Pelosi upbeat on USMCA | EPA told to set corn ethanol mandate at 15 bil. gal. | Jobs report
In today's updates:
* China said it will waive import tariffs for some U.S. soybeans and pork shipments
Markets: Led by Saudi Arabia, OPEC agreed in principle to cut production by an additional 500,000 barrels per day through the end of March 2020, according to reports from CNBC and Reuters. But the group must still convince a faction of its non-OPEC allies, including Russia, in a bid to prop up oil prices.
Batteries not included in EV cars? In a country where so many are mad about almost everything, here is a humorous look at the auto industry from one of my favorite comedians. Link to watch.
— U.S./China trade policy update:
- China announced today it would exempt some U.S. soybeans and pork from tariffs — likely an effort to help ongoing talks relative to Phase 1 discussions with their U.S. counterparts. China’s State Council Customs Tariff Commission said in a notice today (Dec. 6) that it would exclude “some soybeans, pork and other goods purchased from the United States” from tariffs. The notice from the agency does not specify the quantity or what the “other goods” are. “According to domestic needs, Chinese enterprises independently import certain quantities of goods from the United States through market-based procurement,” said a translation of the notice. “The Customs Tariff Commission of the State Council is carrying out the exclusion of some soybeans, pork and other commodities based on the application of relevant enterprises. For the products within the exclusion range, the exclusion measures such as the 301 measures against the United States against tariffs are adopted. For the procurement of goods within the exclusion range, the enterprise shall negotiate independently, import on its own, and bear its own profits and losses.”
- The action is seen as a “goodwill gesture” by China and the two sides continue to work on a Phase 1 deal.
- Impact: Exemptions for pork are likely to be in higher demand, with less than two months until China's Lunar New Year holiday, the country's peak consumption period. Meanwhile, the country’s soybean stocks remained close to record-low levels last week, despite climbing recently, according to figures from the China National Grain and Oil Information Center.
- China has levied three rounds of additional tariffs on U.S. frozen pork, including 25% in April 2018, 25% in June 2019 and another 10% in September 2019, bringing the final tariff to 72%. If all the trade war tariffs were removed, the rate would return to 12%, the “most favored nations” duty paid by China’s other trading partners. China has also imposed 30% in tariffs on soybeans, including 25% in June and 5% on Sept. 1, bringing the current tariff level to 33%. If the additional tariffs are removed, tariffs on U.S. soybeans would return to 3% — the same rate paid by importers of Brazilian soybeans, which have largely filled the gap left by the U.S.
- On Thursday, Beijing said trade talks remain on track, though during the past few days U.S. officials have become less optimistic about a deal.
- Phase 1 hurdles remain the same, with the major one being which tariffs to roll back and the size of U.S. farm purchases China is willing to make and which “off-ramps” China will be allowed relative to enforcing any purchase commitments. President Trump is asking China to buy $40 billion to $50 billion of farm goods a year, which is significantly higher than the $8.6 billion the country bought last year and significantly above the level China bought before the trade war, the Wall Street Journal reported (link). The administration is also demanding that China publicly announce its purchasing plans and say that they wouldn’t depend on market conditions or China’s trade obligations, sources told the WSJ. Beijing is reluctant to make that pledge because it might have to divert purchases from other trading partners that are likely to object. Market observers note amazement that officials from a market-oriented country like the U.S. are insisting a Communist country like China must buy a designated value of products irrespective of supply and demand.
- President Trump just tweeted: “Do not believe any article or story you read or see that uses 'anonymous sources' having to do with trade or any other subject. Only accept information if it has an actual living name on it. The Fake News Media makes up many 'sources say' stories. Do not believe them!”
- The U.S. Treasury Department is upset about this one... The World Bank is adopting a new plan to aid China with $1 billion to $1.5 billion in low-interest loans annually through June 2025 despite objections from Treasury Secretary Steven Mnuchin, who argues China is too wealthy for such international aid, pointing to the hundreds of billions of dollars it has loaned to poor countries through its Belt and Road Initiative. U.S. lawmakers are also increasingly concerned that taxpayer funds loaned through the World Bank to China will enable human rights abuses and unfair economic competition.
- American firms bought fewer Chinese-made consumer goods in October in the wake of new U.S. import tariffs. That helped narrow the overall trade deficit. The foreign-trade gap in October goods and services contracted 7.6% from the prior month to a seasonally adjusted $47.20 billion, the Commerce Department said. The U.S. on Sept. 1 imposed new tariffs on about $111 billion in Chinese products, including for the first time some consumer goods. U.S. firms ramped up imports ahead of the tariffs, followed by a big drop-off in October. In total, the U.S. now has tariffs on about $360 billion of Chinese imports and is scheduled to add 15% tariffs on another $165 billion or so of goods on Dec. 15, unless the two sides strike a deal, or the threatened tariffs are postponed due to “substantive progress.”
— Agriculture opens FY 2020 with solid rise in exports. U.S. agricultural exports improved to $12.08 billion in October, up from $10.30 billion in September, and the highest since they were $12.08 billion in November 2018, according to USDA’s Latest U.S. Agricultural Trade Data update. However, they were below the October 2018 mark of $12.16 billion.
Imports, meanwhile, were at $10.92 billion, up from $10.08 billion in September, marking an eight-straight month at $10 billion or more. They were just slightly ahead of the year-ago mark.
The result is a trade surplus of $1.17 billion, down from the year-ago mark of $1.26 billion, but up from just $219.8 million in September.
Perspective: October and November tend to be the strongest two months for U.S. agricultural exports each fiscal year, while imports have tended to peak in the March-May period. Imports have been at $10 billion or more in all but two months since October 2017. During FY 2019, which ended with a trade surplus of $4.60 billion, the smallest since FY 2006, only October and November saw the trade surplus above $1 billion and there were three monthly deficits registered, including a record monthly deficit of $865 million in April. USDA forecasts FY 2020 ag exports will rise to $139 billion versus the FY 2019 result of $135.5 billion, while imports are seen at a record $132 billion, taking out the prior record registered in FY 2019 of $130.9 billion. That is forecast to leave a trade surplus of $7 billion. But with imports maintaining a solid pace, the USDA forecast is far from certain at this point.
— Pelosi upbeat on USMCA. House Speaker Nancy Pelosi (D-Calif.) said the U.S.-Mexico-Canada Agreement (USMCA) will be passed by Congress when “we have the language with enforcement in it.” Pelosi told CNN at a town hall last night she’s optimistic it will be done before Congress departs for the holiday recess later this month. Last week Pelosi said USMCA may not get done until 2020.
— EPA administrator told to set ethanol mandate at 15 billion gallons. EPA is seeking to issue a final rule setting 2020 ethanol and 2021 biodiesel blending quotas by Dec. 20, the agency’s chief told industry representatives in phone calls yesterday. EPA Administrator Andrew Wheeler gave the update to renewable fuel producers amid industry concerns the EPA’s existing proposal does not do enough to offset waivers exempting refineries from the mandates. The adjustments would be based on recent Energy Department recommendations for refinery waivers, not the higher amount the EPA has actually granted in recent years.
Final rule sent to White House. EPA was expected to send its draft of the final rule to the White House Office of Management and Budget for an interagency review late yesterday, Wheeler said.
What Wheeler did not say is that he reportedly was told by President Trump in a conference call Nov. 19 with him and Sen. Chuck Grassley (R-Iowa) is that the corn-based ethanol mandate must be set at 15 billion gallons, taking into consideration waivers.
— FERC approves two more tariff amendments in another bid to boost Midwest propane supplies. Two oil pipeline tariff amendments aimed at boosting propane supplies to the Midwest were approved by the Federal Energy Regulatory Commission (FERC).
ONEOK North System and Enterprise EU Products Pipeline Company said they received requests from shippers for the changes after the start of the alternative dispute resolution (ADR) process initiated by FERC in November, the regulator said.
The action was to “alleviate propane pipeline constraints in Midwest states,” FERC said.
Relative to ONEOK, FERC cleared a revised pipeline transportation capacity allocation policy allowing shippers to transfer allocated capacity to other shippers through the end of this month, and to receive credit to their allocation history for barrels moved by replacement shippers.
In the Enterprise TE case, the company is extending emergency transportation service of propane to the Midwest region. The Enterprise TE action will continue until canceled or modified by Enterprise TE, FERC said.
“FERC continues to monitor the Midwest propane situation, and the ADR process is continuing,” the regulator noted.
— EU trade chief to meet with USTR Lighthizer next month. The European Union’s chief trade negotiator Phil Hogan will confer with U.S. Trade Representative Bob Lighthizer next month to discuss a Trump threat to hit France with tariffs on $2.4 billion of its exports. “We are looking at all possibilities, but we prefer to have a negotiated settlement,” Hogan said in an interview in Kildare, Ireland, referring to what actions the EU may take if the U.S. follows through with the levies. “I will be visiting the U.S. in January to meet with my counterpart Ambassador Lighthizer in order to explore possible avenues where we could reach agreement rather than engage in confrontation.”
— EPA sends final rule on WOTUS to White House. The final rule revising the definition of waters of the United States (WOTUS) has been sent forward to the White House for review. EPA published the proposed rule Feb. 14, 2019, and said the final rule was developed “after reviewing public comments on the proposal.” This marks the second step of the two-step process to repeal and revise the WOTUS rule issued by the Obama administration in 2015. The first step “repealed the 2015 definition of Waters of the United States and recodified the preexisting regulations as interpreted by the Supreme Court and implemented through agency guidance,” according to the White House Office of Information and Regulatory Affairs. “An alternative to the second step rule is to retain the recodified prior regime finalized in the first step of the rulemaking.” The agency is targeting January 2020 to release the final WOTUS rule.
— Other items of note:
- Link to USDA calendar of 2020 reports.
- Impeachment update. House Speaker Nancy Pelosi (D-Calif.) said she has instructed top Democrats to proceed with drawing up articles of impeachment against President Trump. Judiciary Committee Democrats will be working through the weekend and by next Thursday could begin to draft the articles of impeachment. The entire House could vote the following week, just before Congress is set to break for the holidays. That will all shape the debate in a Senate trial that likely will be held next year.
- Joe Biden calls Iowa man a "damn liar" over Ukraine remark. The former vice president got into a heated exchange with an Iowa man who asked him about his son’s dealings in Ukraine and suggested the 77-year-old Democrat was too old to lead the nation. Link to NYT item.
- Support for Democratic presidential candidate Elizabeth Warren dropped nationally to its lowest level in four months, and nearly one in three potential Democratic primary voters say they do not know which candidate to pick with the first nominating contests less than two months away, according to a Reuters/Ipsos public opinion poll. Link for details.
- On fiscal year 2020 government funding, Pelosi said she doesn’t think the U.S. is headed for a shutdown. Lawmakers face a Dec. 20 deadline to continue funding the government and are currently negotiating a path forward for the 122 annual appropriations bills. If they cannot reach an agreement on those bills, or a package containing the measures, the government could shut down or another short-term, stopgap continuing resolution could be necessary. “We are on a good path, if not, we will go to a continuing resolution until after Christmas,” she said. “I hope we don’t have to do that.”
- Cotton AWP back under 56 cents. The Adjusted World Price (AWP) for cotton fell to 55.97 cents per pound, effective today (Dec. 6), down from 56.20 cents per pound the prior week. This marks the seventh straight week the AWP has been between 55 cents per pound and 57.33 cents per pound.
— Markets. The Dow on Thursday gained 28.01 points, 0.10%, at 27,677.79. The Nasdaq was up 4.03 points, 0.05%, at 8,570.70. The S&P 500 added 4.67 points, 0.15%, at 3,117.43.
Jobs update ahead. The key November Employment report is due this morning and is expected to show a rise in nonfarm payrolls of around 180,000 compared with 128,000 in October. The unemployment rate is seen holding at 3.6% for the month, which would run the string of unemployment being below 4% at 21 months. A key factor feeding the expected increase are the resolution of the GM strike, probably the biggest factor expected to bring a rise in monthly hires since October auto manufacturing fell by 40,000. The job numbers could be further inflated by an additional 12,000 workers at auto suppliers and related businesses, who were out of work because of the GM strike and have now been rehired, said Diane Swonk, chief economist at the accounting firm Grant Thornton. Because of these factors, she and other analysts say, it will be more important than usual to look at the categories where the job gains are the strongest and weakest. The wage rise is another key point, with expectations it will stay mired at 3%. Given the tight labor market, the rather tepid rise in wages remains somewhat of a puzzle in that employers would have typically been expected to hike wages to attract workers in such a tight labor market. But they have been using non-wage actions to attract and retain workers, so far preventing the need for hiking wages. The labor force participation rate among those in their prime working years (those between the ages of 25 and 54) reached a 10-year high in October. The overall labor force participation rate hit its highest mark since 2013. But even with such a rise, a large pool of people ready to work may be one factor holding down wage gains.
Saudi Aramco aims to raise $25.6 billion in world’s biggest IPO, which would surpass the record $25 billion that Alibaba raised in 2014. Saudi Aramco priced its initial public offering at the high end of the targeted range to give the oil giant a total value of $1.7 trillion. While it ranks as the world's biggest-ever IPO, the share sale falls well short of the initial $2 trillion valuation targeted by Saudi Crown Prince Mohammed bin Salman.
Renewed growth fears for Germany. Germany's industrial output unexpectedly dropped in October, tumbling 5.3% from the same month in 2018. "Now the trepidation starts again about GDP growth in the final quarter," said Jens-Oliver Niklasch, economist at Landesbank Baden-Wuerttemberg. Germany narrowly avoided recession in Q3, as higher household and government spending, as well as a rebound in exports, helped offset a decline in industrial production.
Crime pays and impacts “gross” domestic product. When the U.S. calculates its gross domestic product, it only includes things that are legal. But if the wares of drug dealers, pimps, bookies and other black-market denizens were included, GDP would expand measurably, the Wall Street Journal reports (link). In the U.S., a research economist with the Bureau of Economic Analysis has estimated that in 2017, illegal activities would have added more than 1% to GDP. As a percentage, the amount would represent a larger portion of U.S. GDP than agriculture, forestry, fishing and hunting.