Traders Reassess Interest Rates Ahead of Fed Chair Powell’s Comments Today

Trump uses mug shot to campaign | Boozman interview re: farm bill | Putin comments

 
USDA daily export sale: 120,000 metric tons soybeans to China during the 2023-2024 marketing year.

Fed Chair Jerome Powell leads the speaker line-up at Jackson Hole later with his keynote speech at 10:05 a.m. ET. The dollar rallied toward a three-month high as investors readied for cues on the Fed’s future steps to fight inflation. The theme of the 2023 conference is titled "Structural Shifts in the Global Economy," which will likely explore whether the U.S. will return to a pre-pandemic low-interest rate environment, or if the higher-for-longer attitude will prevail.

China unveiled a further easing of its mortgage policies to halt a slump in its residential property market and revive growth. More in China section. Meanwhile, China’s slowdown isn’t good news for Brazil President Luiz Inácio Lula da Silva’s big bet that the Asian giant can aid his development plans.

China front loads purchases. China's semiconductor equipment imports have surged to nearly $5 billion in June and July, marking a 70% increase compared to the same period in the previous year. More in China section.

Russian President Vladimir Putin commented publicly for the first time about the plane crash that is believed to have caused the death of Yevgeny Prigozhin, the leader of the Wagner Group. Putin acknowledged Prigozhin's talent but also mentioned his "serious mistakes in life." While there is no concrete evidence implicating Kremlin involvement, an investigation is ongoing to determine the crash's cause. Notably, Prigozhin is the latest in a series of prominent Russians who have fallen out of favor with Putin and subsequently died under mysterious circumstances. Ukrainian President Volodymyr Zelensky stated that Kyiv was not involved in the crash, but implied that others may have been. President Joe Biden similarly hinted that Putin might have played a role in the incident.

Oil prices may experience volatility following the alleged killing of Yevgeny Prigozhin, the leader of the Wagner mercenary group, in a plane crash that some unconfirmed reports say was ordered by Russian President Vladimir Putin. See Markets section for details.

Saudi Arabia is weighing a Chinese bid to build a nuclear-power plant in the kingdom, the Wall Street Journal reports. The move is designed to pressure the Biden administration to compromise on its conditions for U.S. help in the kingdom’s quest for nuclear power. American nuclear aid comes with nonproliferation conditions — conditions not sought by China.

Russia said it downed 42 drones and a missile fired by Ukraine in a single attack targeting unmanned vehicles.

$1… The price for Heineken's Russia business. The beer giant sold its Russia operations, which include seven breweries with 1,800 employees, to a Russian packaging and cosmetics company for the symbolic sum — not long after Moscow seized the local assets of Danish beer rival Carlsberg.

Investors are growing uneasy about the U.S. budget outlook, according to a Bloomberg assessment. They see deficits stretching as far as the eye can see and politicians ready to juice the economy with yet more government cash.

Mortgage rates soared to 7.23% this week — their highest level since 2001. For comparison, the 30-year fixed-rate a year ago was 5.55%. Hopeful house hunters also face historically low inventory, increasing the competition for properties. According to an analysis by Moody's Investors Service, U.S. homebuying costs will remain elevated at least through 2024.

Home-insurance premiums are soaring in some coastal American cities, and there is evidence that the higher costs are starting to affect the real-estate market.

Business confidence in Germany decreased by 1.7 points, reaching its lowest level in 10 months.

We interviewed Sen. John Boozman (R-Ark.), ranking member of the Senate Ag Committee. See Policy section for details.

Senate Minority Leader Mitch McConnell (R-Ky.), speaking Thursday, said that while Congress will still deliver a farm bill, it won't be completed by the initial September deadline for some farm programs. The new “deadline” for the 2023 Farm Bill is now expected to be Dec. 31.

As the pressure to reduce carbon emissions intensifies, U.S. oil majors Chevron, ExxonMobil and Occidental Petroleum are devoting substantial resources to advance carbon capture and storage solutions, hoping to overcome cost and scalability challenges in time to make a difference for the climate.

IMF: Fossil fuel subsidies have surged to a record high of $7 trillion in the previous year due to global energy price increases caused by Russia's invasion of Ukraine and post-pandemic economic recovery measures.

Authorities in Maui County, Hawaii, have disclosed a "validated list" of nearly 400 individuals who remain unaccounted for in the aftermath of the devastating wildfires that occurred this month. The list, compiled by the FBI, aims to aid the ongoing investigation. Police Chief John Pelletier acknowledged that releasing the names could cause distress for those with missing loved ones. The list comprises 388 names, a reduction from the previously estimated over 1,000 individuals unaccounted for. However, this number might change as the search operation continues. The wildfires have tragically resulted in at least 115 confirmed deaths, making it the deadliest wildfire catastrophe in the U.S. in over a century.

Former President Donald Trump had his mug shot taken after being arrested and booked at Fulton County jail, becoming a historical precedent. This arrest was a result of over a dozen charges related to his alleged attempts to overturn Georgia's 2020 election outcomes. Reports note that Trump deliberately presented a defiant demeanor in the mug shot by not smiling. Following his release on a $200,000 bond, he criticized the case as a "travesty of justice" and maintained his innocence. This marks the fourth time in 2023 that Trump has surrendered to authorities due to criminal charges, a situation unprecedented in U.S. history prior to this year.

The only thing that could prevent the presidential race from being a rematch between President Biden and Trump would more likely be medical than political or legal, writes Charlie Cook.

Equities today: Asian stock markets were mostly weaker and European stock markets were mostly firmer in overnight trading. U.S. stock indexes are pointed to higher openings. Investors await Federal Reserve Chairman Jerome Powell's speech in Jackson Hole, Wyoming. In Asia, Japan -2%. Hong Kong -1.4%. China -0.6%. India -0.6%. In Europe, at midday, London +0.5%. Paris +0.7%. Frankfurt +0.5%.

     U.S. equities yesterday: Stocks reversed lower on Thursday as another blowout quarterly earnings report from Nvidia couldn't overcome new comments from the Federal Reserve suggesting interest rates will need to remain elevated for a long period of time to bring inflation down. The Nasdaq closed Thursday's trading session down nearly 1.9% while the S&P 500 fell 1.35%. The Dow sank about 1%, or 373 points.

Agriculture markets yesterday:

• Corn: Futures traded modestly lower most of the session, trying and failed several times to turn prices positive but the price fell 2 1/4 cents to $4.88 1/4.
• Soy complex: November soybeans rose 11 1/4 cents to $13.71 3/4, a three-week high close, while September meal rose $9.70 to $422.70, while September soyoil rose 61 points to 65.54 cents.
• Wheat: December SRW wheat futures lost 8 cents at $6.31 3/4 and near mid-range. December HRW wheat futures were down 1 1/4 cents at $7.62 1/2 and nearer the session high. December spring wheat futures fell 4 cents on the session before closing at $7.99 1/4.
• Cotton: Cotton futures continued the recent bounce but remain in a downtrend from the July 26 high close, closing 27 points higher on the day at 86.09 cents.  
• Cattle: October live cattle futures rose $2.05 to $180.725, while October feeder cattle futures gained $2.375 to $253.25. Both markets closed near their daily highs.
• Hogs: Wholesale market strength seemed to spark hog buying Thursday. October futures rallied $1.925 to $80.475 at the close. Despite the sizeable discounts nearby futures hold to cash, falling cash and wholesale pork prices have pushed them lower lately.  
   

Ag markets today: The hot weather seen this week has supported soybean futures, though corn still struggles to get a bid. As of 7:30 a.m. ET, corn futures were 1 to 2 cents lower, soybeans were 6 to 8 cents higher, SRW futures are 1 to 2 cents higher, HRW futures are about 5 cents higher and HRS futures are 4 to 7 cents higher. Front-month crude oil futures are about $1 higher at $80, while the U.S. dollar index is trading near unchanged at a two month high.

Market quotes and notes:

• 88%... The drop in monetary penalties collected from global financial institutions in the first six months of this year versus the prior year, according to an analysis from Fenergo.
   
• Scrapyards. “Recycling is essential to de-risk supply chains and drive sustainability of raw materials, be them base metals or critical ones.” — Emmanuel Katrakis, secretary-general of the European Recycling Industries’ Confederation.
   

• Nvidia: “We’re not shipping close to demand.” — Nvidia CEO Jensen Huang. The only thing holding back Nvidia’s blockbuster growth is its supply chain.
   

Business confidence in Germany decreased by 1.7 points, reaching its lowest level in 10 months at 85.7, as reported by the Ifo Institute, a think-tank. This decline marks the fourth consecutive monthly drop in business sentiment. This comes alongside data released on Friday that confirms Germany's largest economy experienced stagnation during the second quarter, primarily due to a decline in exports. Notably, the International Monetary Fund (IMF) anticipates that Germany will be the only G7 economy to experience contraction this year.

Investors are growing uneasy about the U.S. budget outlook, according to a Bloomberg assessment (link). Highlights:

• They see deficits stretching as far as the eye can see and politicians ready to juice the economy with yet more government cash.
• Treasury yields are already at the highest levels since 2007, and projected sustained budget shortfalls may push them higher.
• The consequences stretch beyond the $25 trillion Treasury market. Rising yields means higher housing costs for households and financing costs for businesses.
   

Mortgage rates have surged to a new high not seen in two decades, reaching 7.23%. This development poses challenges for the housing market's recovery from its recent slowdown. The average interest rate for a 30-year fixed mortgage, as reported by Freddie Mac, has risen significantly, with certain borrowers facing even higher rates. This stands in stark contrast to two years ago, when borrowing rates were below 3%, close to record lows. During that time, a surge of home purchases and refinancing was witnessed. However, today, the cost of financing a typical home purchase has escalated, resulting in significantly higher interest payments amounting to hundreds of thousands of dollars.

Home-insurance premiums are soaring in some coastal American cities, and there is evidence that the higher costs are starting to affect the real-estate market, the Wall Street Journal reports (link). Buyers’ concerns about insurance costs are slowing sales and causing some canceled deals in areas with particularly high flood or wildfire risks. The average annual home-insurance premium for Floridians, for example, has tripled in five years, from $1,988 in 2019 to $6,000.

Market perspectives:

     • Outside markets: The U.S. dollar index was slightly higher, with the euro slightly weaker and British pound stronger against the greenback. The yield on the 10-year U.S. Treasury note fell slightly, trading around 4.24%, with a mixed-to-positive tone in global government bond yields. Crude oil futures were higher, with U.S. crude at around $80.10 per barrel and Brent at around $83.90 per barrel. Gold was little changed and silver futures were higher, with gold around $1,947 per troy ounce and silver around $24.30 per troy ounce.

     • Oil prices may experience volatility following the alleged killing of Yevgeny Prigozhin, the leader of the Wagner mercenary group, in a plane crash that some unconfirmed reports say was ordered by Russian President Vladimir Putin. Nigel Green, CEO of deVere Group, a global financial advisory and asset management firm, anticipates this turbulence. Prigozhin's death has led to speculation about potential revenge actions by the Wagner mercenaries or intensified conflict between Prigozhin and Putin. This situation adds fragility to Putin's position and could lead to uncertainty in Russia, which is tied to global oil markets. Putin's influence on Russia's oil production and geopolitical positioning could impact oil prices. Geopolitical tensions, supply route disruptions, or conflicts could cause temporary supply interruptions and increase oil price volatility. Nigel Green noted the vulnerability of current oil prices due to concerns about China's economic growth and the Jackson Hole Federal Reserve meeting's potential impact on interest rates. The uncertainty surrounding Putin's situation is expected to lead to short-term oil price turbulence, with potential repercussions for wider financial markets, economies, industries, and consumer behavior.

     • The Bureau of Ocean Energy Management (BOEM) announced a scaled-back offshore oil and natural gas lease sale in the Gulf of Mexico, set for Sept. 27. The auction will make available 67 million acres for leasing, which marks a 9% reduction from the initial proposal. This reduction is a result of conservation initiatives focused on safeguarding the endangered Rice's whale. Successful bidders in this lease sale will be subject to stricter conditions aimed at ensuring the safety of the endangered species. These conditions could involve delayed approvals for activities like seismic surveys.

     • Carbon capture a priority for U.S. oil giants. As the pressure to reduce carbon emissions intensifies, U.S. oil majors Chevron, ExxonMobil and Occidental Petroleum are devoting substantial resources to advance carbon capture and storage solutions, hoping to overcome cost and scalability challenges in time to make a difference for the climate. "The large oil companies are seeing (carbon capture and storage) not just as an opportunity to decarbonize their value chains but create a viable business," says Accenture Strategy CEO Muqsit Ashraf. Link/paywall for details via Houston Chronicle.

     • Maui County in Hawaii has filed a lawsuit against Hawaiian Electric, accusing the power company of negligence for not deactivating its equipment prior to the wildfires that ignited earlier this month. Witnesses reported seeing sparks from power lines, which were knocked down by hurricane winds, igniting the fires. Hawaiian Electric expressed disappointment with the county's decision to file the lawsuit. The wildfires resulted in the tragic loss of at least 115 lives and caused extensive damages estimated at $5.5 billion.

     • NWS weather outlook: Dangerous heat continues from the Midwest to Gulf Coast, with relief finally on the way for some by this weekend... ...Excessive Rainfall leading to Flash Flooding possible across portions of the Central High Plains today.

Items in Pro Farmer's First Thing Today include:

     • Mixed grain trading overnight
     • China skeptical to give handouts to save flagging economy
     • Imports slow into ports of Los Angeles
     • Cattle futures show strength
     • Surging wholesale prices supported hog futures

— Russian President Vladimir Putin made his first comments about the private jet crash that resulted in the death of Yevgeny Prigozhin, the leader of the Wagner Group mercenary organization, along with nine others. Putin expressed his "condolences" to the victims' families. Putin referred to Prigozhin as a "talented businessman" but acknowledged that he had made "serious mistakes."

     Many suspect that Putin may have been involved in the jet's crash as a form of retaliation for Wagner Group's recent mutiny.

     U.S. comments. Despite the Pentagon stating that there is no evidence of a surface-to-air missile hitting the plane, American officials are reportedly considering alternative explanations for the crash, including the possibility of an onboard bomb. The incident has led to speculation and intrigue about the circumstances surrounding the crash and the motivations behind it.

     The Wall Street Journal reports (link) that early intelligence suggests the plane carrying Prigozhin crashed because of an assassination plot, citing U.S. officials. Preliminary findings suggest the plane wasn’t shot down by a surface-to-air missile but that some other form of sabotage caused the crash.

— Russia attacked by drone swarm and missile. Russia said it downed 42 drones and a missile fired by Ukraine in a single attack targeting unmanned vehicles. The attack occurred in Crimea, which Russia annexed from Ukraine in 2014. This ends the week of nearly daily retaliatory attacks on Russia, with one attack destroying a Russian bomber.

— Heineken, a Dutch beer company, has divested its operations in Russia to Russian manufacturer Arnest Group for a symbolic amount of €1, incurring a loss of €300 million ($324 million). This transaction involves seven breweries and around 1,800 employees in Russia, contributing to 2% of Heineken's global sales. Unlike other European companies that have exited Russia due to the country's invasion of Ukraine, Heineken had faced logistical challenges, causing a delay in its withdrawal from the Russian market.
 

— Our interview (link) with Senator John Boozman (R-Ark.) covers various aspects of the ongoing farm bill debate. Boozman, the ranking member of the Senate Agriculture Committee, discusses key points related to the farm bill process, its timeline, funding, and important issues. Link to the audio of the interview. Here are the main takeaways from the interview:

• Diverse Agriculture and Steps to Avoid One-Size-Fits-All: Boozman emphasizes the diversity of agriculture and how a one-size-fits-all approach to the farm bill wouldn't work due to the unique needs of various regions and industries.
• Timing of Farm Bill Extension: It's acknowledged that an extension of the current farm bill will likely be needed, and they have some time until the end of the year or early January before significant actions are necessary.
• Drafting and Timing: The Senator discusses the timeline for drafting the farm bill. He mentions that he's working with Senator Debbie Stabenow (D-Mich.), and they're committed to getting a draft out before the end of the year, although an exact timeline for its release is uncertain.
• Reference Prices and Risk Management Tools: Boozman stresses the need for increased reference prices for program crops and updates to risk management tools, such as crop insurance and the Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programs. He argues that the current tools are based on outdated data and must reflect the current economic conditions for farmers.
• Support for Changes: The Senator indicates that he supports changes in the farm bill that enhance risk management tools, increase reference prices, and generally help farmers manage their financial challenges more effectively.
• Support for Beginning Farmers: Boozman acknowledges the need to support beginning farmers and mentions that various programs, including potential base updates, might be explored to provide opportunities for new entrants into agriculture.
• Disaster Relief and Implementation: Boozman discusses the challenges of providing disaster relief and how the process can be lengthy and inefficient. He acknowledges the need to improve how disaster assistance is handled.
• Trade and Market Development: The Senator highlights the importance of trade and market development programs, expressing disappointment with recent trade efforts and emphasizing the need to enhance trade opportunities for agricultural products.
• Congressional Priorities: Boozman suggests that both Democrats and Republicans have an interest in passing a farm bill to address the needs of rural America and ensure food security.
• Feather in the Cap: The Senator suggests that passing a farm bill could be a feather in the cap for congressional leaders from both parties and could provide momentum for the bill's completion.

     Bottom line: Overall, the interview provides insights into Senator Boozman's perspective on the farm bill process, its challenges, and the various issues and priorities that need to be addressed to support American farmers and rural communities.  

— McConnell comments on farm bill timeline. Senate Minority Leader Mitch McConnell (R-Ky.) said that while Congress will still deliver a farm bill, it won't be completed by the initial September deadline for some farm programs. The new “deadline” for the 2023 Farm Bill is now expected to be Dec. 31. McConnell made the comments Thursday to the Kentucky Farm Bureau, according to Congressional Quarterly.

— China's semiconductor equipment imports have surged to nearly $5 billion in June and July, marking a 70% increase compared to the same period in the previous year. The majority of these imports were sourced from Japan and the Netherlands. Notably, both of these countries have recently implemented restrictions on the export of chipmaking equipment to China. Japan initiated these measures on July 23, while Dutch regulations are set to take effect on Sept. 1. The U.S. had previously introduced similar export restrictions last year.

— China introduced additional measures to stabilize markets and address the declining residential property sector. They have relaxed home buying regulations and are reportedly considering a 50% reduction in stamp duty for domestic stock trading. However, the initial positive market response was short-lived, lasting only 10 minutes. Furthermore, China's securities regulator is set to meet with major asset management firms like Goldman Sachs and Fidelity. This meeting follows a period of significant outflows from foreign funds, prompting a discussion about the situation with key global players in the asset management industry.

— Taiwan's outgoing president, Tsai Ing-wen, has called for another significant increase in defense spending, aiming to enhance deterrence against China. This move follows a substantial rise in the military budget last year, as Tsai seeks to bolster Taiwan's capabilities before her term ends. The announcement of the new defense budget coincided with China's announcement of live-fire drills in the vicinity and the U.S. State Department's approval of a new arms package sale to Taiwan, underlining the timing's significance.

— FRIDGE Act proposed. Agriculture and food industry groups, along with state agricultural officials, are backing a legislative proposal known as the Fortifying Refrigeration Infrastructure and Developing Global Exports (FRIDGE) Act. This bill aims to expand trade opportunities by increasing cold storage capacity.

     The FRIDGE Act mandates that the USDA negotiate contracts to provide necessary assessments, training, and technical assistance to improve infrastructure development, including cold chain storage, in emerging foreign markets.

     The legislation allocates $1 million annually to USDA through the Foreign Market Development (FMD) program to support these efforts.

     Introduced in both the House and Senate, the bipartisan measure is led by Reps. Randy Feenstra (R-Iowa), Tracy Mann (R-Kan.), Jim Costa (D-Calif.) and Salud Carbajal (D-Calif), along with Sens. Mike Braun (R-Ind.) and John Fetterman (D-Pa.). It has garnered support from organizations such as the American Frozen Food Institute, Carrier, Controlled Environment Building Association, Global Cold Chain Alliance, International Dairy Foods Association, International Institute of All-natural Refrigeration, Livestock Marketing Association, National Association of State Departments of Agriculture, National Turkey Federation, and the North Central Poultry Association.
 

— Saudi Arabia is considering a Chinese proposal to construct a nuclear power plant within its borders, a move intended to put pressure on the Biden administration to soften its conditions for American assistance in Saudi Arabia's nuclear energy efforts, the Wall Street Journal reports (link). The U.S. has stipulated that its nuclear aid would only be provided if Saudi Arabia agrees not to enrich its own uranium or exploit its uranium deposits for mining purposes, as part of nonproliferation conditions not favored by China. China has been seeking to enhance its influence in the Middle East, which has raised concerns in Washington. Saudi Arabia has approached the U.S. for assistance in developing a civilian nuclear program, with potential diplomatic normalization with Israel as part of a broader agreement, despite not recognizing Israel. Security assurances from the U.S. are also being sought by Saudi Arabia in this deal.

— IMF: Fossil fuel subsidies have surged to a record high of $7 trillion in the previous year due to global energy price increases caused by Russia's invasion of Ukraine and post-pandemic economic recovery measures. The International Monetary Fund (IMF), in a report (link), says these subsidies, which encompass oil, coal, and natural gas, account for 7.1% of the world's gross domestic product (GDP). This amount surpasses the annual global spending on education (4.3% of GDP) and makes up around two-thirds of healthcare spending (10.9%).

     The rise in fossil fuel subsidies, as depicted in the accompanying chart, has seen an increase of $2 trillion over the past two years. This surge is primarily attributed to a doubling of explicit subsidies (subsidies involving undercharging for supply costs), which amounted to $1.3 trillion. This data is sourced from a recent paper providing updated estimates across 170 countries, considering both explicit and implicit subsidies (undercharging for environmental costs and forgone consumption taxes). Link to detailed data for different countries and fuels.

— The carbon removal technology, while unproven at a large scale, has garnered increasing attention. The year has highlighted that carbon removal is now dominated by major corporations and substantial government backing. A Wall Street Journal article (link) examines the deals that have solidified corporate participation in this sector.

— A presidential rematch? The only thing that could prevent the presidential race from being a rematch between President Biden and Trump would more likely be medical than political or legal, writes Charlie Cook. Link for details.
 

— Former President Donald Trump turned himself in to authorities at a jail in Atlanta, Georgia. He was booked on 13 state felony charges linked to his attempts to overturn the 2020 presidential election results in the state. While Trump denies any wrongdoing, he was subjected to standard procedures like having his mugshot taken and being fingerprinted. He was released from custody after posting a $200,000 bond. This marks his fourth indictment in five months. The charges also implicate 18 co-defendants, with at least 16 of them having surrendered to authorities at this point.

     Of note: Trump was in the jail for roughly 20 minutes. He was assigned inmate number P01135809. Trump posted his own mug shot in a return to Elon Musk’s X, which was formerly known as Twitter. In his first post since 2021, Trump displayed the mug shot taken at the Fulton County Jail, along with the words “ELECTION INTERFERENCE NEVER SURRENDER!” and a link to a political fundraising page.

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