Congressional, Trade Issues in Holding Pattern

Posted on 01/17/2019 7:32 AM

U.S. authorities may soon indict Chinese technology giant

The dreaded waiting game continues on a host of items but particularly the continued impasses between Democrats, Republicans and President Donald Trump on the partial gov’t shutdown. And now it looks like we may have to wait longer for the State of the Union address rather than on the previously expected Jan. 29. But White House officials are urging Trump to make the address from either the White House of the GOP-controlled Senate chamber.

     More information is also awaited on ongoing U.S./China trade talks. The only news on this front was old, as some are reporting a key Chinese official is coming to Washington Jan. 30-31 for meetings. That news has been known for a week.  


 

— U.S. authorities may soon indict Chinese technology giant Huawei Technologies Co. for allegedly stealing trade secrets from American partner companies like T-Mobile US Inc., according to the Wall Street Journal. The potential move comes amid growing concerns that Beijing could be using its products for spying, something Huawei executives have denied. Meanwhile, Germany is exploring ways to ban the use of Huawei products in the country’s telecoms infrastructure. . It's a shift from the German government's position from October, when it told lawmakers it saw no legal basis to exclude any vendors from an upcoming 5G auction.          

Meanwhile, a bipartisan group of U.S. lawmakers have introduced bills that would ban the sale of U.S. chips or other components to Huawei, ZTE or other Chinese telecom equipment companies that violate U.S. sanctions or steal trade secrets. The proposed law drew sharp criticism from China, where Foreign Ministry spokeswoman Hua Chunying called the U.S. legislation "hysteria" amid a bitter trade war between Beijing and Washington

— Delay of State of Union (SOU) address urged. House Speaker Nancy Pelosi (D-Calif.) urged President Donald Trump to delay his SOU address, or to deliver it to Congress in writing, citing difficulties imposed by the government shutdown which could affect security for the event. White House officials dismissed the security concerns. Until the early 20th century presidents typically delivered the constitutionally mandated update by letter. Trump was previously scheduled to speak on January 29.

— President Trump has said he won’t compromise with Democrats, telling aides that his determination to build a border wall will be remembered long after the shutdown is forgotten. In moments of frustration, however, he has privately complained about “getting crushed,” according to a New York Times article. The shutdown enters its 27th day with no clear end in sight. Link to NYT article.

— Don’t expect much from USDA employees being called back to work. Several hundred thousand government employees are being asked to work without pay, including 2,500 at USDA’s Farm Service Agency who are being called back today, Friday and Tuesday (Monday is a federal holiday). Most of the work will focus on existing loans and providing 1099 tax forms to borrowers.

— Grassley signals Trump may pursue auto tariffs; shutdown could delay trade talks. New tariffs on imports of automobiles into the U.S. is a trade step that could come from President Donald Trump, according to Senate Finance Committee Chairman Chuck Grassley (R-Iowa). "I am not in favor of tariffs, but they are a fact of life when Trump's in the White House," Grassley told reporters. "They may be an effective tool. I know Europe is afraid of it." And, using those tariffs, he noted, is "probably the only thing that will bring Europe to the table in a reasonable way." This marks a shift from a stance Grassley took last week where he said the U.S. should not "alienate our allies" with tariffs.

As for coming trade talks with Europe, Grassley said he warned European Union (EU) Trade Commissioner Ceclia Malmström any U.S.-EU trade pact has to have agriculture in it. "My inference to Malmström was, 'what is the sense of negotiating if you don't include agriculture?'" he said. "Obviously, she took the opposite point of view." But trade talks with Europe and Japan may be impacted by the shutdown, Grassley cautioned. “I think they are going to be delayed,” he commented.

Other items of note:

  • Another U.S./North Korea summit may be ahead. Secretary of State Mike Pompeo and North Korean official Kim Yong Chol are expected to meet Friday in Washington to discuss the particulars of a second summit between Trump and Kim Jong Un. President Trump, who is expected to see Chol, who is carrying a letter from Kim, could announce details of another summit as early as Friday. Meanwhile, Vice President Mike Pence told U.S. diplomats that North Korea has not taken "concrete steps" to dismantle its nuclear weapons program, a pledge made in a summit between Trump and Kim last June.

  • Ag nominees part of big list of names sent to Congress. The White House sent a lengthy list of nominations to the Senate on Wednesday night that included USDA nominees Mindy Brashears, Scott Hutchins, and Naomi Earp. All three names had been submitted last year and voted on by the Senate Agriculture Committee, but were not scheduled for a vote in the Senate before Congress adjourned last month. Brashears has been nominated as undersecretary for food safety, Hutchins as undersecretary for research, education, and economics, and Earp as assistant secretary of agriculture. 

Markets. The Dow on Wednesday gained 141.57 points, 0.59%, at 24,207.16. The Nasdaq rose 10.86 points, 0.15%, at 7,034.69. The S&P 500 added 5.80 points, 0.22%, at 2,616.10. According to FactSet, firms in the S&P 500 are projected to report earnings growth of 11% Y/Y during the Q4 earnings season.

The Federal Reserve says student debt is hurting the housing market. In a new report, the central bank says student loans prevented 400,000 young Americans from buying homes, as homeownership among people aged between 24 and 32 fell by 9 percentage points between 2005 and 2014.

CSX beat estimates by two cents with quarterly profit of $1.01 per share, with the railroad operator's revenue in line with Wall Street projections. However, CSX did forecast slower revenue growth for 2019.

A bullish development for the oil market came as OPEC got a jump on its output cut deal in December. Led by declines in Saudi production, oil supplies from the group plunged by 751,000 barrels per day to nearly 31.6 million bpd, according to independent figures cited by OPEC in its monthly report. The deal with Russia and nine other nations will also keep 1.2 million barrels per day off the market starting this month.

BOJ's Kuroda says central banks have to evaluate impacts of unconventional monetary policy moves. Global central banks need to assess impacts from unconventional monetary policy actions they have deployed in recent years since they may have different implications than conventional monetary policy, according to Bank of Japan (BOJ) Governor Haruhiko Kuroda said at a seminar in Japan. "We now know we have the tools to stimulate the economy even when we face the zero lower bound problem," Kuroda said of the unconventional monetary policies deployed. "However, we need to carefully monitor and evaluate the effects of these unconventional measures on economic developments, prices and financial conditions since the transmission mechanisms, benefits, and side-effects of these measures could be different from those of conventional monetary policy measures." Further, Kuroda also said that countries where there is a quickly aging population could also pose risks for the financial system. "As a low interest rate environment persists and credit demands become stagnant amid a declining population, banks might accelerate their search-for-yield activities such as expanding their exposure to overseas assets and increasing loans and investments to firms with higher credit risks," Kuroda observed. "If that were the case, the entire financial system could become less stable."


 

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