Takeaways From Mnuchin's Phone Call With Big Bank CEOs

Investors expecting a quiet and stable trading session Monday ahead of Christmas are likely to be disappointed as stocks are reacting to a phone call between United States Secretary of the Treasury Steven Mnuchin and the CEOs of six big banks.

What Happened

Mnuchin held a phone call with the CEOs of the six biggest U.S.-based banks over the weekend at a time when his office is dealing with three major issues.

First, U.S. stocks continue to sell-off, highlighted by the Dow Jones Industrial Average's worst weekly performance in a decade.

Second, President Donald Trump's clear displeasure with Federal Reserve Chairman Jerome Powell's interest rate hikes. Mnuchin said in a Tweet he had never suggested Powell be fired and also said he doesn't believe his office holds the power to do so in the third place.

Third, the government shutdown that started over the weekend is likely to last through at least Thursday.

Why It's Important

A phone call between a high ranking U.S. government official and the heads of the six largest banks in part prompted a sell off in U.S. stock futures. Nevertheless, Mnuchin said in a statement the administration continues to see "strong economic growth in the U.S. economy with robust activity from consumers and business."

The banks Mnuchin spoke with also confirmed "ample liquidity is available for lending to consumer and business markets."

Height Capital Markets' Ed Groshans said Mnuchin's comments on bank liquidity is "unusual" since bank liquidity isn't an ongoing risk or concern. The analyst said Mnuchin's comments could result in a "negative market reaction" as no analysts, regulators or economists highlighted liquidity issues at banks other than Deutsche Bank AG DB.

Also, Mnuchin could have also discussed with banks the derivative exposure to Deutsche Bank and how any problems at the German-based bank would impact U.S. banks, the analyst said. However, this topic would "not soothe the markets"

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Photo credit: "Donald Trump New Tax Reform Plan - Press Conference 4/26/2017" Screengrab from YouTube