Trump signs stopgap spending bill; USDA sets farm program payment dates
In Today’s Updates
* Brussels launches legal action against UK over Brexit deal breach, pound pounded
* Perspective on USDA's June corn stocks revisions.
* U.S. dollar posted its biggest quarter plunge in more than three years
* Pound tumbles after report Brexit talks were failing and EU planned legal action
* Oil futures remain lower ahead of the U.S. trading start
* U.S. auto sales expected to rebound strongly in the third quarter
* Shipment of meat from Northern Ireland is on its way to the U.S.
* Copper prices have risen about 8% for the year
* Last-ditch House effort with Treasury Sec. Mnuchin re: new aid package
* Trump signs CR, with CCC funding
* CR signing to set farm program payments in motion
* CCC interest rates mostly unchanged for October.
* House Republicans release recommendations to crack down on China
* Vatican denies request Pompeo for audience with Pope Francis
* China goes on holiday
Update on re-opening America... and around the world:
* American Airlines will start laying off 19,000 workers today
* United Airlines will borrow as much as $5.17 billion from U.S. taxpayers
* Spain’s national government imposes quarantine restrictions on greater Madrid
Politics & Elections:
* Brazil's president blasts Biden's Amazon remarks during Tuesday debate
* GOP leaders distancing themselves from President Trump re: debate remarks
Other Items of Note:
* Bayer AG unveils billions in new costs cuts to offset falling demand in ag products
* USDA requiring food boxes include letter signed by President Trump taking credit
Equities today: U.S. futures climbed on signs of potential progress in Washington toward a fresh fiscal stimulus package (see related item for details). European stocks pared gains, dragged down by losses in Bayer AG (see details below) and Rolls-Royce Holdings Plc. In Japan, the Tokyo Stock Exchange halted trading after its worst breakdown, exacerbating an already slow day for stock markets in Asia where China, Hong Kong, Taiwan and South Korea are closed for holidays.
U.S. equities yesterday: The Dow gained 329.04 points, 1.20%, at 27,781.70. The Nasdaq moved up 82.26 points, 0.74%, at 11,167.51. The S&P 500 rose 27.53 points, 0.83%, at 3,363.00.
For the third quarter, the S&P 500 and Dow Jones Industrial Average gained 8.5% and 7.6%, respectively. The Nasdaq surged 11% in the third quarter and rose 45% over the past six months, its biggest two-quarter gain since 2000.
Despite the market’s gains since March, most stocks other than tech equities are essentially back to where they started the year. The S&P 500 is up 4.1% for 2020, while the Dow is down 2.7%. However, the Nasdaq is up 24%.
On tap today:
• U.S. jobless claims, due at 8:30 a.m. ET, are expected to fall to 850,000 during the week ended Sept. 26 from 870,000 a week earlier.
• U.S. consumer spending for August, due at 8:30 a.m. ET, is expected to rise 0.9% from the prior month.
• USDA Weekly Export Sales, 8:30 a.m. ET.
• IHS Markit's U.S. manufacturing index for September, due at 9:45 a.m. ET, is expected to hold steady at 53.5, unchanged from a preliminary reading.
• Institute for Supply Management's manufacturing index for September, due at 10 a.m. ET, is expected to tick up to 56.3 from 56 a month earlier.
• U.S. construction spending for August, due at 10 a.m. ET, is expected to rise 0.6% from a month earlier.
• Federal Reserve: New York Fed President John Williams moderates a conversation with Merck’s CEO at 11 a.m. ET; Williams gives prerecorded welcome remarks at a fintech webinar at 11 a.m. ET, and Fed governor Michelle Bowman speaks on community banks and mortgage access at 3 p.m. ET.
• U.S. dollar posted its biggest quarter plunge in more than three years.
• The pound tumbled after a report that Brexit talks were failing to close differences on a trade deal and the European Union planned legal action against the U.K. The European Union is starting legal proceedings against the U.K. over Boris Johnson’s plan to breach terms of its Brexit divorce deal and break international law. “The commission has decided to send a letter of formal notice to the U.K. government,” European Commission president Ursula von der Leyen announced in Brussels today. “This draft bill is by its very nature a breach of the obligation of good faith laid down in the Withdrawal Agreement.” The pound dropped by 0.7% against the dollar on the news. The letter is the first step in a legal process against the U.K.’s Internal Market Bill that could result in a lawsuit at the European Court of Justice.
• Outside markets: The Bloomberg Dollar Spot Index dipped 0.1%.The yield on 10-year Treasuries jumped one basis point to 0.69%. The yield on two-year Treasuries was unchanged at 0.13%. Gold strengthened 0.5% to $1,895.39 an ounce.
• Oil futures remain lower ahead of the U.S. trading start as concerns over demand persist along with a rise in OPEC output last month. U.S. crude is trading around $39.90 per barrel and Brent around $42 per barrel. Crude oil futures were under mild pressure in Asian action, with U.S. crude down 24 cents at $39.98 per barrel and Brent crude down eight cents at $40.95 per barrel.
• How unique was USDA's massive revision of the June corn stocks? Since June 2004, the chart below shows the details from Pro Farmer Chief Economist Bill Nelson. “What is added crazy,” Nelson says, “was that in June, the average analyst forecast was 4.951 billion bu. on Reuters, which was against USDA of 5.224 billion, but now estimated at 5.019 billion. Analysts were far closer in June as it turns out.”
• U.S. auto sales expected to rebound strongly in the third quarter thanks to cheap borrowing costs and a shift toward private transportation amid the pandemic. The seasonally adjusted annualized selling rate likely reached 15.7 million new vehicles in September, down 1.6 million from a year ago, according to researcher J.D. Power. Retail sales, which exclude deliveries to fleet buyers such as rental-car companies, probably grew year over year in September, the first time that’s happened since February thanks to a couple of extra selling days on the calendar.
• A shipment of meat from Northern Ireland is on its way to the U.S., decades after a mad cow disease scare prompted the U.S. to block all imports of British beef. The development, the first shipment since 1996, comes amid negotiations toward a bilateral trade deal. An audit by USDA’s Food Safety and Inspection Service in March led to the U.S. lifting the ban on beef imports from all of the U.K. — England, Wales, Scotland and Northern Ireland. The Trump administration wants Britain to remove a ban on imports of American beef produced with artificial growth hormones — a restriction left over from the U.K.’s prior membership in the EU.
• Copper prices have risen about 8% for the year and recovered roughly 40% in the past six months following an early year selloff. Prices tumbled after the Chinese economy shut early during the coronavirus crisis but have benefited with economic activity in the world’s biggest commodity consumer rising lately.
— Mnuchin offers $1.62 trillion package to House Dems for new aid package, including $20 bil. for ag funding. Treasury Secretary Steven Mnuchin offered a $1.62 trillion Covid-19 relief proposal in talks with House Speaker Nancy Pelosi (D-Calif.), offering more state and local assistance than GOP negotiators have previously supported, according to Congressional Quarterly (CQ). After a 90-minute meeting in the Capitol, Pelosi issued a statement saying the two would continue to talk. "We found areas where we are seeking further clarification," she said. Talks resume today. "We made a lot of progress over the last few days. We still don't have an agreement," Mnuchin said after meeting with Pelosi and briefing top Senate Republican Mitch McConnell (R-Ky.).
Mnuchin’s plan reportedly includes $250 billion for state and local governments, $186 billion less than Democrats pushed in their latest $2.2 trillion package, but $100 billion more than the White House offered in talks that collapsed over the summer.
On unemployment insurance, Mnuchin proposed a $400 per week federal benefit, retroactive to Sept. 12 and lasting through Jan. 1, 2021. That's less than the $600 a week Democrats want, but $100 more than Senate Republicans have proposed.
Democratic leaders announced on Wednesday they would delay voting on their $2.2 trillion bill until at least today, to see how talks today unfold. "The speaker thinks there's a possibility of getting a deal," House Majority Leader Steny Hoyer (D-Md.) told CQ Roll Call. “If we have a deal, yes, we may well do that,” Hoyer said when asked if the House would be willing to wait several days to vote if there’s a bipartisan agreement that needs fine tuning into legislative text. “But if we don't have a deal, then we're going to move the bill."
Does McConnell support the latest offer? CQ reports that after Mnuchin briefed McConnell, he signaled he could begrudgingly get enough votes to pass the plan if Democrats sign off on it. However, a McConnell spokesman denied the report.
Mnuchin described the latest White House offer as in the "neighborhood" of $1.5 trillion; if a rescission of unused Paycheck Protection Program funds were included, that would bring the net cost of Mnuchin's plan down to that level.
If the parties can resolve the state and local aid and unemployment insurance divisions, the gaps in other areas will likely be easier to bridge, sources concur. For example, Mnuchin increased the GOP offer on education funding to $150 billion. Democrats are at $225 billion. Both parties started with around $100 billion for education earlier in the negotiations, but there’s general agreement needs have increased as schools across the country at are different phases of reopening for in-person learning.
Pelosi has stressed the need for more money to expand Covid-19 testing and tracing, saying Republicans’ prior offer of $16 billion was a significant underestimate of the demand. Mnuchin’s offer reportedly matches Democrats’ $75 billion demand.
Mnuchin’s total offer on health care is $175 billion, besides the boost in testing money; it includes $50 billion for vaccine production and distribution and $50 billion for health care providers, including hospitals. The Democrats’ bill would provide the Department of Health and Human Services with a total of $249 billion for those and other needs.
Mnuchin's proposal appears to match Democrats’ latest offer on food assistance with $15 billion for the Supplemental Nutrition Assistance Program (SNAP/food stamps) and nutrition aid for low-income women, infants and children.
Direct aid for the U.S. Postal Service is still under discussion; the Democrats dropped their $25 billion demand to $15 billion in their latest bill, and Mnuchin is offering $10 billion.
Both parties are still interested in sending another round of direct payments to low-income Americans, with general agreement on $1,200 for adults and $500 for dependents. They also both agree generally on the terms of expanding the employee retention tax credit, which was part of the March coronavirus relief law.
Mnuchin offered $160 billion in new funding to revive the PPP for a second round of forgivable loans to hard-hit businesses, as well as $10 billion in funds targeted for minority lending.
Mnuchin's offer also includes aid for businesses left out of the prior relief package, including restaurants, lodging and entertainment venues. The aid to those businesses, and more money for airlines, totals nearly $120 billion. Democrats proposed $120 billion just for restaurants, as well as $10 billion for live entertainment and $28 billion for the airline industry.
White House Chief of Staff Mark Meadows told reporters traveling on Air Force One late Wednesday night that the offer includes $20 billion specifically for airlines, which he said would be enough to help them pay workers for another six months. Meadows characterized the overall offer as “extremely generous” and said he hopes an agreement can be reached quickly, according to a pool report.
Other highlights of Mnuchin’s offer include:
• $60 billion for rental and mortgage assistance;
• $28 billion in student loan relief;
• $25 billion for childcare providers;
• $20 billion for farmers and ranchers (revised House Dem plan deleted its prior $16 bil. for farm payments);
• $15 billion for broadband connections in underserved communities
• $13 billion to expand paid leave for workers with children and adult dependents;
• $5 billion for child welfare services;
• $3 billion for the Department of Veterans Affairs.
— Trump signs stopgap funding bill, including CCC funding. President Donald Trump early this morning signed a short-term bill extending current appropriations through Dec. 11, when a lame-duck session of Congress will decide the next step for funding into fiscal year 2021, which begins today. The Senate cleared the continuing resolution (CR) measure Wednesday on an 84-10 vote; the House cleared the measure last week on a 359-57 vote.
Passage of the measure was ensured after congressional leaders struck a bipartisan agreement last week that resolved a partisan dispute over farm payments. Some key Democrats initially balked over a proposal to replenish the Commodity Credit Corporation (CCC) with more than $20 billion to make more payments to farmers suffering from the Covid-19 pandemic and the trade war with China. House Speaker Nancy Pelosi (D-Calif.), Sen. Debbie Stabenow (D-Mich.) and other Democrats said USDA had used the CCC account as a “slush fund” for favored political interests. However, Democrats agreed to the funding after winning a few concessions, including a new prohibition against giving any of the CCC money to oil companies after earlier and apparently errant reports surfaced that the Trump administration had been planning to divert CCC funds to refiners — USDA Secretary Sonny Perdue last week said he had no such authority. But this gave Democrats cover to claim credit and to spin the story their way.
Democrats also touted $8 billion in additional nutrition aid for low-income children and families, considerably more than what was likely when Democrats decided to move forward with an earlier bill (HR 8319) that left out the CCC money. The measure extends a pandemic-related program providing subsidized meals to children who usually receive them when schools are open, while expanding the program to include younger children in childcare centers.
Background. The farm payments don't actually add any new costs to the federal budget, because the money was going to be restored later this year anyway when the CCC's annual financial statement is completed. The CR language simply moves up the timetable so the agency can stay under its $30 billion borrowing cap and still make farm price support payments at their regular issuance dates — see next item or details.
The stopgap measure also includes numerous reauthorizations for programs that would otherwise lapse at the end of September, such as the National Flood Insurance Program.
The stopgap would provide a new cash infusion for transportation programs, while giving new life to an expiring highway authorization law. The measure includes $13.6 billion for highways and mass transit, and another $14 billion for aviation programs.
— CR signing to set farm program payments in motion. Approval of the continuing resolution (CR) to keep the government funded through Dec. 11 and provide for $20 billion in Commodity Credit Corporation (CCC) borrowing authority means that the Farm Service Agency (FSA) will start the process of making a series of “regular” farm program-related payments to farmers.
Timelines: FSA will start processing payments for Transition Incentives Program (TIP), Emergency Forestry CRP (EFCRP) and for some Conservation Reserve Program (CRP) contracts Oct. 2, for Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) payments on Oct. 6, other CRP payments Oct. 9 and for ARC Individual Option Contracts on Oct. 26.
— CCC interest rates mostly unchanged for October. Interest rates on commodity loans disbursed during October will carry an interest rate of 1.125%, unchanged from September. Interest rates on Farm Storage Facility Loans (FSFLs) approved pending funding in October are unchanged from the September levels (0.125% for three-year loan terms; 0.250% for five-year loan terms; 0.5% for seven-year loan terms; 0.625% for 10-year loan terms; and 0.750% for 12-year loan terms) while the Sugar Storage Facility Loans approved pending funding with 15-year loan terms in October will have a 1.0% interest rate, up from 0.875% in September.
— Update on China:
- House Republicans released recommendations to crack down on China following a months-long probe into the Chinese Communist Party over the origins of the coronavirus outbreak and flaws in medical supply chains. The GOP report (link) lays out 83 key findings and makes 430 policy recommendations, two-thirds of which are bipartisan, according to Minority Leader Kevin McCarthy (R-Calif.). The report calls out the Chinese Communist Party's "rampant environmental destruction, including its status as the world's largest carbon emitter."
- Critical minerals focus of President Trump. The president signed an executive order declaring a national emergency to expand domestic mining and reduce dependence on China for critical minerals, Bloomberg reports (link).
- The Vatican denied a request from Secretary of State Mike Pompeo for an audience with Pope Francis and accused him of trying to drag the Catholic church into his country’s presidential election by criticizing its relations with China. Pompeo, visiting the Vatican, had called on the Holy See to get tougher over China’s stifling of religious freedoms.
- China goes on holiday. Today China celebrates 71 years of Communist rule — and the Mid-Autumn Festival, during which emperors once worshipped the moon. For China’s people this double observance means an extended, eight-day “Golden Week” holiday: the first time since the Covid-19 pandemic that many feel they can truly relax. China has recorded no new locally transmitted cases in weeks. Flights and trains on popular domestic routes have sold out, a measure of pent-up demand and scant opportunity for overseas travel (7 million went abroad last year). Over 15 million people will fly around China this holiday — 10% more than last year, reports Qunar, an online travel agency. All told, some 600 million holiday participants will be on the move. Their numbers are down by almost a quarter compared with last year’s break. But to prevent viral flare-ups, tourist attractions have reduced capacity.
- U.S./China Phase 1 tracker: China’s purchases of U.S. goods. Link.
— Update on reopening America... and around the world:
- American Airlines will start laying off 19,000 workers today as originally scheduled, spurning an appeal from Treasury Secretary Steven Mnuchin as he negotiates with Congress about extending payroll support for U.S. carriers. The airline will reverse the furloughs if the government agrees to provide additional aid in the next few days, CEO Doug Parker told employees yesterday.
- United Airlines will borrow as much as $5.17 billion from U.S. taxpayers as part of a federal loan program. The airline borrowed $520 million on Monday from the program, for which Congress allocated $25 billion for loans to airlines. Treasury officials plan to add funds in October, which would increase United’s five-year term loan facility to $7.5 billion, the company said yesterday in a securities filing. As part of the loan agreement United gave the government warrants to acquire 1.65 million shares of its stock at $31.50 per share.
— Coronavirus update:
- Summary: Global cases of Covid-19 are now at 33,982,900 with 1,014,557 deaths, according to data compiled by the Center for Systems Science and Engineering (CSSE) at Johns Hopkins University (JHU). The U.S. case count is at 7,233,946 with 206,959 deaths.
Link to Covid Case Tracker
Link to Our World in Data
- Spain’s national government imposes quarantine restrictions on greater Madrid, the country’s coronavirus hotspot, accounting for a third of the country’s recent Covid-19 cases. Inessential trips into and out of the region are to be banned, and social gatherings limited to six people. But Madrid’s conservative government says that the Socialist national government has no legal basis for the restrictions.
POLITICS & ELECTIONS
— 2020 Presidential Election Interactive Map
— The Green Papers
— Real Clear Politics
— 2020 Political Atlas
— 2020 Demographic Swingometer
— Next presidential debates: Oct. 15 and Oct. 22.
— VP debate: Scheduled for Oct. 7.
— Days until election
- Brazil's president blasts Biden's Amazon remarks during Tuesday debate. Brazilian President Jair Bolsonaro, like the two U.S. presidential candidates, did not hold back in commenting on former Vice President Joe Biden for suggesting that Brazil be paid $20 billion to stop destroying the Amazon rain forest. “My government is taking unprecedented actions to protect the Amazon,” said Bolsonaro. “What some have not yet understood is that Brazil has changed,” Bolsonaro said in tweets. “Today, its President, unlike the left, no longer accepts bribes, criminal demarcations or unfounded threats. OUR SOVEREIGNTY IS NON-NEGOTIABLE.” Biden on Tuesday suggested Brazil be punished economically if it doesn’t stop the deforestation.
- Republican leaders distanced themselves from President Donald Trump, who hesitated to condemn white supremacists and far-right groups after a raucous debate against his challenger, Joe Biden. Sens. Mitch McConnell (R-Ky.) and Lindsey Graham (R-S.C.) said he should have done so. On social media, the Proud Boys, a bunch of far-rightists, exulted in Trump’s instructions to “stand by.” The commission that organisms this series of debates said it will change the format to ensure that future exchanges are “more orderly.”
OTHER ITEMS OF NOTE
- Bayer AG unveils billions in new costs cuts to offset falling demand in agricultural products after continuing to face negative impacts following its acquisition of Monsanto. The German chemicals and pharmaceuticals company said the coronavirus pandemic would hit its crop-science business harder than anticipated as prices for various crops fell, consumption of biofuel decreased and competition in the soybean seed market intensified. Bayer spent $63 billion on Monsanto in 2018, said that it didn’t expect market conditions to improve considerably in the near term and that this would likely reduce the value of its crop-science business through impairment charges in the “mid-to-high single-digit billion-euro” range. Bayer now expects sales to be flat next year instead of growing at roughly 4%, and sales this year to grow between 0% and 1% to between €43 billion and €44 billion, equivalent to between $50.41 billion and $51.58 billion, excluding currency effects. The acquisition of Monsanto exposed the German company to tens of thousands of plaintiffs suing the maker of Roundup weedkillers, alleging the herbicide causes cancer. Bayer says Roundup is safe and doesn’t cause non-Hodgkin lymphoma. The company’s board has stood behind Chief Executive Werner Baumann, the main architect of the Monsanto deal. Earlier this month, the board extended his contract until 2024. Bayer said the need for additional savings might lead to more job cuts. They come on top of existing plans to cut $2.6 billion in annual costs from 2022, which include a 10% cut to its workforce.
- USDA is requiring that millions of food boxes for hungry families include a letter signed by President Donald Trump taking credit for the coronavirus relief program, Politico reports. Food bank workers are calling it an “egregious” effort to boost Trump’s image with barely a month until the Nov. 3 election. USDA says politics “played zero role” in the food box program, and points to a statement from Dr. Anthony Fauci, the top U.S. infectious disease expert, praising the department’s “innovative use” of the food boxes to share public health guidance.