China Sets Reference Rate for Yuan Currency at Weakest Point in 12 Years

Posted on 05/27/2020 7:20 AM

'Gloves are off' re: U.S./China relations


In Today’s Updates


* U.S. equities could extend recent rally based on futures
* Possible U.S. sanctions on China has elevated tensions between two nations
* China again uses currency to offset negative economic impacts
* Kudlow: Phase 1 trade deal is intact 'for the moment, or so the Chinese say'
* Kudlow: Trump growing 'miffed' with Beijing’s alleged concealment of coronavirus, HK
* McConnell: Congress will 'probably' have to pass another coronavirus relief bill
* Global energy investment to fall by $400 billion in 2020
* Lagarde warns eurozone economy will likely shrink between 8% and 12% this year

* No surprise: Some confusion re: USDA's CFAP
* CFAP nonspecialty crop payment example
* Are biofuel groups ever happy?
* Meetings begin today on EPA’s proposed RFS levels
* U.S. food supply update
* Group requests USDA require testing of meat products for Covid-19
* Iowa pork producers could get millions to cover disposal costs for euthanized pigs
* Another JBS SA meat processor being sued regarding its handling of Covid-19
* Update on reopening America... and around the world
* Hotel occupancy rises slightly as weekend trippers hit the road
* Coronavirus update
* Latin America is the new epicenter of the Covid-19 pandemic
* EU plans new stimulus package of $826 billion to soothe Europe's economic pain

* House Republicans move to block proxy voting
* China has removed tariffs on sugar imports
* Three senators no longer under probe
* Wendy Rhein appointed chief of staff for the World Food Program USA
* FCC proposes establishing 5G fund for rural America
* Trump threatens to shut social media companies after Twitter fact check




Equities today: Global stocks continued this week's rally. Asian and European shares rose on continued optimism that economic activity is accelerating and authorities may offer more stimulus to bolster the recovery. Japan’s Nikkei 225 gained 0.7%, while Australia’s S&P/ASX 200 was little changed. U.S. futures tied to the S&P 500 rose 1.2%.


     U.S. equities yesterday: The Dow gained 529.95 points, 2.16%, at 24,995.11, breaking a two-day losing streak. The Dow hit its highest level since March 6 in Tuesday’s session. The Dow is up 2.67% month to date, on pace for its second positive month in a row. The S&P 500 was up 36.32 points, 1.23%, at 2,991.77. The Nasdaq rose 15.63 points, 0.17%, at 9,340.22.


     The S&P 500 and Dow Jones Industrial Average briefly crossed psychologically important barriers of 3,000 on the S&P and 25,000 on the Dow before closing slightly below those milestones. And, the S&P briefly eclipsed its 200-day moving average —a technical signal that historically has drawn more investors into the market.


     Big spread between stocks and consumers' moods. The spread between the monthly percentage change of the S&P 500 and the University of Michigan’s consumer sentiment survey climbed to 32 percentage points last month, the widest-ever gulf in data going back to 1978, according to Dow Jones Market Data.

     Big spread


U.S. consumer confidence held roughly steady in May as households worried about the present but grew a little more optimistic about future economic conditions.


    Confidence May


Home-price growth accelerated in March, even as home sales dropped after the coronavirus pandemic shut down economic activity in some regions. The S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas across the nation, rose 4.4% in the year that ended in March, up from a 4.2% annual rate the prior month.


     Meanwhile, purchases of newly built single-family homes increased slightly in April, a stronger-than-expected result during a period marked by stay-at-home orders and economic uncertainty.


     Single family homes


Oil prices slightly lower. The main gauge for U.S. crude-oil prices edged down 0.5% to $34.20 a barrel, after rising for seven of the past eight sessions. Russian government officials signaled the country may hold off on committing to any extended production cuts ahead of a June meeting among major oil exporters, strategists at ING wrote in a note to clients.


     Oil prices


Global energy investment to fall by $400 billion in 2020. The level of global investment in energy activity in the first half of 2020 has been unprecedented and “2020 is now set to see the largest decline in energy investment on record, a reduction of one-fifth — or almost $400 billion — in capital spending compared with 2019,” according to the International Energy Agency (IEA). The group said their tracking of investment data indicated that global capital expenditures on energy would rise by 2% in 2020, a level that would have been the largest since 2014. While lockdowns and restrictions on the movement of people or goods has seen disruption, IEA said the largest effect comes from “declines in revenues due to lower energy demand and prices, as well as more uncertain expectations for these factors in the years ahead.” Further, IEA said they expect spending on oil by consumers worldwide will drop by more than $1 trillion and power sector revenues will fall by $180 billion. They also noted that revenues to governments have been “profoundly affected.” China will see a 12% fall in energy spending while the U.S. will see a drop of 25% in energy investment and Europe is expected to register a 17% fall.


     American shale drillers helped the U.S. produce more than 13 million barrels of oil a day earlier in 2020 — before the coronavirus pandemic forced governments world-wide to impose lockdowns and travel bans on their citizens. As noted, the IEA expects the largest drop in global energy investment in history, with worldwide spending on oil and gas decreasing by a third and the financing of all energy projects declining by 20%.


     Shale drillers


European Central Bank President Christine Lagarde warned the eurozone economy will likely shrink by between 8% and 12% this year, a deeper downturn than the 5% decline previously anticipated, as governments battle the coronavirus pandemic. The ECB is preparing to increase its stimulus as soon as next week. Analysts expect the bank to vastly scale up a recently unveiled 750 billion-euro ($821.6 billion) bond-buying program at a policy meeting on June 4.


The European Commission unveiled plans for a 750 billion-euro ($826.5 billion) recovery fund as the region faces the worst economic crisis since the 1930s. The announcement came after France and Germany opened the door to issuing mutual EU debt last week, suggesting that the Commission, the EU’s executive arm, should raise 500 billion euros on the public markets.




Meetings begin today on EPA’s proposed RFS levels. Meetings are on tap starting today on the proposed 2021 biofuel and 2022 biodiesel levels proposed by EPA, according to the Office of Management and Budget (OMB). The American Petroleum Institute (API) and American Fuel & Petrochemical Manufacturers are to meet with OMB today on the proposal with a session scheduled Friday with the National Biodiesel Board (NBB). Representatives for the Coalition for Renewable Natural Gas and NATSO (representing travel plaza and truck-stop owners and operators) have meetings scheduled next week with the agency. Shortly after some of these meetings, word typically leaks out as to what initial plans EPA has regarding the RFS mandates.


A biofuel group complaining is not really news, based on the past few years, but another issue has surfaced to get the Renewable Fuels Association (RFA) upset again. Comments last week by Department of Energy (DOE) Undersecretary Mark Menezes on the issue of small refinery exemptions (SREs) under the Renewable Fuel Standard (RFS) have been noted by RFA as reflecting what they say is an end-around to circumvent the 10th Circuit Court ruling that three SREs granted for the 2016 compliance year were invalid.


     Menezes, during his confirmation hearing, was asked if DOE would consider past-year applications for SREs. This appears to be an effort to address the court decision which was that in order for the refiners in question to obtain an SRE for the 2016 compliance year, they would have had to request an SRE every year past 2010. “I can assure that as EPA sends over these … filings if you will to be consistent with the 10th Circuit decision,” Menezes said. “We will review them expeditiously and we will return them as promptly as we can to the EPA with our determinations as we have done in the past.”


     In his confirmation hearing, Menezes was asked if DOE was involved in drafting some of the waiver requirements when the Energy and Policy Act of 2005 was put into law. “It was somewhat of a surprise to see the 10th Circuit decision, to be honest, where they interpreted certain phrases to include that you had to have, for every year since 2011, you had to have requested an exemption,” he noted.


     The situation prompted a response from RFA who said in a letter to EPA Administrator Andrew Wheeler that the apparent effort for small refiners to request a waiver for prior years was an “end run” effort that was not consistent with the court ruling. RFA President Geoff Cooper said the apparent effort is a “thinly veiled attempt to circumvent the 10th Circuit’s decision” by retroactively seeking exemptions to establish a continuous string of SREs and thus maintain the refiners’ eligibility for SREs in subsequent compliance years.


     RFA said they were also aware of efforts for small refiners to resubmit petitions for waivers even though their original request had been denied.


     EPA on March 27 said they did “not intend to unilaterally revisit or rescind any previously granted small refinery exemptions issued for prior compliance years.” The agency added it would not embark on “investigating and initiating enforcement actions against small refineries that were previously subject to an exemption is a low priority for the agency.” Further, EPA said it “intends to develop an appropriate implementation and enforcement response to the 10th Circuit's decision in RFA v. EPA once appeals have been resolved and the court's mandate has been issued.”


     So if you think this issue is settled, it isn't, which means RFA could have more things to complain about later.


Update on China:

  • President Trump says before the end of week people will know of “very interesting” action to be taken regarding China. “It is something you're going to be hearing about before the end of the week. Very powerfully, I think,” Trump told reporters when asked about sanctions after a White House event on Tuesday. He added that the administration is doing something “very interesting.”

    Trump also said he will be looking at a bill, S 3744, that would require his administration to sanction Chinese gov't officials responsible for the repression of Turkic Muslims, predominantly Uighurs. Trump, when asked if he’s willing to sign the legislation into law, says he will look at it “very strongly.” The House is poised to give final passage today to the legislation that would sanction Chinese officials for human rights abuses against Muslim minorities. China has threatened retaliation over efforts in the U.S. to exert pressure over human rights issues.

    The Trump administration is considering a range of sanctions on Chinese officials, businesses and financial firms over Beijing’s attempt to crack down on Hong Kong.

  • What kind of Hong Kong sanctions on China? The Treasury Department could impose controls on transactions and freeze assets of Chinese officials and businesses for implementing a new national security law that brings into question "one country, two systems." Other measures under consideration include visa restrictions for Chinese Communist Party officials, sources told Bloomberg. The Hang Seng Index slipped 0.6% overnight as President Trump said he believes Hong Kong will lose its status as Asia's financial hub if the new law proceeds.
  • White House economic adviser Larry Kudlow said the Phase 1 trade deal is intact “for the moment, or so the Chinese say,” but President Trump is growing increasingly “miffed” with Beijing’s alleged concealment of the coronavirus and its move to crack down on dissent in Hong Kong. He signaled that Trump could be ready to take action that could jeopardize the agreement. “The trade deal is not as important to him as it once was,” Kudlow said on Fox News on Tuesday, echoing recent comments from Trump himself.
  • Xi Jinping urged military officers to boost readiness for armed combat. While speaking on the sidelines of the National People’s Congress in Beijing, the Chinese president said the Covid-19 pandemic has had a profound impact on the country’s security and development. Last week the government proposed to the congress that this year’s increase in military spending should be 6.6%, down from 7.5% last year.
  • China set a reference rate for the yuan at its weakest point in 12 years, a signal that Beijing sees the benefits of a weaker currency as it grapples with an economic slowdown and rising tensions with Washington. The People’s Bank of China set a daily midpoint for the yuan at 7.1293 per dollar, the lowest level since February 2008. The central bank lets the onshore yuan trade in a band around this fix. The currency also trades in less tightly controlled offshore markets. The yuan broke below 7 per dollar in August, prompting President Trump to accuse Beijing of manipulating its currency.

    China yuan

  • The 'gloves are off'. Amy Celico, a former USTR official who focused on China and is now at Albright Stonebridge, an advisory firm in Washington, said the “gloves are off” in the U.S./China relationship, but that both in Congress and the administration, there was still concern that financial decoupling could backfire on the United States. “It’s a little bit harder for president Trump to get on board with that, yet,” Celico said, according to the Financial Times. “There are other tools he can profitably deploy that make him seem tough on China and ‘punish’ China for behavior [the US] does not support.”

Update on next aid package — Phase 4/CARES 2:

  • McConnell: Congress will 'probably' have to pass another coronavirus stimulus bill. Senate Majority leader Mitch McConnell (R-Ky.) said a measure to lift the U.S. economy would have a more narrow scope than the $3 trillion package House Democrats approved earlier this month. He said states’ progress in restarting their economies in the coming weeks will help to inform what Congress does. McConnell noted that “we need to make sure we have unemployment insurance properly funded for as long as we need,” as tens of millions of people lose paychecks. “So, in the next few weeks, we’ll determine whether there is yet another bill,” he told reporters Tuesday in his home state.

    McConnell again insisted he would push for liability protections for doctors and businesses as the economy reopened. Democrats have not supported creating shields from lawsuits.

    The Senate leader also said he would want additional relief for state and local governments to be tailored only to increased expenses and revenue lost due to the coronavirus outbreak. Democrats included nearly $1 trillion for cash-strapped states and municipalities in their bill as leaders from both parties ask for more money.

  • Back to work incentives. The Trump administration is examining proposals to provide cash incentives to encourage unemployed Americans to return to work. Larry Kudlow, the director of the White House National Economic Council, told Fox News the back to work bonus is “something we’re looking at very carefully.” Kudlow was asked about a proposal by Sen. Rob Portman (R-Ohio) to provide a temporary $450-a-week bonus for unemployed workers returning to work, on top of their wages.

    Federal outlays for unemployment insurance have skyrocketed, totaling $79.7 billion over the past five weeks, according to figures tracked by the Wall Street Journal.

    Unemployment insurance

Update on implementation of CARES 1, including CFAP:

  • CFAP signup begins with conflicting reports coming from some state FSA offices. The complicated Coronavirus Food Assistance Program (CFAP) is even complicated for normally Byzantine U.S. government program. This is certainly the case with USDA's CFAP, with reports of changes or “interpretations” of the program coming virtually daily. Does a producer who has not sold his production yet has a basis contract qualify for CFAP coverage? Yes, say most USDA personnel. But some state FSA offices say the issue is still begin decided.
  • More FSA/CFAP confusion. There still is some confusion as USDA has indicated that payments will be based on “inventory subject to price risk held as of January 15, 2020,” but also has specified that it applies to 2019 inventory as of January 15.

    The final rule for the program states the following: “Eligible inventory for the purpose of non-specialty crops is the lower of self-certified unpriced inventory that an eligible producer has vested ownership in as of January 15, 2020, or 50% of the eligible producer’s 2019 production of that commodity.”

    But the application form (link) and payment calculator (link) both reference the unsold 2019 inventory as of January 15, 2020.

  • CFAP nonspecialty crop payment example. Producer produced 98,500 bushels of corn in 2019 and had 40,000 bushels of corn on hand as of January 15, 2020. In the example, 50% of the 2019 production is 49,250 bushels, so the January 15 inventory would be the quantity used.

    Calculating the payment:

         CARES Act funds will be used to make a payment for a producer by multiplying 50% of the producer’s eligible inventory on January 15, 2020, by a pre-specified payment rate calculated as 50% of the calculated futures (or cash, if futures are unavailable) price decline. In this example, that figure is 32 cents per bushel for corn.

         CCC funds will be used to make a payment to the producer by multiplying 50% of the eligible inventory by a pre-specified payment rate calculated as 55% of the futures (or cash, if futures are unavailable) price decline.

         CARES Act payment: 50% of the inventory (20,000 bushels) times the CARES Act payment for corn (32 cents per bushel) for a total of $6,400.

         CCC Payment: 50% of the inventory (20,000 bushels) times the CCC payment for corn (35 cents per bushel) for a total of $7,000.

         NOTE: These two separate payments will be issued as one payment to the eligible producer.

         Total payment: $13,400.

         The initial payment to the producer in this example would be $10,720 – 80% of the total payment.

    Bottom line: Producers should just use the payment calculator and let it go through all the complex factors without caring how the final payout if any is made.

U.S. food supply/industry update:

  • Group requests USDA require testing of meat products for Covid-19. The Physician's Committee for Responsible Medicine (PCRM) has submitted a petition to USDA’s Food Safety and Inspection Service (FSIS) requesting that the agency require meat and poultry processing establishments test their products for the presence of the virus that causes Covid-19 and make the results available to the public. PCRM is also calling on FSIS to notify the public of the potential presence of Covid-19 on meat and poultry products. The group also wants a weekly report on the number of meat and poultry workers, or worker family members, and inspectors that are presumptive or confirmed to have Covid-19. In accepting the petition, FSIS noted that PCRM did not provide “scientific studies or other supporting information to demonstrate that Covid-19 can be transmitted by food or food packaging.”
  • Iowa pork producers could get millions to cover disposal costs for up to 600,000 euthanized pigs. The Iowa Department of Agriculture says it plans to provide three rounds of assistance to help producers who face destroying an estimated 600,000 pigs that couldn't be sent to pork processing plants because of coronavirus-related bottlenecks. Link to Des Moines Register.
  • Covid-19 makes the case for more meatpacking robots. The coronavirus has hit meat processing plants hard. But not in Denmark, where automation makes for safer slaughterhouses. Link to WIRED article.
  • Another JBS SA meat processor being sued regarding its handling of Covid-19. For the second time in just over a month, JBS SA is being sued regarding its handling of coronavirus outbreaks. Labor prosecutors are suing the meat processor, seeking damages and better work conditions following a Covid-19 outbreak at a meat plant in Ipurmirim in the southern state of Santa Catarina. ctions against lawsuits as the U.S. reopens.
  • Slow start for a hunger relief program. An emergency program created by Congress to replace school meals during the coronavirus outbreak has reached only about 15 percent of eligible children, according to an analysis by the New York Times (link). One problem: Outdated state computers.

Update on reopening America... and around the world:

  • Only three states — Illinois, New Jersey and Delaware — plus Washington, DC, remain shut down, but even they have eased restrictions for some activities and businesses.
  • Hotel occupancy rises slightly as weekend trippers hit the road. Hotel occupancy rates across the country have risen for five straight weeks, offering a glimmer of hope that the economy’s gradual reopening and the start of summer will foster an industry recovery.
    Hotel rising

Coronavirus update:

  • Summary: Global cases of Covid-19 now total 5,604,461 with 350,752 deaths, according to data from the Center for Systems Science and Engineering (CSSE) at Johns Hopkins University (JHU). The U.S. now has 1,681,418 cases with deaths at 98,929.
  • The World Health Organization said that Latin America is the new epicenter of the Covid-19 pandemic. It has passed Europe and the United States in daily infections. A study from the University of Washington has predicted that Brazil, one of the worst affected countries, could see its death toll rise to 125,000 by early August.
  • Boeing, Airbus study how virus behaves during air travel. Their work will involve academics, engineers and medical experts expected to examine new measures to prevent disease transmission on airplanes. Link to WSJ article.


  • House Republicans move to block proxy voting. House Republicans plan to file a lawsuit against Speaker Nancy Pelosi (D-Calif.) to block the chamber’s new system of voting by proxy during the coronavirus pandemic, according to House GOP leadership aides. The suit, filed in DC District Court, charges the action “dilutes members’ votes, and by extension, their constituents’ collective representation.” In a call with reporters Tuesday on the suit, a Republican aide said, “Each individual member of Congress has had their vote unconstitutionally diluted by this proxy vote and their constituents have had their representation in Congress diluted by this unconstitutional House Rule.” So far, 58 House Democrats have sent a letter to the House Clerk announcing their plan to vote by proxy today; no Republicans have taken the action.
  • China has removed tariffs on sugar imports that could provide relief for sugar producers in Australia, the Sydney Morning Herald reports (link).
  • Three senators no longer under probe. Sens. Dianne Feinstein (D-Calif.), Kelly Loeffler (R-Ga.), and James Inhofe (R-Okla.) have been notified that the Justice Department is no longer looking into their families’ stock sales after a private briefing early in the pandemic. Sen. Richard Burr (R-N.C.) remains the subject of a related investigation, Dow Jones reported. He has temporarily stepped down as Intelligence Committee chairman amid the probe into whether he sold stocks as a result of secret briefings on the threat of the coronavirus.
  • Wendy Rhein was appointed chief of staff for the World Food Program USA, the group announced. She was formerly managing director of UNICEF USA’s Mid-Atlantic office.
  • FCC proposes establishing 5G fund for rural America. The Federal Communications Commission (FCC) is seeking comments on a proposal to retarget universal service funding for mobile broadband and voice to deploy 5G services to rural areas of the country by setting up the 5G Fund for rural America. In a notice in the Federal Register (link), FCC said that while T-Mobile has committed to deploy 5G service to 99% of Americans within six years and cover 90% of those living in rural areas, FCC said it was “concerned” that some rural areas will still not be serviced due to “insufficient financial incentive” for mobile wireless carriers to invest in 5G-capable networks and potentially leave areas of the country excluded from 5G for years to come. FCC noted that given issues that have been revealed with the deployment of 4G LTE networks in rural areas, it proposes to distribute up to $9 billion in two phases to support 5G service in rural areas. The initial stage would target at least $8 billion for rural areas, targeting a 5G Fund Phase I auction in 2021. Phase II would target “harder to service and higher cost areas, such as farms and ranches,” with $1 billion in funds “specifically aimed at deployments that would facilitate precision agriculture.” Comments on the plan are due by June 25.
  • Trump threatens to shut social media companies after Twitter fact check. But there is no evidence that Trump has the ability to shut down social media networks.


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