The Week Ahead, Feb. 26-March 4, 2018: Congress Returns

Posted on 02/25/2018 9:10 AM

Fed chairman testifies | Biofuel confab | Immigration reform | Omnibus spending bill

Congress returns to resume negotiations on immigration reform and spending issues, while the new Fed chairman testifies, and the White House holds another meeting on possible changes to biofuel policy.

House plans for the week changed because the late evangelist Billy Graham will lie in honor in the Capitol Rotunda Wednesday and Thursday — Upon the arrival of the casket, House Speaker Paul Ryan (R-Wis.) and Senate Majority Leader Mitch McConnell (R-Ky.) will take part in a bicameral service. The last votes in the House will be Tuesday.

House is preparing to take up financial regulatory reviews. Agency reviews to identify outdated financial regulations would be conducted every seven years, instead of 10 years, under HR 4607. The measure would also require the Consumer Financial Protection Bureau to conduct reviews. The House Financial Services Committee approved the bill by a 38-17 vote on Jan. 18.

Banking regulators would be barred from establishing a capital requirement for “operational risk” based solely on a bank’s past activities under H 4296. The House Financial Services Committee approved the bill by a 43-17 vote on Nov. 15, 2017.

Lawmakers have until the March 23 deadline for agreeing on an omnibus spending bill. Appropriators released allocations for each of the 12 subcommittees late last week, and staff aides worked on them over the weekend, so work can begin writing the omnibus bill. Lawmakers previously agreed on how much to spend overall on defense and non-defense discretionary programs.

The lingering immigration issues include how to resolve the status of undocumented immigrants who were brought to the U.S. as children. While the Deferred Action for Childhood Arrivals (DACA) program expires March 5, federal courts have blocked its termination.

The Senate is planning floor votes on Trump’s nominees to the federal bench. Among those Majority Leader Mitch McConnell teed up for procedural votes is Elizabeth Branch, nominated to be a U.S. Circuit Court judge for the 11th Circuit.

White House meetings continue on biofuels policy. A preliminary meeting was to occur Friday ahead of a more formal gathering on Tuesday. A White House spokeswoman would not confirm the meetings, which were reported earlier by Reuters and Bloomberg, citing unnamed people familiar with the plans. Trump administration officials are planning sessions to discuss possible changes to the U.S. biofuel mandate.

The meetings reportedly began Friday on various issues of the Renewable Fuel Standard (RFS). The Friday session included Environmental Protection Agency Administrator Scott Pruitt and USDA Secretary Sonny Perdue. Perdue and Pruitt discussed possible policy changes to prepare for a meeting this Tuesday, including:

  • Granting a waiver to an anti-smog rule that would allow higher ethanol gasoline blends such as 15% ethanol to be sold year-round (A waiver of environmental requirements already applies to gasoline containing 10% ethanol, but not higher ethanol blends, effectively barring their sale from June 1 until September 15 in areas where smog is a problem. Biofuel supporters have argued the current limitation on E15 unfairly throttles the market for ethanol and should be lifted.)

  • Agreeing to sell ethanol waiver credits, effectively suppressing the cost of RINs generated by blending ethanol into fuel,

  • Allowing RINs to be used toward compliance with U.S. biofuel quotas — and not forcing the retirement of those credits — even if the associated ethanol or biodiesel is exported, and

  • Boosting the transparency of the RINs market.

Another possibility discussed was the EPA selling its own credits whenever costs hit some newly established ceilings.

The second meeting will be held Tuesday morning with President Donald Trump, Pruitt, Perdue and four Republican senators, including Sens. Chuck Grassley (R-Iowa) and Joni Ernst (R-Iowa, Ted Cruz (R-Texas) and Pat Toomey (R-Pa.). The Iowa senators are pro-ethanol and RFS proponents, while Cruz and Toomey are pushing for RFS reforms, including RINs.

The bankruptcy filing of Philadelphia Energy Solutions (PES) LLC, which supplies more than a quarter of the East Coast’s crude refining capacity, has been used by those seeking changes to the RFS. Chief Executive Officer Greg Gatta has blamed much of the refining company’s troubles on the cost of fulfilling annual biofuel quotas, notably the refiner’s need to buy tradable credits to prove it has complied with the mandate. The cost of those credits, known as Renewable Identification Numbers, or RINs, has been volatile in recent years.

Farm-state lawmakers and the biofuels industry have pushed back on the refinery’s assertions, saying the company was run down by its own management. “Every independent study shows the PES bankruptcy was due to management decisions that did not work out, not the Renewable Fuel Standard,” Sen. Grassley said last Wednesday in a statement. “It sure looks like PES management and its private equity owners are scapegoating the RFS to distract from their own failings, which have risked the livelihoods of more than a thousand workers.” At a rally-style event at PES on Wednesday, Sen. Ted Cruz sided with the company, saying the policy was “broken” and needed to be “fixed.” Cruz said the matter was “tied up in politics by corn and big ethanol,” referring to efforts to reform the RFS.

Several economic updates ahead with GDP at the top of the list. After a light holiday-shortened week of data, traders will have numerous economic updates to mull in the week ahead as March arrives. Monday opens with the Chicago Fed National Activity Index, New Home Sales and the Dallas Fed Manufacturing update. Tuesday will be a busy one with Durable Goods Orders, International Trade In Goods, Retail and Wholesale Inventories, S&P Corelogic Case-Shiller HPI, FHFA House Price Index, Consumer Confidence and the Richmond Fed Manufacturing Index. Wednesday will feature the second reading on the US economy in the fourth quarter via GDP along with the Chicago PMI and Pending Home Sales Index. Thursday's updates include Jobless Claims, Personal Income & Outlays, PMI Manufacturing, ISM Manufacturing and Construction Spending. The week closes out Friday with Consumer Sentiment. The focus will remain on whether the data point to a more-aggressive Fed or not relative to monetary policy moves in 2018.

Fed's Powell makes his congressional debt as the top U.S. central banker. Markets will have a new task ahead — trying to decipher Fed Chair Jerome “Jay” Powell's congressional testimony. He delivers the testimony on the Monetary Policy Report, starting Feb. 27 at the House Financial Services Committee, a day earlier than previously scheduled. He also delivers the testimony to the Senate Banking Committee March 1 and typically, it will be the same testimony. But markets will now have to assess his presentation and see how to read his remarks. Other Fed officials appear this week as well, including St. Louis Fed's James Bullard on Monday and New York Fed's William Dudley on Thursday. It may take traders some time to adjust to Powell as he has not been an active speaker in his time at the central bank. So it could prove to be an interesting week ahead relative to market expectations on monetary policy between Powell's testimony and the host of economic reports.

On the trade policy front, the seventh round of NAFTA 2.0 talks resumed Sunday in Mexico City with U.S., Mexican and Canadian negotiators; through March 5.

U.S. trade policy report due this week. The Office of the U.S. Trade Representative (USTR) must submit its 2018 Trade Policy Report to Congress by March 1. The report, released annually, outlines the president's annual trade agenda. In last year's submission, the Trump administration focused on strict enforcement of U.S. trade laws, negotiating “better” trade deals with other countries, and prioritizing U.S. trade laws over the mandates of the World Trade Organization.

Other trade-related events this week include:

  • Feb. 27: Treasury Secretary Steven Mnuchin, Senate Finance Committee Chairman Orrin Hatch (R-Utah), Senate Majority Whip John Cornyn (R-Texas), and Australian Ambassador Joe Hockey will be at the U.S. Chamber of Commerce's third annual “Invest in America!” Summit, with Hatch set to give the keynote address. Governors from across the country, including Govs. Jeff Colyer (R-Kan.) and John Hickenlooper (D-Colo.), will also be on hand. This year's theme will be the role international investment can play in driving U.S. economic growth and competitiveness.

  • Feb. 28: Brookings Institution is sponsoring a program on President Trump's policy in Asia after one year. U.S.-Japan trade and investment ties; the chances of a successful renegotiation of the U.S.-Korea Free Trade Agreement; and the administration's condemnation of Chinese trade policies are all on the agenda.

  • Feb. 28: American Banking Assn. holds a session on International Law's 2017 U.S. Export Controls Year-in-Review, with U.S. export controls targeting Cuba and Sudan as well as ongoing export control reforms are up for discussion.

  • Feb. 28: How U.S. states conduct trade with India's states will be the theme of the Center for Strategic & International Studies Feb. 28 program Deepening U.S.-India Trade Ties: Focus on States.

  • March 2: The Washington International Trade Association, National Foreign Trade Council, and the Asia Society Policy Institute are co-hosting The Great Wall: Trade Enforcement in the Age of Trump. Panelists will discuss the impact of U.S. import duties on washing machines and solar panels; the administration's consideration of enforcement actions on steel and aluminum imports; and measures to address the alleged theft of intellectual property by China.

Key USDA report this week is Thursday's Weekly Export Sales. Link to this week's USDA reports. Other agriculture and energy-related reports on tap this week:

Monday, Feb. 26

  • Export Inspections

  • Chickens and Eggs — Annual

  • Poultry Slaughter

  • Poultry Slaughter — Annual

  • Trout Production

Tuesday, Feb. 27

  • State Stories

  • Livestock & Meat Domestic Data

  • Agricultural Prices

  • Chickens and Eggs

  • Peanut Stocks and Processing

  • API weekly U.S. oil inventory report

Wednesday, Feb. 28

  • Broiler Hatchery

  • Egg Products

  • U.S. weekly ethanol inventories

Thursday, March 1

  • Weekly Export Sales

  • Cotton System

  • Cotton System — Annual

  • Dairy Products

  • Fats & Oils

  • Fats & Oils — Annual

  • Grain Crushings

  • Grain Crushings — Annual

  • UN FAO monthly food price index

  • EU weekly grain, oilseed import and export data

  • Buenos Aires Grain Exchange weekly crop report

  • EIA natural gas storage change

Friday, March 2

  • Peanut Prices

  • Baker Hughes weekly U.S. oil/gas rig counts

  • CFTC weekly commitments of traders report on various U.S. futures and options contracts.

Other reports and events this week include:

Monday, Feb. 26

  • Congress returns from recess.

  • Supreme Court meets and may issue orders this week on the new cases it will hear, including possible action on the Trump administration’s appeal of a lower-court ruling that blocked its bid to undo the DACA program.

  • National Anti-Hunger Policy Conference, through Tuesday.

  • National Invasive Species Awareness Week seminar, “Infrastructure and Invasive Species,” with Michael Vissichelli of the Army Corps of Engineers.

Tuesday, Feb. 27

  • Fed Chair Jerome “Jay” Powell delivers his semiannual monetary policy report to the House Financial Services Committee and will also testify before the Senate Banking Committee on Thursday.

  • RFS review. President Trump, EPA Administrator Scott Pruitt and USDA Secretary Sonny Perdue meet with four GOP senators on possible changes to the biofuel mandate.

  • Fed Chairman Jerome “Jay” Powell to testify before the House Financial Services Committee to discuss the Fed’s Semiannual Monetary Policy Report and the state of the economy.

  • Congressional Budget Office (CBO) oversight. House Budget Committee hearing, "CBO Oversight: The Role of Behavioral Modeling in Scoring and Baseline Construction".

  • Energy infrastructure. House Energy and Commerce Subcommittee on Energy hearing on the condition of the U.S.’s energy infrastructure.

  • Liquefied natural gas. House Natural Resources Subcommittee on Energy and Mineral Resources holds oversight hearing on liquefied natural gas and U.S. geopolitics.

  • Foreign affairs budget. House Foreign Affairs Committee hearing on FY 2019 foreign affairs budget.

  • Commodity Classic, through Thursday, Anaheim, Calif.

  • National Invasive Species Council's Stakeholders Forum, National Museum of the American Indian.

  • House Agriculture Committee meeting to consider its budget views and estimates letter.

  • National Invasive Species Awareness Week seminar, “Unmanned Aerial Vehicles.”

Wednesday, Feb. 28

  • Economic Report of the President. White House Council of Economic Advisers Chairman Kevin Hassett appears before the Joint Economic Committee on the new Economic Report of the President. Link to report.

  • Opioid crisis. House Energy and Commerce Subcommittee on Health hearing, "Combating the Opioid Crisis: Helping Communities Balance Enforcement and Patient Safety".

  • State Dept. budget. Senate Foreign Relations panel hearing on the State Dept’s FY 2019 budget request and redesign plans.

  • PTC implementation. Senate Commerce, Science, and Transportation Committee hearing on the implementation of positive train control (PTC), which will touch on concerns that some passenger railroads could fall short of meeting legal safety obligations.

  • Food Tank Summit. Cultivating the Next Generation of Young Food Leaders, Jack Morton Auditorium, George Washington University.

  • National Invasive Species Awareness Week seminar, “Gene Drives 101: Perspectives on Potential Invasive Species Management.”

Thursday, March 1

  • Fed Chairman Powell testifies before the Senate Banking panel to discuss the Fed’s Semiannual Monetary Policy Report and the state of the economy.

  • Infrastructure reform. Transportation Sec. Elaine Chao testifies before the Senate Environment and Public Works panel on President Trump’s infrastructure plan.

  • National Invasive Species Awareness Week seminar, “Early Detection and Rapid Response,” National Museum of the American Indian.

Friday, March 2

  • Trade policy. Washington International Trade Association forum, "The Great Wall: Trade Enforcement in the Age of Trump."



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