China announces Jan. 7-8 trade talks with U.S. in Beijing, announces stimulus measures
— House Democrats clear spending package they know Trump will not sign, nor Senate will consider. Hours after Democrats took control of the House on Thursday, representatives approved two measures that would reopen government agencies that have been closed for nearly two weeks over a southern wall spending impasse. The votes were nearly all along party lines. Seven House Republicans joined all of the House Democrats in supporting the approps package: Reps. Will Hurd (Texas), Elise Stefanik (N.Y.), Fred Upton (Mich.), Brian Fitzpatrick (Pa.), Peter King (N.Y.), Greg Walden (Ore.) and John Katko (N.Y.).
Both pieces of legislation will likely die in the Senate where Majority Leader Mitch McConnell (R-Ky.) has said he wouldn’t bring to a vote measures that President Trump doesn’t support, and the House bills do not include the $5 billion in border wall funding Trump is demanding. To separate the border-wall feud, the House passed a stopgap spending bill funding the Department of Homeland Security, which oversees the wall, through Feb. 8.
Next step: Congressional leaders will go to the White House late this morning.
— U.S./China trade update:
- China announced trade talks. Representatives will meet in Beijing on Monday for two days of discussions on tariffs that have threatened to derail the global economy. It will be the first face-to-face meeting between the countries since an earlier agreement not to impose new tariffs for 90 days. Global stocks regained ground after the announcement.
- The talks will consist of mid-level officials and cover issues ranging from agriculture to intellectual property. Deputy U.S. Trade Representative Jeffrey Gerrish will lead the American delegation to talk with Chinese counterparts. David Malpass, Treasury undersecretary for international affairs, will join Gerrish. At his Senate Finance Committee confirmation hearing last year, Gerrish referred to Lighthizer and another former trade remedy lawyer, John Mangan, as his “incredible mentors.” Commerce Undersecretary Gil Kaplan and USDA Undersecretary Ted McKinney are expected to be part of the U.S. delegation.
- U.S. Trade Representative Bob Lighthizer is expected to meet with Chinese Vice Premier Liu He, President Xi’s top economic adviser, later this month.
- Chinese Vice President Wang Qishan is expected to lead a delegation to the World Economic Forum in Davos, Switzerland in late January, when Trump, Lighthizer and other top U.S. officials are scheduled to be there.
- U.S. travel advisory for China. The State Department warned U.S. citizens on Thursday that they could face arbitrary detention if they travel to China. The advisory comes after the recent arrest of a Chinese executive in Canada at the request of the U.S. The State Department said “arbitrary enforcement of local laws” has stopped Americans from leaving the country. Canada said that 13 of its nationals have been detained in China, which looks like retaliation for its arrest of Meng Wanzhou, a Huawei executive, in response to an American request for her extradition. "At least eight" of the 13 Canadians have since been released, according to the Canadian government. Ottawa has repeatedly said it sees no explicit link between Meng and the detentions of its citizens, but Beijing-based Western diplomats and former Canadian ambassadors have said they believe the arrests were a "tit-for-tat" reprisal.
— Other items of note:
Biodiesel tax incentive credit remains in limbo. Congress was working right up until Christmas on a tax package that included extension of the biodiesel credit, but as 2019 begins the biodiesel credit remains lapsed. A new Congress was sworn in on Jan. 3 marking the start of a new session and any legislation will have to be re-introduced in the House or Senate. Given the on-going stand-off on government funding and the border wall, it is unclear when or if pending tax issues will be addressed, according to the American Soybean Assn., with added that it , “along with our biodiesel industry partners, will continue to reiterate the value and importance of the biodiesel tax credit and urge Congress to enact a long-term extension as soon as possible.”
Mississippi River neighbors battle over levee heights. Groups in Missouri are urging FEMA to force an Illinois district to lower its levees, fearing nearby areas will be more vulnerable to increased flooding. Link to Wall Street Journal article.
Hackers have released personal data linked to Chancellor Angela Merkel and hundreds of other politicians in Germany in the biggest data dump of its kind in the country. Information including credit-card details and personal correspondence were released gradually over several weeks, according to RBB, the state broadcaster, but only discovered yesterday. It reports that all parties were targeted except the far-right AfD.
China options trade in rubber, cotton and corn to start Jan. 28. Options for rubber, cotton and corn will be launched in China Jan. 28, according to an announcement from the China Securities Regulatory Commission (CSRC). The launch for corn and cotton options was approved in June 2018 and rubber options have been added to the list. "Prices of natural rubber, cotton and corn have been quite volatile in recent years. Launching these options contracts can help enterprises manage risks effectively," the CSRC said.
— Markets. The Dow on Thursday plunged 660.02 points, 2.83%, at 22,686.22. The Nasdaq plummeted 202.43 points, 3.04%, at 6,463.50. The S&P 500 lost 62.14 points, 2.48%, at 2,447.89.
December’s U.S. jobs report this morning. The Labor Department, unlike the Commerce Department and Bureau of Economic Analysis, remains funded under the current government shutdown. That will guarantee the release of today's non-farm payrolls report for December. Expectations are U.S. nonfarm payrolls expanded by 180,000 in December, up from 155,000 in November, and remaining at a solid mark. The unemployment rate is expected to hold steady at 3.7%, though some expect it will tick down to 3.6%, putting it at the lowest mark since 1969 when it hit 3.5% during the height of the Vietnam war. If job gains are too far outside expectations in either direction, it has the potential to increase market concerns — a big number will foster worries that the Fed may stick to a more-aggressive rate-rise path, while a lower-than-expected number will feed worries about the U.S. economy. Wages remain an attention point with expectations for the annual rate to be at 3%. Like with the nonfarm payroll level, a bigger rise in wages could spur inflation concerns while a weaker number will add to economic concerns. The report will not reflect any impacts from the government shutdown as that began after the survey period for the report.
U.S. car sales hold steady. The industry sold about 17.3 million vehicles in 2018, up less than 1% from a year earlier, despite predictions the market would cool. The showing capped the best four-year period for U.S. auto sales.
China to slash bank RRR levels. China's central bank said it is cutting banks' reserve requirement ratios (RRR) for the fifth time since January 2018 in an attempt to stave off a sharper economic slowdown. RRRs will be lowered by 100 basis points – 50 points on Jan. 15 and another 50 points on Jan. 25. The moves will free up a net 800 billion yuan ($116.51 billion) after banks use some of the 1.5 trillion yuan in liquidity released into the financial system to pay back maturing medium-term loans. Chinese Premier Li Keqiang told a meeting of officials with the country’s banking and insurance regulator the government will also step up "countercyclical adjustments" of macro policies and further cut taxes and fees to ease the economic slowdown. China's central bank also said it would keep interest rates table and would keep up its push for the internationalization of the yuan. The PBOC also pledged to resolve risks in the financial sector, including shadow banking and bond defaults.
China’s economic stumbles are reverberating more strongly across global supply chains. Consumers in the world’s second-largest economy are spending less on discretionary goods and big-ticket items, the Wall Street Journal reports (link), as costs for basic necessities are soaring. That’s hitting global firms like Apple Inc., which roiled markets this week with word that declining smartphone sales in China contributed to a sharp falloff in revenue — Apple shares have now fallen by 39.1% since Oct. 3, when the stock hit a 52-week high of $233.47 a share. Other companies focused on selling and moving goods in China may also start feeling that financial pain. Meanwhile, Kevin Hassett, chairman of the White House Council of Economic Advisers, said Thursday that a “heck of a lot of U.S. companies” that do business in China are likely to report lower earnings this season due to trade tension.