OPEC+ Countries Agree to Extend Output Cuts Through July

Posted on 06/08/2020 7:02 AM

GOP renews 'go slow' approach on virus aid after jobs report



In Today’s Updates


* OPEC+ countries agree to extend output cuts through July, focus on laggards
* U.S. shale firms boosting production
* Some U.S. workers’ employment status was improperly classified
* PPP partially behind better than expected May Employment report
* GOP renews 'go slow' approach on virus aid after jobs report
* U.S. consumer credit dropped sharply in April
* Airline travel picking up
* Shipping industry warns of trade logjam as crews remain stranded

* Japan not condemning Hong Kong move
* China warns citizens not to travel to Australia
* Tensions between India and China over a border dispute appear to be easing
* Weekly update on CFAP payouts is expected to arrive today
* U.S. food supply update
* PPP and the food and beverage industry
* Food-processing companies have spent millions of dollars on testing and safety
* Coronavirus outbreaks climb at U.S. meatpacking plants despite protections
* German meat industry under intense scrutiny following slaughterhouse closures
* Update on reopening America... and around the world
* New York City begins a phased reopening of its economy today
* Some U.S. states reportingrise in new Covid-19 cases as they lift restrictions
* Coronavirus update
* Covid-19 stalks large families in rural America
* Brazil nixes some coronavirus figures
* New study finds novel coronavirus has become less lethal

* AstraZeneca made preliminary approach to Gilead Sciences
* Americans by 2-to-1 margin more troubled by police actions than violence at protests
* Iran accused of denying access to two nuclear sites
* Trump threatens new EU, China tariffs
* Illinois Dems approve 6% larger budget than LY, $261 mil. pay raise for state workers

* Top White House official leaving for State Department
* Colin Powell again to vote for a Democrat for president
* Trump orders 9,500 of 34,500 Americans stationed in Germany to leave by September
* Russia declares state of emergency over Arctic Circle oil spill




Equities today: Global stocks were mixed (Europe lower, Asia higher) with higher markets noting the U.S. employment rebound. U.S. futures suggest equities are looking to slightly extend a record rally at the open.


     U.S. equities Friday: The Dow rose 829.16 points, 3.15%, at 27,110.98 and is now down only 5% for the year. The Nasdaq gained 198.27 points, 2.06%, at 9,814.08, and has reclaimed its all-time high and has now gained 9.3% year-to-date after tumbling as much as 25% earlier. The S&P 500 was up 81.58 points, 2.62%, at 3,193.93 and is now down just 1% for the year. Since it bottomed on March 23, the S&P 500 has shot up 40% — the highest return over so short a period since 1933, and the Nasdaq is just shy of its all-time high.


Labor Department reported the addition of a record 2.5 million jobs during the month, shocking the many economists who had been predicting a Depression-style decline of at least 8 million, but almost all failed to accurately assess states lifting lockdown measures and almost $3 trillion of fiscal stimulus that began to take effect. More than half of last month’s rise, some 1.3 million jobs, was among restaurant workers.


     America’s unemployment rate fell unexpectedly in May to 13.3%, 1.4 percentage points lower than the previous month at 14.7% and in contrast to forecasts of a rise to 19.1%.


     Some workers’ employment status was improperly classified. The Bureau of Labor Statistics says that proper classification could have made May’s jobless rate 16.3% — still lower than April’s on the same basis. And the “underemployment” rate (U6) was 21.2%, down from 22.8% in April but still three times the rate in February.


     Economists who significantly missed the latest report now warn that it will take far longer for the economy to climb out of the hole than it did to fall into it. Some note the number of permanent job losses rose, a sign that some businesses didn’t survive the shutdown, or expect demand to stay depressed as the economy reopens. Also, millions more people have been laid off in the weeks since the data released Friday was collected in mid-May. (Charts from the New York Times.)

     Job changes

     Unemployment May

PPP partially behind better than expected May Employment report. The federal Paycheck Protection Program (PPP) seems to have succeeded in its main goal of getting small businesses to retain workers, especially given its roughly $659 billion cost. More than half of the month’s job gains — 1.4 million — were in restaurants and bars, many of which received assistance under the PPP. And, Congress passed a useful PPP fix last week that will let businesses take up to six months to spend the loan money, instead of two, and spend more of the loan on costs other than payroll. About $800 billion in unemployment insurance, small-business loans and stimulus payments had been sent out by the time the May data was fully collected.


U.S. consumer credit dropped sharply in April. U.S. consumers dramatically reduced their use of credit in April, with total credit use falling $68.8 billion or 19.6%. That was a much-steeper decline than the fall of around $14 billion that had been expected. That marked the steepest decline in consumer credit since 1943. The fall in revolving credit (where credit cards are categorized) was a record $58.32 billion which was even deeper than the March decline of $26.2 billion. Nonrevolving credit also fell $10.46 billion after expanding by $14.67 billion in March. The data signals consumers were reducing their debt levels by an even greater amount that they did during the financial crisis and echoes the consumer-spending downturn signaled in other April data and indicates expectations for second quarter GDP will remain very downbeat.


Airline travel picking up. “We believe the worst is behind us, and we’re on the uptick,” American Airlines Group Inc.’s boss, Doug Parker, said after a surge in travel over the U.S. Memorial Day holiday weekend. Investors have taken notice.


Crude oil futures are slight higher in the wake of the OPEC+ countries agreeing to extend their output cuts through July in weekend meetings (see next item for details).


OPEC+ agreed to a one-month extension of its record output cuts and adopted more stringent methods to ensure members don’t break their production pledges. The finalized pact calls for collective cuts of 9.6 million daily barrels until the end of next month, with Nigeria and Iraq making up for their backlog of reductions with deeper cuts over the next three months. Mexico won't pursue curbs beyond June, as it aims to implement longstanding plans to revive its oil industry. The cuts will be reviewed on a monthly basis, with the next meeting set for June 18. OPEC+ compliance with the May deal was 89%, meaning the group fell some 1.1 million barrels short of the target set in the April agreement, according to commodities data firm Kpler.


     Saudi Arabia and other Gulf states will add back some production, however, having pledged an extra 1.2m b/d of cuts for the month of June to help speed up the rebalancing. Those cuts, which were in addition to the core Opec+ deal, will be unwound from July rather than being extended.


     Laggards. The meeting’s draft communique states that any member that doesn’t implement 100% of its production cuts in May and June will make extra reductions from July to September to compensate for their failings.

    OPEC laggards

U.S. shale firms boosting production. Large independent producers in Texas’s Permian shale field including EOG, Parsley Energy and WPX Energy indicated they were bringing curtailed volumes back online. Matt Gallagher, Parsley’s chief executive, said his company was adapting to “changing market dynamics” and would restore most of the 26,000 barrels a day it cut in May. But he said new drilling would remain suspended. WPX and EOG have shut in 30,000 and 85,000 b/d of output respectively, but both said they had begun bringing some of this back online.


Market perspectives:


     • Remnants of tropical storm Cristobal will clash with a cold front and potentially deliver more rains into the upper Midwest early this week. The system is causing heavy rain, winds and storm surges after making landfall in southeast Louisiana over the weekend. More than a third of Gulf crude output has been shut.
     • Similar to the U.S., "hidden hiring" in Canada surprised forecasters. Almost 300,000 jobs were added on a net basis, while the market expected a half a million loss. Canada's unemployment rate rose less than expected but still hit the highest level in recent history.
     • On a year-to-date basis, China's trade surplus is roughly at 2015 levels.

     • The rebound in EM currencies continues as risk appetite returns.
     • Iron ore prices are soaring.
     • Copper is still deeply oversold, according to BCA Research.
     • U.S. meat prices are declining from the recent highs, as production picks up.
     • Shipping industry warns of trade logjam as crews remain stranded; global economy at risk with 400,000 sailors stuck aboard vessels or in port (Financial Times).
     • The U.S. rig count is approaching 200 for the first time since 2009.
     • While gasoline demand has been improving, the total product supplied has weakened again.

     Rig count




Update on China:

  • Japan not condemning Hong Kong move. Japan will not join the United States, United Kingdom and Australia in a statement condemning China’s imposition of a new national security law on Hong Kong, according to the Kyodo news agency. Tokyo has issued its own statement about the proposed law on May 28, saying it was “seriously concerned.”
  • China warns citizens not to travel to Australia. The travel warning issued by China’s Ministry of Culture and Tourism represents a further fraying in relations between the two countries.
  • Tensions between India and China over a border dispute appear to be easing after a meeting between military leaders from both countries on Saturday. “Both sides agreed to peacefully resolve the situation in the border areas in accordance with various bilateral agreements and keeping in view the agreements between the leaders that peace and tranquillity in the India-China border regions is essential for the overall development of bilateral relations,” a statement from India’s Foreign Ministry said on Sunday. Chinese and Indian forces clashed in May, prompting fears over a wider conflict between the world’s most populous countries.

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

  • GOP renews 'go slow' approach on virus aid after jobs report. Some top Republicans see more reasons to temper efforts to pass another multi-trillion-dollar pandemic relief package after Friday's surprisingly positive jobs numbers.

    President Trump, who held a news conference Friday to hail the jobs numbers, said he would still push for a different sort of economic “stimulus” package, one which appears likely to be much smaller than what Democrats want. “We’ll be going for a payroll tax cut,” Trump said. “We’ll be asking for additional stimulus money because once we get this going it will be far bigger and far better than we’ve ever seen in this country.” Republicans on Capitol Hill have largely dismissed the payroll tax cut idea, which Trump first floated in March. Trump on Friday made no mention of aid to state and local governments, which have been hit with large budget shortfalls because of an economic shutdown that began in March. Democrats have made state and local aid a focus of any new relief package. Instead, Trump suggested his proposal would be more targeted, including assistance to the restaurant industry that has suffered massive job losses and furloughs. “We’re going to be doing things for restaurants and various pieces of the entertainment industry, which will be an incentive whether it’s deductions or whatever,” he said. “But we’re going to be asking despite the numbers and how good they are.”

    Senate Majority Leader Mitch McConnell (R-Ky.), who blasted the House Democrats' $3 trillion-plus measure last month as a "liberal wish list," said Friday the new economic numbers make the case for more narrowly targeted relief. "We must keep the wind in our sails, not slam the brakes with left-wing policies that would make rehiring even harder and recovery even more challenging," McConnell said in a statement.

    Senate Minority Leader Chuck Schumer (D-N.Y.,) said the positive jobs report was no reason to ease up on relief for an economy that has been battered by the Covid-19 pandemic. “With nearly 20M people out of work and unemployment among African Americans increasing, now's not the time to be complacent or take a victory lap,” Schumer tweeted. “Senate GOP must stop sitting on their hands. We need to act!”

    “The jobs report underscores why Congress should take a thoughtful approach and not rush to pass expensive legislation paid for with more debt before gaining a better understanding of the economic condition of the country,” said Michael Zona, spokesman for Senate Finance Chairman Chuck Grassley (R-Iowa). Grassley's panel has jurisdiction over tax policy, health care, unemployment benefits and other pandemic-related measures.

    The Congressional Budget Office (CBO) said last Thursday that five out of six workers who receive those benefits would be paid more than they would earn on the job if the benefits were extended through January. It said employment levels would be lower, both this year and next year, than they otherwise would be, though economic output would be higher later this year as jobless benefits prop up consumer spending. Grassley, who requested the CBO analysis, said in a statement Thursday that extending the higher jobless benefits would "encourage unemployment, government dependence and reduced productivity."

    Democrats pushed back on that report Friday as they sought to make a case for extended benefits. The Democratic-led House Ways and Means Committee issued a statement saying the CBO analysis “does not include the value of health, retirement, or other workplace benefits, or any opportunities employers provide for long-term advancement.” House Speaker Nancy Pelosi (D-Calif.) continued to push for the mammoth House-passed aid package. “The May jobs report shows that decisive action by Congress to support small businesses and workers can make a strong difference in our economy,” the California Democrat said in a statement. “But with more than 100,000 Americans tragically dead, 21 million still out of work and state and local budgets collapsing, now is the worst possible moment to take our foot off the gas.”

  • Another spending binge might not be needed. States won’t take as large a revenue hit as they fear if the economy and job market recover more rapidly. They can also borrow from the Federal Reserve. Consumers have bulked up their savings and have cash to spend again as they return to work.

    Many people have been able to get by largely because of the $600 a week in extra unemployment pay that Congress approved as part of its emergency funding bill in March. But that benefit is set to run out at the end of July, and it is far from clear that Congress will extend it. Economists warn that pulling away support too early could stall the recovery.

    Outlook: Lawmakers will likely approve a more limited measure that includes new spending and focuses on reopening state economies. And White House officials recently have stated that negotiations on the next package will start after July 4.

Update on implementation of CARES 1, including CFAP:

  • The weekly update on CFAP payouts is expected to arrive today. As of June 3, USDA said that $545 million had been paid out to around 35,000 producers of various crops and livestock eligible for assistance under the program. Focus will also continue on efforts to broaden the scope of crops available for the $16 billion in direct payments to farmers.

U.S. food supply/industry update:

  • PPP and the food and beverage industry. By mid-May, according to the Census Bureau, three-quarters of small businesses in the food and beverage sector reported receiving a loan from the Paycheck Protection Program, up from less than half in late April.
  • Food-processing companies have spent millions of dollars on testing and safety to stay in operation during the pandemic. Now they are looking to the next phase: figuring out how much of that spending is here to stay and how to get higher production in a new reality. Hormel and other food producers have begun offering on-site tests at plants in areas with significant outbreaks. The cost can exceed $100,000 per plant. Link to WSJ article.
  • Coronavirus outbreaks climb at U.S. meatpacking plants despite protections, Trump executive order. The number of coronavirus cases tied to meatpacking plants has more than doubled since President Trump's April 28 executive order followed the industry’s warnings of meat shortages and he invoked the Defense Production Act to compel slaughterhouses and processing plants to remain open. However, since April 28, 20,400 infections across 216 plants in 33 states have occurred, according to tracking from the Midwest Center for Investigative Reporting. At least 74 people have died. Link to USA Today article for more details.
  • Marion Nestle, professor emerita of nutrition, food studies and public health at New York University, said many consumers were aghast to learn how meat-packing plants operated, according to the Financial Times. “People are horrified about the working conditions in the sector,” she said. “A lot more people are going to get sick before this is over just to get meat on the table. [Meat processors] are more interested in getting the meat out but [workers] are helpless,” she added. The North American Meat Institute, which represents processors, said: “The health and safety of the men and women who work in our facilities is our first priority. Our challenge is to keep our employees safe while fulfilling our special responsibility to make food.”
  • In Germany, the number-two pork exporter after the U.S., the meat industry has come under intense scrutiny following a series of slaughterhouse closures because of virus outbreaks. The German government announced proposals to tighten regulation of the industry, banning subcontracting workers in meat plants and setting minimum standards for the accommodation of employees.
  • Denmark, a large pork exporter, has been a notable outlier amid the wave of slaughterhouse outbreaks, with only a handful of workers becoming ill.

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

  • New York City begins a phased reopening of its economy today as it braces for a possible second wave of the coronavirus. Nonessential retail businesses, manufacturing companies and construction sites will resume operations. The pandemic is estimated to have killed more than 24,000 people in New York state, including over 17,000 in the city, and devastated the economy. The city lost some 885,000 private-sector jobs in April, its largest decline in history, according to the state Department of Labor. The Independent Budget Office predicts it will take four years for employment to recover to pre-pandemic levels.
  • British Airways, easyJet and Ryanair, the three biggest airlines operating in Britain, threatened legal action over the government’s new 14-day quarantine for arriving passengers, which comes into force today. The carriers said it was “illogical and irrational” to impose quarantine on people arriving from European Union countries that have lower rates of infection than Britain.
  • Some U.S. states are reporting a rise in new Covid-19 cases as they lift restrictions meant to slow the virus’s spread. California, Utah, Arizona, North Carolina, Florida, Arkansas and Texas, among others, have all logged rises in confirmed cases, according to a Johns Hopkins tabulation of a five-day moving average. Link to WSJ article.

Coronavirus update:

  • Summary: Global Covid-19 cases have topped 7 million, reaching 7,026,732 with deaths at 403,106, according to data from the Center for Systems Science and Engineering (CSSE) at Johns Hopkins University (JHU). U.S. cases are closing in on 2 million, with the total at 1,942,363 and deaths of 110,514.

    Covid tracking

  • Covid-19 stalks large families in rural America, according to a WSJ article (link), which says remote regions with crowded households have turned deadlier than some city blocks.
  • Brazil nixes some coronavirus figures. Over the weekend, Brazilian authorities removed online data about the country’s coronavirus epidemic, including key figures such as total cases and the overall death toll. Brazilian President Jair Bolsonaro, who local media report ordered the data removed, said the change was necessary because the previous reporting did “not reflect the moment the country is in.” Only new daily cases and deaths are now shown on the government’s official website.

    New Zealand announced it had “eliminated” Covid-19, leading Jacinda Ardern, the prime minister, to lift all restrictions, except for border controls.

    South Korea reported more than 50 new infections a day over the weekend, and another 38 on Monday, raising fears of a second wave of the disease.

    China reported its first non-imported case of the virus in two weeks, an infected person on the island of Hainan off the country’s southern coast.

  • The World Health Organization changed its recommendations on face masks. It now says coverings should be worn in public places where social distancing is difficult, to help prevent the spread of covid-19. It had previously advised their use only for people who are ill, or for those caring for someone who might be infected.

    In the latest NBC/WSJ national poll: Those who always wear a mask said they supported presumptive Democratic presidential candidate Joe Biden over Trump in November, 66% to 26%. Those who never or rarely wear masks backed Trump, 83% to 7%.

  • A new study finds that the novel coronavirus has become less lethal over the past few months as treatments have improved enormously as scientists have learned more. Also, using drugs to break up blood clots and calm down the immune system earlier can prevent severe cases from turning deadly. And, more targeted therapeutics can reduce the need for ventilators. Bottom line: Even if there’s a second Covid-19 wave, it is likely to be less deadly than the first.
  • One March study in Wuhan found that blood group A was associated with a higher risk for acquiring Covid-19 compared with non-A blood groups, whereas blood group O was associated with a lower risk for the infection compared with non-O blood groups. A subsequent study in New York City echoed those findings and reported that O blood groups were "significantly less common" among coronavirus patients. The researchers did not find any significant relationship between blood group and intubation or death because of Covid-19.
  • AstraZeneca, co-developer of one of the fastest-moving experimental coronavirus vaccines, has made a preliminary approach to Gilead Sciences, the only company to have received FDA emergency authorization for its Covid-19 treatment remdesivir. Formal talks are not yet underway, but if combined, the two companies would have a market capitalization of $232 billion, based on Friday's closing share prices.



  • Americans by a 2-to-1 margin are more troubled by the actions of police in the killing of George Floyd than by violence at some protests, and an overwhelming majority, 80%, feel that the country is spiraling out of control, according to a new Wall Street Journal/NBC News poll.
  • Iran. The International Atomic Energy Agency, a United Nations watchdog, accused Iran of denying it access to two nuclear sites. The IAEA reportedly believes the country may have processed uranium at the facilities before it signed a deal with several major powers in 2015 to limit its nuclear program. The watchdog also reported another big jump in the country’s stockpile of enriched uranium.
  • Trump threatens new EU, China tariffs. President Trump threatened to impose tariffs on cars made in the European Union and on unspecified Chinese products unless the trading partners reduce their duties on U.S. lobster. The president has frequently threatened tariffs on autos imported from the EU, mainly to get the trading bloc to agree to negotiations and force German automakers to commit to new investments in the U.S.
  • Last week Illinois Democrats approved a $43 billion budget — 6% larger than last year’s — that includes a $261 million pay raise for state workers. The budget authorized $5 billion in borrowing to fill a deficit in hopes House Democrats plan for billions in state funding will be approved.
  • Top White House official leaving for State Department. Eric Ueland finished a stint as White House legislative affairs director Friday and is headed to the State Department, where he will serve as a senior adviser, a White House official said.
  • Colin Powell again to vote for a Democrat for president. Powell on CNN's State of the Union said “I certainly cannot in any way support President Trump this year. … I am very close to Joe Biden in a social matter and in a political matter. I’ve worked with him for 35, 40 years. And he is now the candidate and I will be voting for him.” Powell voted for Barack Obama twice and endorsed Hillary Clinton. Powell was the former secretary of State under former President George W. Bush.
  • President Trump has ordered 9,500 of the 34,500 Americans stationed in Germany to leave by September, the WSJ reported Friday. Troop levels in the country sometimes rise to more than 50,000. They now will be capped arbitrarily at 25,000; some may be moved elsewhere in Europe.
  • Russia declares state of emergency over Arctic Circle oil spill caused by melting permafrost. Melting permafrost caused a fuel tank holding 21,000 tons of diesel oil to collapse in Russia's Arctic Circle, leading to a 135-square mile oil spill. According to Rosprirodnadzor, the Federal Service for Supervision of Natural Resources, 6,000 tons spilled onto the ground, another 15,000 tons into the water. Oil products got into the Ambarnaya and Daldykan rivers and in almost all their tributaries. The leaking diesel oil had extended as far as 7 miles from the accident site and turned long stretches of the Ambarnaya bright red (photo from Plant Labs Inc.). Russia’s Prosecutor-General’s Office has ordered a review of all hazardous materials held on permafrost.

    Oil spill

    Red flows



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