which tracks inflation; a strong reading could help convince the Fed to be less aggressive in raising interest rates next month.

HERE’S WHAT’S HAPPENING

The Supreme Court further restricts the E.P.A.’s power. The high court limited the agency’s authority over wetlands, in the second decision over the past year to circumscribe the regulator’s powers. But Justice Brett Kavanaugh sided with liberal colleagues in warning that a majority-backed test for determining E.P.A. jurisdiction contradicted previous Supreme Court rulings and could lead to more pollution.

Carl Icahn claims a partial seat in his fight with Illumina. Shareholders in the gene-sequencing company backed the activist investor’s effort to oust its chairman, though they rejected his two other candidates for the board; shares in Illumina fell 9 percent on Thursday. Meanwhile, shares in Mr. Icahn’s publicly traded investment vehicle, which has been criticized by a short seller, tumbled on Thursday to a yearslong low.

Norway’s sovereign wealth fund sides with environmental activists. The $1.4 trillion investor said it will support shareholder proposals at Chevron and Exxon Mobil calling on the two to cut their greenhouse gas emissions. But the Norway fund has been criticized by activists for not making similar demands at European oil giants like BP and Total.

Elon Musk’s brain-implant company can conduct human trials. The F.D.A. will let Neuralink test out its devices — which can decipher brain signals and link them to computers — on people. Mr. Musk’s start-up is among the most ambitious companies in the nascent sector, but has faced scrutiny over accusations of animal cruelty.

Lazard crowns its next leader

It’s official: Lazard announced on Friday that Peter Orszag, who leads its core financial advisory business, will succeed Ken Jacobs as its C.E.O. on Oct. 1. (Mr. Jacobs, who held the role for 14 years, will stay on as executive chairman and continue to advise clients.)

Mr. Orszag, a former Obama administration official who regularly appears on CNBC and Bloomberg Television, will oversee a 175-year-old financial institution with a long history of advising on major corporate deals — at a time when its mainstay business faces huge challenges.

Mr. Orszag has been the heir apparent for some time. While Lazard didn’t say when its succession planning began, Mr. Orszag, 54, wrote to employees on Friday morning that the move followed a “selection process that has been in the works for quite some time.”

An economist by training, he rose through the ranks in Washington and on Wall Street — he worked for both Bill Clinton and Barack Obama, as well as at Citigroup — giving him a useful background to running one of the world’s most prominent independent banks.

But he will confront a tough time for investment banks. Deal making was down 40 percent year-on-year for the year through on Thursday, according to Refinitiv. And rising interest rates, increasingly tough antitrust enforcement and a slowing economy make a resurgence in big-ticket M.&A. unlikely anytime soon.

That has hit Lazard, which said last month that it was laying off 10 percent of its work force; the bank’s shares have fallen 11 percent since then. The firm isn’t alone: Rivals like Goldman Sachs and Morgan Stanley have also cut staff.

A top priority for Orszag is growing Lazard’s asset management business, which oversees more than $200 billion of assets and represents 40 percent of its business. Asset management has become popular among Wall Street banks as a steady source of revenue that can offset volatility in investment banking; Mr. Orszag told employees that growth could come from acquisitions.

In the internal memo, Mr. Orszag also wrote that the firm’s culture “must continue to evolve to support our growth and ambition, while retaining many of our best qualities that harken back to our roots.” (One priority he mentioned was “diversity and work from home flexibility.”)

The firm will announce other changes to its management before October. One name to watch closely is Ray McGuire, the former Citi rainmaker that Lazard hired in March.

“Our industry is obsessed with these huge batteries, and I think that is maybe not the right approach. We should make the battery as small as possible.”

— Jim Farley, the C.E.O. of Ford. On a Twitter Spaces event on Thursday with Elon Musk, the C.E.O. of Tesla, to announce a charging-station alliance, Farley acknowledged that electric carmakers may need to rethink battery design to reduce charging times and vehicle prices.

Microsoft joins A.I.’s “regulate us” campaign

Brad Smith, Microsoft’s president, became the latest tech executive to call on governments to devise new rules to police the development of artificial intelligence. His calls come amid a boom in commercial efforts to advance technology that is driving an impressive stock market rally.

It’s the latest sign that the tech industry is betting on outreach to regulators as the best way to head off more onerous regulation — but it’s unclear whether governments will craft rules these companies would like.

“Government needs to move faster,” Mr. Smith told The Times’s David McCabe, proposing moves like requiring an emergency brake for A.I. systems used in critical infrastructure and licenses for creating “highly capable” A.I. models.

But Mr. Smith also acknowledged that A.I. developers need to show restraint in creating new products with potentially broad, and negative, social consequences, and said that Microsoft wasn’t trying to pass the buck onto government regulators. “There is not an iota of abdication of responsibility,” he said.

The message echoes calls from other top A.I. executives. Sam Altman, the C.E.O. of OpenAI (which counts Microsoft as a top investor and business partner), told lawmakers last week that Congress should create a new A.I. regulator. And Sundar Pichai, the chief of Alphabet, called on trans-Atlantic regulators to work together to create effective new rules.

Proactively calling for more regulation is a playbook used by other industries, including social media and crypto, with mixed results: Congress largely hasn’t written many new laws to oversee social networks, to the consternation of several lawmakers.

But A.I. executives’ tolerance for new regulations goes only so far. Altman warned on Thursday that OpenAI may pull services like ChatGPT from European markets if Brussels moves forward with expansive A.I. legislation. “We will try to comply, but if we can’t comply we will cease operating,” he said.

In other A.I. news: JPMorgan Chase is reportedly developing a chatbot to help clients make investment decisions, according to CNBC. And the tech evangelist Cathie Wood missed out on $560 billion paper gains by selling its holdings in Nvidia early this year.

THE SPEED READ

Deals

Policy

• The Supreme Court ruled that states cannot keep any windfalls gained from seizing private property and selling it to recoup tax debt. (NYT)

• Commerce Secretary Gina Raimondo and her Chinese counterpart, Wang Wentao, met amid tensions over China’s ban of the U.S. chipmaker Micron. (WSJ)

• The S.E.C.’s record-breaking $279 million whistleblower award was reportedly paid to a tipster whose evidence led to a bribery settlement against Ericsson. (WSJ)

Best of the rest

• A judge dismissed a lawsuit against Leon Black, the billionaire co-founder of Apollo, accusing him of sexual misconduct. (FT)

• Unpaid taxes and missing bottles of expensive wine: Customers want to know what happened at Sherry-Lehmann, the iconic New York wine store. (NYT)

• Inside a plan by Sergey Brin, the billionaire co-founder of Google, to bring back airships. (Bloomberg Businessweek)

• Finland was so awash in nuclear and hydroelectric power this week that some of its spot energy prices went negative. (Insider)

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