RCEP Signed: Largest Trade Deal Ever, But India, U.S. Not Among Participants

Posted on 11/16/2020 7:21 AM

Moderna: Early data suggest its Covid-19 vaccine is 94.5% effective


In Today’s Updates


Market Focus:
* Moderna reports on Covid-19 vaccine keep bullish tone for equities
* More upbeat China economic data
* Japan’s economy surges — for now
* Asian economies emerging as clear winners in race to full recovery

* Gov't debts piling up as coronavirus pandemic heads toward second year
* LME copper rallied to highest since June 2018
* Investors who bet U.S. consumers would keep paying debts reaping windfall
* Grain prices continue rally
* Shortages of boxes to ship goods
* Big NOPA crush expected

* Soybean planting ahead of avg in Brazil, but dryness a concern

* Russian wheat prices climb as shippers prepare for proposed quota system

* French sugar beet crop damaged by drought and disease


Policy Focus:
* Democrats repeat call for $2.4 trillion aid package
* RCEP trade pact signed Sunday; India and U.S. not members


U.S./China update:
* Axios: Trump plans a last-minute China crackdown
* Demand for wheat at Chinese auctions eases
* Big YOY gains in China’s hog herd
* China finds Covid-19 on packaging of frozen meat, seafood from numerous countries

U.S. food & beverage industry update:
* Bloomberg: Number of online grocery store shoppers using SNAP rises sharply
* Tyson Foods using infection-tracking algorithms to protect workers
* Strong beef, pork demand drive Tyson Foods sales higher

Coronavirus update:
* Moderna: early data suggest its Covid-19 vaccine is 94.5% effective
* Restrictions and mask mandates for all 50 states
* Covid-19 deaths among nursing-home residents are surging again
* National lockdown unlikely under Biden
* Latest wave of coronavirus infections is hitting rural areas especially hard


Politics & Elections:
* States likely to lose, gain House seats in 2021

Other Items of Note:
* Federal judge invalidates Trump administration's DACA rollback
* NYT: Jay Clayton will step down as SEC chairman by the end of the year
Indonesia now seen delaying B40 biodiesel plan




Equities today: Global stocks rise on further Covid-19 vaccine positivity and strong China factory data. Pfizer and BioNTech last week announced strong results for their Covid-19 vaccine. Moderna reported a similar performance for its coronavirus vaccine, which also uses mRNA technology. Dow futures are ahead by 1%, while contracts tied to the S&P 500 and Nasdaq are up 0.9% and 0.6%, respectively, building on a recent rotation into value stocks.


     U.S. equities Friday: The Dow gained 399.64 points, 1.37%, at 29,479.81. The Nasdaq moved up 119.70 points, 1.02%, at 11,829.29. The S&P 500 rose 48.14 points, 1.36%, at 3,585.15.


     For the week, the Dow jumped 4.1% and the S&P added 2.1% for the full week, while the Nasdaq lost 0.6%.


     Impressive month for equity bulls so far. So far this month, there have been 10 trading days. In that two-week span, the S&P has gained 9.6% while the Russell has gained 13.4%. Not since October 1982 has the S&P risen more in the first 10 trading days. Back then, a nearly three-year recession was coming to an end and the Federal Reserve had slashed short-term interest rates by almost 10 percentage points.


On tap today:


     • European Central Bank President Christine Lagarde speaks at the World Economic Forum's inaugural Pioneers of Change Summit at 8 a.m. ET.
     • New York Fed's Empire State survey for November is expected to rise to 12.1 from 10.5 a month earlier. (8:30 a.m. ET)
     • USDA Grain Export Inspections, 8:30 a.m. ET.
     • Federal Reserve Vice Chairman Richard Clarida speaks about the economy and monetary policy at 2 p.m. ET.
     • USDA Crop Progress report, 4 p.m. ET.


More upbeat China economic data as its industrial output in October rose 6.9%, year-on-year. Fixed-asset investment rose 1.8% in the January-October period, and retail sales were up 4.3% in October. China’s unemployment rate in October came in at 5.3%. China's factory production grew by more than expected. Factory activity in October shows the world's second-biggest economy is gradually recovering from the Covid-19 pandemic.


Japan’s economy surges — for now. The country’s GDP jumped by 5% in the third quarter, after three quarters of contraction, expanding at its fastest pace in at least 40 years in the July-September period as private consumption and exports improved along with the reopening of the global economy. In the third quarter, the nation’s gross domestic product totaled an annualized 508 trillion yen, equivalent to $4.85 trillion, recovering a little more than half of what it lost in the coronavirus pandemic. Economists say any further recovery is likely to be slow — the services sector remains weak owing to fears of infection, and the virus is spreading again in some countriesJapan has had relative success containing the coronavirus, with 1,800 deaths since the pandemic began, but its trading partners’ struggles could still hamper recovery.


     Japan economy


Asian economies are emerging as clear winners in the race to a full recovery, aided by demand from Western shoppers and success in containing Covid-19, which has helped the region keep its factories humming.


     Economy leaders


Government debts are piling ever higher as the coronavirus pandemic heads toward its second year, with many businesses and households in parts of the world still reliant on the public purse to stay afloat. But one lesson that many governments in rich countries have learned from the last financial crisis is that they risk doing more harm than good by trying to roll back that surge in borrowing before their economies have healed, however long that takes. That view makes it unlikely governments will soon resort to the kind of spending cuts seen in the years following the 2008 financial crisis, and more likely they will rely instead on economic growth and low interest rates to shrink their debts over a longer stretch of time, the Wall Street Journal reports (link).


     Gross debt


Market perspectives:


     • Outside markets: The U.S. dollar index is a bit weaker early today. The other important outside market sees crude oil prices higher and trading around $41.00 a barrel. The yield on the benchmark 10-year U.S. Treasury note futures is currently trading at 0.88%.


     • Crude oil prices have built on earlier gains as economic data and hopes for COVID treatment advances are providing support. U.S. crude is trading around $41.60 per barrel and Brent around $44.25 per barrel. Futures rose in Asian action, with U.S. crude up 52 cents at $40.65 per barrel and Brent up 42 cents at $43.20 per barrel.

     • LME copper rallied to the highest since June 2018 with the 3M contract price being traded above US$7,170 this morning, after positive macro data from China, notes ING Economics.


    • In the bond market, investors who bet U.S. consumers would keep paying debts this year are reaping a windfall. Bonds backed by consumer loans returned about 10% through October, according to data from Citigroup, making them one of the top-performing investments of 2020. Consumers bucked expectations and responded to the pandemic by paying down debt at a rapid clip.


     • Dry weather, China’s push to fatten its pigs and the lockdown-induced baking bonanza are lifting prices for U.S. row crops. The gains are a sharp reversal of fortune for farmers.


        Rising grain prices


     • Shortages of boxes to ship goods. The flood of container imports hitting U.S. seaports isn’t helping American exporters. Agricultural suppliers and other producers are facing a steep shortage of boxes needed to ship their goods, the Wall Street Journal reports (link), as the tough economics of imbalanced trade add new strains to key trans-Pacific shipping corridors. Freight rates on China-to-U.S. business have soared to record highs and container lines are rushing to get boxes landing in the U.S. turned around and back to Asia to meet the strong, high-paying demand. That leaves fewer containers heading inland for lower-value commodities that command far cheaper rates. One agriculture official says the container gap effectively locks exporters out of foreign markets. The imbalance was evident last month at the Port of Long Beach, where exports sank 12.9% while the port handled some 80,000 more empty outbound boxes than it did in October 2019, a 31.8% increase.

        Empty boxes


Items in Pro Farmer's First Thing Today include (Link to subscribe to FTT):

     • Big NOPA crush expected
     • Soybean planting ahead of avg in Brazil, but dryness a concern
     • Russian wheat prices climb as shippers prepare for proposed quota system
     • French sugar beet crop damaged by drought and disease




Democrats repeat call for $2.4 trillion aid package. House Speaker Nancy Pelosi (D-Calif.) and Senate Minority Leader Chuck Schumer (D-N.Y.) reiterated that their $2.4 trillion proposal needs to be the starting point for relief talks. Senate Majority Leader Mitch McConnell (R-Ky.) has pushed for about $500 billion, a top-line number well below the Trump administration’s roughly $1.9 trillion negotiating position before Election Day.


     Comments: On Friday there were some reports (The Hill, others) that the Democrats had returned to the $3.4 trillion package that passed the House in May. But further statements by Democratic officials made clear their price tag “starts” at $2.4 trillion. If the surge in Covid cases and in virus-related deaths do not pressure the two sides to come to an agreement, the topic will be punted to the new Congress next year. Some observers think the Democrats not budging from the $2.4 trillion mark and the reluctance of Republicans to embrace a higher price tag will be a Democratic campaign issue in Georgia's two runoff elections on Jan. 5.


Regional Comprehensive Economic Partnership (RCEP) trade pact signed on Sunday. It includes China, Japan, South Korea, Australia, New Zealand and 10 Southeast Asian nations, from Indonesia and Vietnam to Thailand and Singapore. The pact still needs to be ratified by national governments before going into effect. It will take some time to ratify RCEP and even longer for some of the tariff provisions to come into effect. The world’s largest economy, the U.S., isn’t a part of the deal. President-elect Joe Biden warned last year that if America doesn’t write the rules of the road, China will, and said he would try to renegotiate the Trans-Pacific Partnership (TPP). India, which was a part of the proposed grouping, withdrew last year, concerned that the deal would lead to a flood of imports, and complained the deal would have done little to advance trade in services, an area where India has an advantage.


     The accord is a statement for trade liberalization, said an Australian senior economist. "It has particular significance at this time when world trade has been under threat because of increased protectionism ... This is a big statement for trade liberalization and for protecting the open global trading system," said Peter Drysdale, head of the East Asian Bureau of Economic Research at the Australian National University.


     Background. Initiated by the Association of Southeast Asian Nations (ASEAN) in 2012, RCEP takes most of the existing agreements signed by the 10 members of the Association of Southeast Asian Nations — Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam — and combines them into a single multilateral pact with Australia, China, Japan, New Zealand and South Korea. The 15 participating countries account for nearly 30% of both world population and global trade. Economists said the deal, the first trade agreement bringing together China, Japan and South Korea, could add almost $200 billion annually to the global economy by 2030. While the countries already have close ties with each other, the accord will result in a more unified trading system. That should make it easier for the region’s manufacturers to import raw materials from around the bloc without facing high tariffs, and export finished products throughout the region with lower tariffs, trade experts familiar with the deal say. Japan and South Korea are expected to be among the biggest winners from the deal. RCEP eliminates 90% of tariffs compared with almost 100% in TPP. Agriculture is largely absent and the coverage of services is mixed. RCEP does relatively little to set common standards for products. Also, the 15 countries were unable to agree any rules on cross-border data flows or a customs moratorium on data transmission.


     China’s premier Li Keqiang described the agreement as “a victory of multilateralism and free trade,” according to a report from the official Xinhua news agency. However, China commits to fewer tariff reductions than the existing Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).


     Drysdale said the signing of the RCEP was a significant development, not only because it is the world's biggest free trade agreement by population and GDP, but also because "it's a free trade agreement among a group of countries that constitutes the most dynamic part of the global economy."


     "The RCEP group can promote the openings for reform of the global system that rebuild confidence in the global system," he said, adding the RCEP was also a huge economic cooperation agreement. "It provides a framework of building economic and political cooperation among the participating economies."


     Besides, Drysdale sees the RCEP as a "regional arrangement with global objective,” noting "Asia has to play a major part in bringing the dispute settlement mechanism back into the WTO (World Trade Organization) process actively," he said, adding that groups like the RCEP members would be important in future negotiations with other countries and blocs, including the future administration of the United States. Therefore, the agreement would not be static. "It's a dynamic agreement that involves leaders on a continuing basis," said the professor. "It's very important that the connection be made routinely between the economic ministers and trade ministers responsible for the implementation of RCEP," he said.


     Bottom line: "The diplomatic messaging of RCEP may be just as important as the economics — a coup for China," wrote analysts from Citi Research, though others are more skeptical, saying the deal was much weaker than TPP. Tariffs among many RCEP member countries are already low given existing bilateral or smaller multilateral trade agreements. Example: More than 70% of trade among the 10 ASEAN countries are conducted with zero tariffs, while additional tariff reductions under RCEP "will only come into force gradually, and it will be years before the treaty is fully operational," said Gareth Leather, senior Asia economist at consultancy Capital Economics.


    RCEP impact
     Source: Financial Times

     China trade

     RCEP compare
     RCEP non members


Update on China:

  • Axios reports that President Donald Trump plans a last-minute China crackdown. Link for details.
  • Demand for wheat at Chinese auctions eases. China sold 860,535 MT of wheat at an auction of state reserves last week, representing 21.6% of the total offered. That was the lightest volume sold since Sept. 28. The wheat moved at an average price of 2,336 yuan per metric ton, also down from recent weeks.
  • Big YOY gains in China’s hog herd. China’s pig herd climbed 26.9% from year-ago levels during October, with the sow herd climbing 31.5%, the country’s ag ministry reported. The country has worked to aggressively expand its hog herd after African swine fever wiped out around half of it. This has helped pork prices to moderate to some degree.
  • China finds Covid-19 on packaging of frozen meat and seafood from numerous countries. The city of Shanghai in China announced that all imports of “high-risk” cold-storage food will have to be tested for Covid-19 and have packaging disinfected before it is stored and sold in the city. China increased testing of frozen foods for Covid-19 last week, resulting in more import bans, despite continued assertions from the World Heath Organization that the risk of catching the virus from frozen food is low. Meanwhile, the southern city of Xiamen today detected the virus on a shipment of pork from France during a random inspection; the pork had arrived at a cold storage warehouse on Oct. 14. Also, Jining city in China’s Shandong province found Covid-19 on a packaging sample of imported frozen seafood, beef and tripe, triggering bans from associated companies in Brazil, Bolivia and New Zealand. Two other provincial capitals detected Covid-19 on the packaging of pork from Argentina.
  • U.S./China Phase 1 tracker: China’s purchases of U.S. goods. Link.

Food and beverage industry update:

  • Number of online grocery store shoppers using Supplemental Nutrition Assistance Program (SNAP) benefits, or food stamps, has risen sharply amid the coronavirus pandemic. According to Bloomberg (link), the number of U.S. households using government benefits each month to buy groceries online has experienced a 50-fold increase this year after USDA expanded options for recipients of food stamps to use their benefits for online shopping. The majority of online grocery shoppers have made their purchases through Amazon and Walmart, which Bloomberg reported are the only retailers in most states allowed to participate in the USDA’s online shopping pilot program.

    In September, more than 1.1 million U.S. households used their government benefits to buy groceries online. The most recent SNAP program data showed that more than 22 million households received food stamps in April.
    SNAP digital
  • Algorithms to maintain meat output. Back in April, widespread coronavirus outbreaks among employees in the U.S. meatpacking industry forced companies and others to shut dozens of plants across the country. More than 16,000 workers were infected and 86 died, according to the CDC, while farmers had to euthanize tens of thousands of animals and some supermarkets had to ration meat purchases. The response: Besides spending heavily on protective gear and redesigning workstations, companies like Tyson are using infection-tracking algorithms and ongoing employee testing. The system compares positive employee tests with where they work in the plants, along with publicly reported infection rates in the counties and towns around its 241 U.S. processing facilities. "We can dial up the algorithm when we sense there’s something going on in the community, and we're much more prepared for a second wave," said CEO Dean Bank Banks.
  • Strong beef, pork demand drive Tyson Foods sales higher. Tyson Foods reported quarterly sales of $11.46 billion in its fourth quarter (ended Oct. 3) compared with $10.88 billion previously. The company cited strong consumer demand for beef and pork products during the pandemic as a reason for the rise in sales which also beat expectations ahead of the release. Plus, demand from restaurants also rose as restaurants and food retailers saw increased sales as Covid-linked lockdowns eased. However, the potential for the retailer/restaurant demand to potentially flag ahead on Covid impacts looms.

Coronavirus update:

  • Summary: Global cases of Covid-19 areat 54,424,726 with deaths climbing to 1,318,033, according to data compiled by the Center for Systems Science and Engineering at Johns Hopkins University. The U.S. case count pushed past 11 million at 11,038,312 while the death total increased to 246,224.

    Link to Covid Case Tracker

    Link to Our World in Data

  • Moderna: early data suggest its Covid-19 vaccine is 94.5% effective. Moderna said preliminary Phase 3 trial data shows its coronavirus vaccine is more than 94% effective in preventing Covid-19, a result CEO Stephane Bancel called a “game-changer.” The analysis evaluated 95 confirmed Covid-19 infections among the trial’s 30,000 participants. Moderna, which developed its vaccine in collaboration with the National Institute of Allergy and Infectious Diseases, said 90 cases of Covid-19 were observed in the placebo group versus 5 cases observed in the group that received its two-dose vaccine. That resulted in an estimated vaccine efficacy of 94.5%, it said. Shares of the company jumped by more than 11% in premarket trading.
  • Restrictions and mask mandates for all 50 states: Link
  • Covid-19 deaths among nursing-home residents are surging again, with the virus spreading to rural facilities that are struggling with staff shortages and other challenges.
  • National lockdown unlikely under Biden. A clearer picture is emerging of how a Biden administration will handle the coronavirus as more advisors from his task force weigh in on the pandemic. Vivek Murthy, a former U.S. surgeon general and one of three leaders of the task force, as well as Atul Gawande, a senior adviser in the Department of Health and Human Services in the Clinton administration and medical writer, say they favor targeted local measures to stem the pandemic rather than a nationwide lockdown. Biden's coronavirus team will also meet with leading drugmakers developing coronavirus vaccines this week to discuss the "mechanics of manufacture and distribution."
  • Latest wave of coronavirus infections is hitting rural areas especially hard. While big cities have more total cases, rural areas are seeing more cases per capita — and they're at greater risk of running out of hospital capacity as cases pile up. Axios notes that rural communities in the U.S. have more vulnerable health care systems and more vulnerable populations. Many are on the verge of becoming overwhelmed by coronavirus patients as caseloads continue to grow. Consider:

    — Coronavirus patients occupy the highest portions of hospital beds in Midwestern and Mountain West states. And hospitalizations tend to trail cases by a few weeks, meaning the burden on hospitals is only likely to get worse.
    — As the outbreak also continues to grow in big cities, rural systems may end up with nowhere to send patients after they run out of room to treat them.
    — Health care workers are less likely to be able to temporarily relocate to hotspots, as they'll be needed in their own communities.

    Covid rural


  • States likely to lose, gain House seats in 2021. Population results of the decennial Census determines how many congressional seats each state will have. States lose and gain seats after every Census and there will be litigation on the Census before we see redistricting court battles like we saw in 2019. After the 2010 Census and reapportionment process, 32 states kept the same number of U.S. House seats, while 8 states gained seats, 10 states lost seats.

    Ten states, including several in the Northeast and Midwest, are set to lose congressional districts, although seven in the West and South could gain seats, according to an analysis of new Census Bureau data.

    Among the seven states set to gain seats, Texas and Florida are likely to be the biggest beneficiaries, gaining at least three and two congressional districts respectively. That would give Texas the second-largest number of congressional districts and electoral votes in the country, behind California. Arizona, Colorado, Montana, North Carolina and Oregon are each set to gain one congressional district, according to Election Data Services.


States Expected to Lose and Gain Congressional Seats

Losing Seats (1 each)

Gaining Seats

    • Alabama
    • Texas (3)
    • California
    • Florida (2)
    • Illinois
    • Arizona (1)
    • Michigan
    • Colorado (1)
    • Minnesota
    • Montana (1)
    • New York
    • North Carolina (1)
    • Ohio
    • Oregon (1)
    • Pennsylvania

Source: Election Data Services

    • Rhode Island
    • West Virginia




  • Federal judge invalidates Trump administration's DACA rollback. A federal judge in New York invalidated Trump administration rules narrowing the program that protects immigrants living in the U.S. since childhood without legal permission, ruling the restrictions were improperly issued. The ruling Saturday restores the program, called Deferred Action for Childhood Arrivals, or DACA, to near-full operation, after multiple attempts by the Trump administration to end or curtail it. That means, for the first time since September 2017, new applicants who weren’t previously eligible, typically because they were too young, may now apply. The DACA program was created by the Obama administration in 2012 to protect the young immigrants, known as Dreamers, who have been living in the country without legal permission since childhood, and has been the subject of legal battles for the past three years. In June, the Supreme Court ruled the Trump administration’s first attempt to end the program didn’t follow the proper procedure required for federal policymaking. The ruling will once more permit existing DACA recipients to travel legally outside the country.
  • Jay Clayton will step down as SEC chairman by the end of the year, the New York Times reports, (His term would have expired in June.) NPR reported that the SEC brought just 32 insider-trading enforcement actions last year, the fewest since 1996. Like other financial regulators, the commission is likely to get tougher under President-elect Joe Biden: Names being floated to replace Clayton reportedly include Gary Gensler, an Obama-era financial regulator, and Preet Bharara, who led the Southern District under Obama.
  • Indonesia now seen delaying B40 biodiesel plan. Indonesia will not likely move ahead with increasing the bio content of its biodiesel based on palm oil to 40% in 2021 as funding for the program is an issue, Dadan Kusdiana, director general of Indonesia’s energy ministry, told the country’s parliament. “B40 is not ready,” he told lawmakers of the effort to move to 40% bio-content, but the country will keep its mandate for B30 next year—the requirement that diesel fuel be blended with 30% fatty acid methyl ester (FAME) from palm oil. The country has already allocated 9.2 million kiloliters of FAME to be used in 2021. "Supporting B30 is now very challenging from the funding side, so we see that B40 will be more difficult," he added. The B40 effort was expected to be 30% FAME and 10% “green diesel” made out of palm oil. Government trials on the new blend are still ongoing, Dadan observed. Deforestation concerns continue on palm oil and that has clouded the outlook for palm-based biodiesel.


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