Senate Reaches $2 Trillion Rescue Package Agreement at 'Wartime Level of Investment'

Posted on 03/25/2020 7:17 AM

China buying more U.S. corn | Increased CCC borrowing authority included in Senate package


In Today’s Updates



* Some analysts already saying $2 trillion-plus rescue package 'not enough'
* Senate package includes boost in CCC borrowing authority
* Some details of Senate rescue package; text to come later today
* Senate to vote today on rescue package; House process murky; Trump on board
* U.S. equity futures lower after initially rising; Asia stocks rose
* U.S. dollar and oil signal a drop in volatility that has roiled markets in recent weeks
* Coronavirus upending Russia's plan to boost oil production in price war with Saudis
* G20 leaders to meet via teleconference
* FDA allows animals to see veterinarians via telemedicine
* Some countries are hoarding food
* Trump hopes to relax some coronavirus restrictions, but medical experts will dictate
* Dr. Fauci: Any target deadline for reopening U.S. would have to be flexible
* Officials: anyone leaving New York area should self-isolate for 14 days
* Coronavirus isn't mutating quickly — vaccine could provide long-term protection
* Health experts: coronavirus drugs or a vaccine are many months away
* EPA is planning to waive compliance requirements and deadlines
* Italy's death toll rose again
* Source: China is buying more U.S. corn
* India sees panic buying after worries about country’s food supply chain
* Prince Charles, heir to the British throne, tested positive for coronavirus
* Tokyo 2020 Olympics are postponed until 2021
* House panel tables remote-voting effort
* No action by Trump administration in RFS waivers case: Reuters
* Coronavirus pandemic pushing retail supply chains in very different directions
* Sanders will participate in next Democratic presidential debate if scheduled
* More changes for trucking industry
* FSIS issues guidelines on labeling flexibility
* Federal asked BlackRock to steer tens of billions of dollars in bond purchases

 


MARKET FOCUS



Markets: U.S. equity futures are lower after initially rising 3%. Stock markets in the Asia-Pacific region rallied and the dollar weakened following news of the financial rescue deal from Washington. It came a day after the Dow soared just over 11% on hopes that such an agreement was near. Major exchanges in Europe soared at the opening bell, but markets across Europe and the U.K. lost steam as euro-region leaders inched toward a stimulus accord. Japan’s Nikkei 225 jumped by more than 8%, even as the organizers of the Tokyo 2020 Olympic Games said they would postpone the event by a year. Chinese stocks rallied, with Shanghai’s SE Composite finishing the day 2.1% higher and Shenzhen stocks rising by more than 3%. Hong Kong’s Hang Seng climbed 3.8% and South Korea’s Kospi gained 5.9%. Australia’s ASX 200 rose by 5.5%.

Next market catalyst? After a series of actions on the monetary and fiscal front, traders need to "see the infections pass an inflection point," said Vincent Reinhart, chief economist at BNY Asset Management.

U.S. dollar and oil signal a drop in the volatility that has roiled markets in recent weeks. Nymex crude oil prices are slightly down and trading around $23.65 a barrel. The U.S. dollar index is sharply lower again after hitting a 17-year high on Monday. The 10-year U.S. Treasury note yield is trading around 0.85% Wednesday.

     Dollar

The coronavirus crisis is upending Russia's plan to ramp up oil production in its price war with Saudi Arabia — and prompting a backlash among the leaders of some of Russia’s largest energy companies. Link to WSJ article.

We’re going to see some absolutely horrific [gross domestic product] numbers coming through for the second quarter based on what these surveys are telling us for March,” said Chris Williamson, IHS Markit’s chief business economist.

    GDP

Source: China is buying more U.S. corn. China may have booked another 250,000 MT of U.S. Gulf corn yesterday afternoon, a source informs. This would take total recent purchases to1.0 MMT. Apparently, this is reduced tariff/TRQ business and would fill initial 1.O MMT duty-free obligation. Some say the tipoff to this was ADM St Louis reportedly paying +35/CK for A/M corn, and CIF was also up yesterday. Question now is when additional duty-free corn tariffs will be issued by China. Some predict total package will be 2-2.5 MMT for old crop and like amount for new crop.

Return to work statistics. In a poll of 119 U.S. companies conducted in mid-March by the American Chamber of Commerce in China, only 22% of the companies surveyed said they've resumed normal business operations, while a quarter expect to be there by the end of April. 50% are experiencing "significant revenue declines," and more than half say they expect 2020 revenues to fall this year if they can't return to usual levels by the end of April. While the sample size is small, the resumption rate is well below official claims that over 90% of manufacturing companies and more than 60% for services firms are back at work.

     Pay checks

Target’s sales of food and household goods are surging but the retailer said it might report lower-than-expected profits, as demand falls for high-margin goods and it becomes costlier to staff and clean stores.

G20 leaders to meet via teleconference. Leaders of the Group of 20 (G20) countries will meet via teleconference Thursday (March 26), a virtual summit “to advance a coordinated global response to the Covid-19 pandemic and its human and economic implications,” host country Saudi Arabia announced. Leaders from Spain, Jordan, Singapore and Switzerland will also join the teleconference along with several international and regional organizations.

FDA allows animals to see veterinarians via telemedicine. FDA relaxed compliance rules to allow veterinarians to examine animals virtually to encourage social distancing, according to statement. FDA will temporarily suspend enforcement of requirements that veterinarians physically examine animals in-person.

Some countries are hoarding food. Kazakhstan banned exports of wheat flour along with carrots, sugar and potatoes. Serbia has stopped the flow of its sunflower oil, and there are signs other countries may follow suit. "Without the food supply, societies just totally break," said Chatham House's Tim Benton.

     Food hoarding
 


POLICY FOCUS



Massive rescue package agreed to in Senate. White House and Senate negotiators announced an agreement early this morning on a massive $2 trillion (and perhaps more) financial rescue package designed to curb the economic damage of the COVID-19 pandemic. "At last, we have a deal," Senate Majority Leader Mitch McConnell (R-Ky.) said on the floor a little after 1:30 a.m. ET "We're going to pass this legislation later today." “This is a wartime level of investment into our nation,” said McConnell (R.-Ky.) after the two sides had reached a deal. “The men and women of the greatest country on Earth are going to defeat this coronavirus and reclaim our future. And the Senate is going to make sure they have the ammunition they need to do it,” he said.

     McConnell said the chamber would convene at noon and take up the underlying vehicle (HR 748) shortly thereafter.

     House Speaker Nancy Pelosi (D-Calif.) said Tuesday she hoped to quickly approve the eventual Senate agreement, though objections from lawmakers could slow the process in that chamber. With the House out of session, action there could take longer, depending on whether lawmakers can agree to pass the bill by “unanimous consent,” which would require agreement from all members of the chamber. If unanimous consent is not possible, the most likely scenario would be a day-long vote where members would be encouraged to spread out their trips to the floor and not congregate as the vote is taken.

     President Trump on board. Treasury Secretary Steven Mnuchin said that he had spoken to President Trump about the agreement and that Trump would “absolutely” sign it as it is written today. “He’s very pleased with this legislation, and the impact that this is going to have,” Mnuchin said. White House National Economic Council Director Larry Kudlow called it the “single largest Main Street assistance program in the history of the United States.”

     Senate Minority Leader Chuck Schumer (D-N.Y.) said the bill had been “improved substantially” since Democrats joined the negotiations. “To all Americans I say: Help is on the way, big help and quick help,” Schumer said. "After five days of arduous negotiations . . . we have a bipartisan agreement on the largest rescue package in American history," added Schumer, who said the package would contain over $130 billion for hospitals, doctors, nurses and community health centers; $150 billion for state and local governments; dramatically expanded unemployment compensation; and strict oversight of hundreds of billions of dollars for business loans.

     While some of the legislative language is yet to be drafted, text of a bill is coming that would provide cash payments to families, loans to businesses big and small, an expanded social safety net for the jobless and a major cash infusion for the nation’s hospitals. White House legislative liaison Eric Ueland said negotiators have “either, clear, explicit legislative text reflecting all parties, or we know exactly where we’re going to land on legislative text as we continue to finish.”

     Schumer sent a letter (link) to Democratic senators after he spoke, touting additional wins in the package, such as $30 billion for education funding and $25 billion for public transit agencies; $17 billion more for small businesses, including grants to cover immediate payroll costs; banning stock buybacks for companies receiving loans for the duration of the loan plus another year; a worker retention payroll tax credit and more. The measure also prohibits aid from going to businesses controlled by President Donald Trump, Vice President Mike Pence, or any Cabinet officials or members of Congress or their children, spouses and in-laws.

     SPR language not included. The Trump administration and Republican senators have sought $3 billion for the Energy Department to fill up the Strategic Petroleum Reserve (SPR) amid a price war between Saudi Arabia and Russia that has tangled oil markets and cut prices to historic lows. But that money did not make it into the final bill, according to the letter released from Schumer.

     CCC borrowing authority language included. Sen. John Hoeven (R-N.D.) said in a news release that the legislation would increase the amount USDA's Commodity Credit Corporation (CCC) can borrow, increasing it to $50 billion from the current cap of $30 billion.

     The White House made some concessions to Democrats’ demands, agreeing to allow enhanced scrutiny over the massive loan program that is a centerpiece of the Senate’s economic package. This pertains to the $500 billion loan and loan guarantee program that the Treasury Department would be tasked with administering for companies, states and cities. Of that amount, $425 billion is supposed to go to businesses, cities and states. An additional $50 billion would go to passenger airlines, as well as $8 billion for cargo airlines, and $17 billion for firms that are deemed important to national security. White House officials agreed to allow an independent inspector general and an oversight board to scrutinize the lending decisions, senators said.

     The legislation would also significantly boost unemployment insurance, expanding eligibility and offering workers an additional $600 a week for four months, on top of what state unemployment programs pay.

     Congress has already passed two much smaller coronavirus relief bills: an $8.3 billion emergency supplemental for the health-care system, and a $100-billion-plus bill to boost paid sick leave and unemployment insurance and provide free coronavirus testing.

President Trump said he hoped to relax some coronavirus restrictions soon and “would love to have the country opened up, and just raring to go, by Easter.” Easter Sunday takes place on April 12.

     House Speaker Nancy Pelosi (D-Calif.) warned not to attempt to reopen businesses and end social distancing before scientists recommend it. “This is a time for scientific, evidence-based decision making,” she said in an MSNBC interview, adding that the cost to the economy of more deaths would be greater than financial consequences of social isolation.

     Dr. Anthony Fauci, director of the National Institute for Allergy and Infectious Diseases, said any target deadline for reopening the U.S. would have to be flexible. "You can look at a date, but you’ve got to be very flexible," he said.

     National Economic Council Director Larry Kudlow assured that Trump will listen to medical experts’ advice on the timing of reopening markets. “We’re not abandoning the health professionals’ advice, but there is a clamor to try to re-open the economy, perhaps make it less of a shut-in,” he said.

     Trump talked to several billionaire hedge fund and private equity managers Tuesday morning about reopening the U.S. economy. He discussed the path forward by phone with money managers such as Citadel’s Kenneth Griffin, Tudor Investment’s Paul Tudor Jones, and Blackstone’s Stephen Schwarzman.

Coronavirus update:

  • Summary: World-wide, 428,405 confirmed cases and 19,120 deaths, according to Johns Hopkins University. In the U.S., 55,225 cases and 802 deaths, according to Johns Hopkins (the U.S. Navy said three sailors aboard an aircraft carrier operating in the Pacific tested positive for the virus and the U.S. Bureau of Prisons imposed a 14-day quarantine for all new inmates entering any of its facilities). Italy remains the country with the most cases (69,176) and deaths (6,820) outside of China which has had 81,637 cases and 3,285 deaths.

    Wuhan
     
  • Margaret Harris, a spokesperson for the World Health Organization said that the United States has the potential to be the next epicenter of the coronavirus, citing the dramatic increase in cases. The number of cases in the United States has surged from 7,800 cases a week ago to 53,268 cases today.
     
  • New York Governor Andrew Cuomo, whose state is the worst hit, cited new estimates that put the peak infection rate at least two weeks away as “troubling and astronomical numbers.” He reported that the rate of new coronavirus cases is doubling every three days. Cuomo asked the federal government for support in procuring medical equipment, especially ventilators.
     
  • Italy's death toll rose again by 743 over the past 24 hours, breaking a series of declines in its daily death count. Italy — with over 6,800 fatalities, more than double the number in China — has suffered the most deaths of any country.”
     
  • EPA is planning to waive compliance requirements and deadlines for a range of industries as it seeks to help businesses affected by the pandemic.
     
  • House panel tables remote-voting effort. A House Rules Committee report on voting options in the wake of the Covid-19 situation saw panel Chairman Jim McGovern (D-Mass.) not recommending using remote voting on the stimulus effort. He said in a report and letter to lawmakers that there were several options in the matter. “Clearly, the quickest and likely best path forward is for Congress to pass that measure by unanimous consent or by voice vote. Short of that, there are a few difficult options that we can consider utilizing,” McGovern said. Reports indicate that in a call with Democratic members Tuesday, there were security concerns relative to remote voting as countries like China, Russia or others could try to lock members out and interfere with such a system.
     
  • Why ventilators are needed: The complex devices pump air and oxygen into the lungs and remove carbon dioxide, assisting patients whose bodies can’t perform the job. The most critically ill develop severe pneumonia, which can make the devices crucial.
     
  • Coronavirus isn't mutating quickly, which suggests a vaccine could provide long-term protection, the Washington Post reported. The genetic code of the new coronavirus SARS-CoV-2 hasn't changed much as it has circulated around the world, the paper said, citing scientists who are closely studying the pathogen. That relative stability suggests the virus is less likely to become more or less dangerous as it spreads. And it suggests a vaccine could confer long-lasting protection, more like a measles or chicken pox vaccine than a flu vaccine, which has to be changed every year as flu viruses mutate.

    Health experts say coronavirus drugs or a vaccine are many months away. Link to WSJ article.

     
  • Anyone who has left New York City in the last few days should self-quarantine for 14 days to limit the spread of Covid-19, said Dr. Deborah Birx, the White House coronavirus response coordinator.
     
  • Some Indians began panic buying after worries about the country’s food supply chain emerged when the prime minister announced the 21-day lockdown. Indian health officials have reported about 450 confirmed cases of COVID-19, with 10 deaths, but Prime Minister Narendra Modi noted that India's high population density could enable the virus to "spread like wildfire." Ashish Jha, the director of the Harvard Global Health Institute, said that cases in India could be 10 or 20 times higher than reported. Modi acknowledged that the lockdown would create “a very difficult time for poor people,” in a country where hundreds of millions are destitute.
     
  • Japan, IOC to postpone 2020 Olympics. The Tokyo Games were delayed by about a year because of the coronavirus.
     
  • Prince Charles, heir to the British throne, has tested positive for the coronavirus, Clarence House, his official royal residence, said in a statement Wednesday. The statement said that the 71-year-old royal has "been displaying mild symptoms but otherwise remains in good health."

No action by the administration in the RFS waivers case: Reuters. EPA does not appear to have filed any motion or challenge relative the 10th Circuit Court ruling that invalidated three small refinery exemptions (SREs) issued for the 2016 compliance year under the Renewable Fuel Standard (RFS). Reuters reported that their review of a case docket through the public electronic access service for court records indicated no filing had been entered as of early today (March 25).

     Indications are a group of small refiners have appealed the 10th Circuit court ruling, but it appears the administration will not be joining, clouding the outlook for their appeal.

     Background. March 24 had been the deadline for the administration to file a challenge. Reports leading up to the deadline had indicated the administration had once again shifted and would not appeal the ruling and apply it nationwide. Talk has indicated that the administration was working on other ways to address costs to refiners for complying with the RFS.

     So far there has been no comment from the administration on the situation.

     Indications are that very few refiners would qualify for exemptions if the court decision is applied nationwide, with some suggesting only two or three would qualify. The 10th Circuit ruling said the law indicates that exemptions can only be extensions of ones granted in 2010.

Coronavirus pandemic is pushing retail supply chains in very different directions. Companies that haven’t embraced e-commerce or sell nonessential items such as fashion are crumbling as sales plummet, the Wall Street Journal reports (link), while soaring online sales at general-merchandise stores have sellers like Amazon.com Inc. and Walmart Inc. struggling to keep up with demand. One survey found one-third of households said they used online grocery pickup or delivery during the week ending March 13, and 40% of those tried it for the first time, eating up delivery slots for groceries. Even retailers that have fledgling e-commerce businesses like Rite Aid Corp. are seeing huge growth. Meanwhile, footwear and apparel isn’t selling and some nonfood retailers are discounting to clear out excess goods. Not all clothing is stacking up, however, the article notes. With more people working from home, the numbers of sold-out sweatpants and bathrobes have jumped from a year ago.

     Onling grocers

Other items of note:

  • Bernie Sanders will participate in the next Democratic presidential debate if one is scheduled, in the latest sign that the Vermont senator doesn’t plan to drop out of the race.
     
  • More changes for the trucking industry. The Federal Motor Carrier Safety Administration announced that those truckers whose commercial drivers’ licenses or medical cards recently expired or will expire soon will be able to use those through June, a nod to closures of DMV offices and medical clinics.
     
  • FSIS issues guidelines on labeling flexibility. The shifts in food products being diverted from food service destinations to retail outlets has prompted USDA’s Food Safety and Inspection Service (FSIS) to issue guidance that exempts some food labeling requirements on those products for up to 60 days from March 23. The products for the hotel, restaurant or similar institutions (HRIs) are not packaged for resale and lack nutrition labeling information. The action by FSIS allows these products to move to retail outlets. For bulk products distributed to retailers where the retailer then repackages it into smaller packages, FSIS said the labeling requirements apply except for the USDA mark of inspection. The agency stressed that the flexibility applies only to product that has already been produced and anything currently being produced are still expected to meet all labeling requirements. Link to specific guidance from FSIS.

Markets. The Dow on Tuesday closed with a gain of 11.4%, rising 2,112 points from a three-year low set on Monday. The index shattered its record for most points gained in a day, set at 1,985 on March 13, and boasted its best gain by percentage since 1932.The S&P 500 index also rose 9.4% and the Nasdaq composite rose 8.1%.

     Big rally

     Federal Reserve asked BlackRock to steer tens of billions of dollars in bond purchases. BlackRock will purchase agency commercial mortgage-backed securities secured by multifamily-home mortgages on behalf of the New York Federal Reserve. The Fed will determine which securities guaranteed by Fannie Mae, FNMA 18.75% Freddie Mac FMCC 15.00% and Ginnie Mae are suitable for purchase. BlackRock will execute the trades. BlackRock also will manage two large bond-buying programs. It will be in charge of a Fed-backed facility to buy new investment-grade bonds from U.S. companies.

     What's ahead? Analysts say evidence of the virus curve flattening in the U.S. holds the key for markets finding solid support in the coming weeks.


 

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