Lighthizer, Mnuchin to Travel to China Mid-Feb. to Lay Groundwork for Trump/Xi Summit

Posted on 02/01/2019 6:30 AM

China offers to purchase 5 MMT 'additional' U.S. soybeans | Trump says China to also buy corn, wheat


Odds are rising for a piecemeal but eventual comprehensive trade agreement between U.S. and China following two days of Washington-based talks. The coming Trump/Xi summit revealed Thursday signals an accord is reachable. Negotiations are narrowing around a smaller initial deal to stave off more tariffs, but not roll back the duties on $250 billion worth of Chinese imports that Trump has already imposed. In exchange, China would follow through with promised purchases of American farm and energy goods and services and modest economic reforms. Benchmarks would be set to grease the skids for an eventual lifting of tariffs from both countries. China will "substantially" expand imports of agriculture, energy, industrial products and services from the U.S., Xinhua reported. No specific products or value of imports were mentioned in the report. But China yesterday said it would buy an additional 5 MMT of soybeans; no timeframe on the purchases.
     U.S. employment data is coming this morning. The January jobs report will show whether U.S. employers were able to keep up the record pace set in December, and what effects the government’s partial shutdown had on the labor market. It should mark 100 straight months of job creation. Average hourly earnings are expected to have increased 0.3% after climbing 0.4% in December.
     Government shutdown again? There are about two weeks until large sections of the government could shut down again, but neither Trump nor House Speaker Nancy Pelosi appear ready to back off their positions on funding for Trump's proposed wall. Congressional sources do not expect another shutdown.
     Energy markets tumble on abrupt end to the polar vortex blasting the U.S. Traders have scrambled to unwind natural gas trades to cope with next week’s milder weather. The commodity has already fallen 9% over the past five sessions. "We're talking about going from minus-50 wind chills in Chicago yesterday and today to plus 50-degree temps over the weekend," said Daniel Leonard, senior meteorologist at The Weather Company.
     The Super Bowl of Beer. The world's largest brewer will not say how much it's spending for nearly six minutes of commercials during Sunday's Super Bowl, but Reuters reports that industry sources estimate Anheuser-Busch InBev is shelling out more than $50 million. That's up from the $42 million that Kantar Media said the brewer spent for four minutes of ad time last year. It's part of AB InBev's strategy to recapture market share from craft beers and Mexican imports. Link for more.

 

U.S./China trade policy update:

  • How China characterized this week's negotiations. China said the trade talks ending Thursday were “frank, concrete and constructive” and made “important progress” on tough issues beyond the trade imbalance between them — including those that would require Chinese reform, such as forced technology transfer, intellectual property protection and non-tariff market barriers.
  • White House said this week's talks covered a wide range of issues, including U.S. firms being forced to transfer their technologies to Chinese joint venture partners, the lack of protection for intellectual property rights in China, and the numerous tariff and non-tariff barriers faced by U.S. companies operating in China. It said also Beijing needed to deal with other U.S. concerns, including the trade deficit, cybertheft, government subsidies to state-owned enterprises, opening up its agricultural and manufacturing markets, and relaxing controls on its currency.
  • China's lead negotiator Vice Premier Liu He revealed China to purchase another 5 MMT U.S. soybeans. The initial remarks were 5 million tons per day, but anyone hearing that knew there was a glitch. The White House later clarified it was 5 million tons, not 5 million tons per day. No time frame was provided for the purchases and it’s unclear whether the purchases China made in December, after the 90-day trade truce was called, are part of the new commitment. Trump described the China soybean purchase news as a “fantastic sign of faith.” China's Liu added, “Chinese people like U.S. farmers very much.” Unknown: Will the 5 MMT be reflected in USDA's WASDE next Friday? Some think they could be if the sales show up in dailies ahead of the WASDE (World Ag Supply and Demand Estimates).
  • The list of commodities to be purchased is growing. President Trump said besides soybeans, China would also buy “lots of corn, wheat” and other products. China will "substantially" expand imports of agriculture, energy, industrial products and services from the U.S., Xinhua reported. No specific products or value of imports were mentioned in the report.
  • Three major themes. During the two days of Washington-based meetings, White House officials said the focus was on three major themes: trade, structural issues and enforcement. China's Liu said the sides had developed three key themes in their talks: trade issues, drugs, and enforcement or implementation of policy. “At the same time, we also discussed something from China,” he said, indicating that Beijing did not want the deal to be purely one-sided. “I hope we will make a deal.”
  • Visits to China ahead. U.S. Trade Representative Bob Lighthizer and Sec. of Treasury Steven Mnuchin are set to travel to China after the Lunar New Year to resume discussions and lay the groundwork for a meeting between Trump and Chinese President Xi Jinping. The Trump/Xi summit will take place in late February, with a second meeting possible. The Chinese delegation proposed that Trump meet with Xi in the Chinese resort island of Hainan (a province in China) after his planned summit with the North Korean leader, Kim Jong Un, in late February. But White House officials will likely suggest another time and location. “There will be a brief pause for the Lunar New Year — briefer than the Chinese want — but our people will be in contact,” Lighthizer said. “At this point, it’s impossible for me to predict success, but we are in a place that, if things work, it could happen.” Trump said he looked forward to results from Lighthizer’s trip to China this month, noting conversations between both sides would continue, including talks by phone. “We have a thing called the telephone and other means of talking,” Trump told his trade representative. “So I know you’re spending a lot of time, and it’s moving along well.”
  • A final deal would probably be sealed at the coming Trump/Xi confab. “I think that probably the final deal will be made — if it’s made, will be made between myself and President Xi,” Trump predicted. Xi, Trump stressed, was prepared to make significant changes to Beijing’s economic policies.
  • China did offer some modest concessions, with more expected during talks later this month. China’s concessions this week included promises to invite more U.S. capital into its manufacturing and financial-services sectors.
  • Trump predicted an eventual trade deal ”has a very good chance of happening,” but said much work remained, again warning he was prepared to move ahead with higher tariffs on Chinese goods if Beijing did not accede to America’s demands.
  • Even Lighthizer acknowledged progress was made. “I think we made progress,” Lighthizer said. “We have much work to do.” Lighthizer as usual was more cautious than Trump about the possibility of a deal, acknowledging the two countries still needed to work out how any agreement would be enforced. “An agreement is nothing without enforcement,” Lighthizer said. China's Liu concurred, stating that it is also important to China that an agreement has mechanisms to ensure that promises are kept.
  • When asked if issues surrounding Chinese telecoms giant Huawei were raised — the U.S. unsealed its official indictment this week for the company and its chief financial officer Meng Wanzhou for fraud charges relating to violations of US sanctions on Iran — Trump said they “will be” discussed but were not included in the latest talks. Meng was detained in Canada, in a high-profile case that has severely strained ties between Ottawa and Beijing, and is fighting extradition to the U.S. “I’m sure at some point that’ll be — that, actually, as big as it might seem, is very small compared to the overall deal, but that will be discussed,” Trump said.
  • The U.S. strategy is to go big in what Trump calls a comprehensive agreement. “We never really had a trade deal with China and now we’re going to have a great trade deal with China,” he said, adding, “If it all works out.” Trump noted, “This isn’t going to be a small deal with China. This is either going to be a big deal or it’s going to be a deal that we’ll just postpone for a while.”
  • Trump defines comprehensive. Trump said Xi must go far beyond big commodity purchases to include an unprecedented opening of its markets to American businesses, including ending its practice of requiring American companies to hand over trade secrets as a condition of doing business there. All issues are being discussed. “We’re certainly talking about (intellectual property) theft,” Trump said. “We’re talking about every aspect of trade with the country.”
  • President Trump might keep some tariffs on Chinese goods even if Beijing and Washington reach a trade agreement, he told the New York Times yesterday, after delegates from both countries wrapped up another round of negotiations. “Without the tariffs, we wouldn’t be talking,” he said in an interview.

Details of updated USDA and Bureau of Economic Analysis (BEA) reports. Not all of the missed reports will be released and some of the new release dates have yet to be determined.

Report

Original Release Date

Data for Month/Week Ending

New Release Date

 

Bureau of Economic Analysis

 

New Home Sales

December 27, 2018

November

January 31

 

Advance Economic Indicator

December 28, 2018

November

Cancelled

 

Monthly Wholesale Trade

January 10, 2019

November

February 1

 

Factory Orders

January 7

November

February 4

 

Int'l Trade in Goods & Services

January 8

November

February 6

 

Business Inventories

January 16

November

February 14

 

USDA – Foreign Ag Service

 

Weekly Export Sales

December 28, 2018

December 20

January 31

 

Weekly Export Sales

January 4, 2019

December 27

February 7

 

Weekly Export Sales

January 10

January 3

February 14

 

Weekly Export Sales

January 17-Feb. 22

January 10-February 14

February 22

 

USDA – National Ag Statistics Service

 

Broiler Hatchery

January 30

January 26

Delayed

 

Broiler Hatchery

February 6

February 2

February 8

 

Egg Products

January 30

December

Delayed

 

Egg Products

December 28, 2018

November

February 5

 

Agricultural Prices

December 27, 2018

November

January 31

 

Agricultural Prices

January 31

December

February 20

 

Poultry Slaughter

December 26, 2018

November

February 1

 

Peanut Stocks & Processing

December 28, 2018

November

February 1

 

Peanut Stocks & Processing

January 29

December

March 6

 

Peanut Stocks & Processing

February 27

January

March 6

 

Cotton System

January 2

December

February 4

 

Cotton System

February 1

January

February 22

 

Fats & Oils

January 2

December

February 4

 

Fats & Oils

February 1

January

February 22

 

Grain Crushings

January 2

December

February 4

 

Grain Crushings

February 1

January

February 22

 

Dairy Products

January 3

November

February 4

 

Field Crops - Final Estimates

December 28

2013-2018

February 6

 

Rice Stocks – Final Estimate

December 28, 2018

2013-2018

February 6

 

Grain Stocks – Final Estimates

December 28, 2018

2013-2018

February 6

 

Crop Production

January 11

January

February 8

 

Crop Production – 2018 Summary

January 11

2018

February 8

 

Grain Stocks

January 11

December 1

February 8

 

Winter Wheat & Canola Seedings

January 11

2019

 

 

Crop Production

January 11

January 1

February 8

 

Crop Production Annual

January 11

2018

February 8

 

Rice Stocks

January 11

December 1

February 8

 

Peanut Prices

December 28,

Jan. 4, 11, 18, 25

February 1

Dec. 22, 29;

Jan. 5, 12, 19, 26;

February 2

February 8

 

Cattle on Feed

January 25

December 1

February 20

 

Cattle on Feed

February 22

January 1

March 8

 

Cattle

January 31

January 1

February 28

 

Sheep & Goats

January 31

January 1

February 28

 

Flour Milling

February 1

Q4 2018

March 1

 

Milk Production

February 21

January

March 12

 

State Stories

January 3

December

No release

 

State Stories

January 29

January

No release

 

Cotton Ginnings

January 11

January 1

No release

 

Cotton Ginnings

January 23

January 15

No release

 

2017 Census of Agriculture

February 21

2017 & earlier Census years

To be determined

 

         

Some economic reports yet to be rescheduled include:

  • Gross Domestic Product “advance,” or initial, estimates for fourth-quarter 2018 and all of 2018, originally scheduled for Jan. 30.
  • Personal Income and Outlays for December 2018, originally scheduled for Thursday, Jan. 31.
  • U.S. International Trade in Goods and Services for December 2018, originally scheduled Feb. 5.

Other items of note:

  • Trump is willing to move without Congress on a border wall. The president said the White House and congressional negotiators were no closer to an immigration deal and reiterated he is willing to act alone instead. Any plan to use executive powers to authorize spending money on construction is expected to face immediate challenges in court. Trump said he’s inclined to wait until the Feb. 15 funding deadline to decide whether to circumvent Congress and secure funds for the border wall by declaring a national emergency.

  • A group of expired tax incentive provisions known as “extenders” could be renewed this month as part of a government funding deal, Senate Finance Chairman Chuck Grassley (R-Iowa) said Thursday. The extenders package could include credits and deductions for certain biofuel producers, including the lapsed biodiesel incentive program.

  • U.S. to announce its withdrawal from a landmark arms-pact with Russia. Secretary of State Mike Pompeo is expected to make the announcement today. The decision comes after diplomatic talks to convince Moscow to comply with the 1987 Intermediate-Range Nuclear Forces Treaty failed. Russia has likewise accused the U.S. of breaking the accord. American officials expect a full withdrawal from the treaty after six months. Starting on Saturday, the U.S. would be free to begin testing or deploying its own weapons. Washington recently informed Western allies that Russia now has deployed four battalions of the 9M729 cruise missile, an increase from the three battalions Moscow was said to have a few months ago.

  • Senate disagrees with Trump on troop withdrawals. The Republican-led Senate voted 68 to 23 to advance legislation that strongly opposes President Trump’s withdrawal of U.S. military forces from Syria and Afghanistan.

  • Trump called border negotiations a “waste of time.” In an interview with the New York Times published late Thursday night, Trump shrugged off the usefulness of border wall talks, saying he would build his own if Congress failed to reach an agreement. Trump dismissed the investigations that have dogged his presidency, expressed optimism about reaching a trade deal with China and denied being at odds with his intelligence chiefs — the president said his intelligence team had been misquoted while delivering testimony, and they remain “on the same page” with him. The interview was arranged after Trump invited A. G. Sulzberger, the publisher of the NYT, to an off-the-record dinner. Sulzberger declined, saying he would prefer an on-the-record interview that included two Times reporters. Link to interview (subscription needed).

  • USDA released details of trade-aid efforts aimed at developing new markets for U.S. producers to help counter some of the negative impacts of the counter-measures taken against U.S. tariffs. The $200 million will go to 57 agricultural groups. USDA Sec. Sonny Perdue said the program was “seed money, leveraged by hundreds of millions of dollars from the private sector,” that would help U.S. producers become less dependent on “one large customer” (e.g. China). The big "winners" in the Agricultural Trade Promotion Program (ATP) sweepstakes: the American Soybean Association was awarded $21.9 million. Five other organizations received awards of $10 million or more: U.S. Meat Export Federation — $17.6 million; U.S. Grains Council —$13.94 million; Food Export USA Northeast — $13.89 million; Food Export Association of the Midwest USA — $13.85 million; and the Southern United States Trade Association — $12.59 million. Link for details.

  • Crude oil is back on the rails in a big way. North America’s oil drillers are turning to trains amid tight pipeline capacity, the Wall Street Journal reports (link), triggering a rebound in crude-by-rail business that all but collapsed in the wake of high-profile accidents. North American railroads handled an average of 718,000 barrels of crude a day in October, up 88% from a year earlier and near the peak average of about 1.1 million barrels in October 2014. Rail is more expensive than pipelines, but pipeline projects typically lag behind growth in oil and gas production and have gotten tougher under protests against construction. North American oil production topped 15.6 million barrels daily in August, a 17% annual increase. The traffic is up nearly 25% for U.S. railroads in the first weeks of this year. Bottlenecks have grown particularly severe in Canada as projects have stalled.

Markets. The Dow on Thursday fell 15.19 points, less than 0.1%, to 24,999.67, putting its gains for January at 7.2%. The S&P 500 rose 23.05 points, 0.9%, to 2,704.10, while the tech-heavy Nasdaq Composite climbed 98.66 points, or 1.4%, to 7281.74. The S&P 500 added 7.9% for the month, its strongest January performance since 1987. Meanwhile, the Nasdaq added 9.7%, its best percentage gain in January since 2001.

The Labor Department's jobs report is out this morning. Analysts expect employers added 170,000 jobs during the month. The January update is expected to show a smaller jobs number than the surprising December result of 312,000. Of course, revisions loom large and those are expected to include historical revisions back to 2014. The impact of the government shutdown looms in the data which could translate into a rise in the unemployment rate from the 49-year-low mark of 3.9%. The real key impact from the shutdown is in private-sector hiring. Private-sector payrolls rose an average of over 213,000 during the course of 2018. If that pace falls dramatically in this report, that could be a sign that the private sector pulled back due to the shutdown. However, the Bureau of Labor Statistics said because the federal workers that were not on the job will get paid, they will be counted as being on federal payrolls. Wages will still be an attention point, but with the Fed view that inflation is not a challenge right now, it would take a huge rise in wages to spark any inflation concerns. Look for the pace of job creation to extend to 100 consecutive months.

U.S. sanctions against Venezuela's oil sector are forcing the country's Citgo Petroleum, one of the largest refiners in the U.S., to consider bankruptcy as a way to protect its operations amid the battle for political control in Caracas, the Wall Street Journal reports. Some U.S. refiners have already begun reducing crude processing as crude oil costs have risen following the sanctions and as gasoline margins crashed to their lowest in nearly a decade.


 

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