Oil prices surge as Iranian tanker suffers damage off Saudi coast
In today's updates:
* Trump to meet with China's top trade negotiator
Markets: Oil prices rose 2% to $54.61/bbl overnight after Iran said missiles struck one of its tankers in the Red Sea. U.S. equity-index futures rallied with European and Asian stocks amid growing hopes of a U.S./China trade deal. Shares in Hong Kong surged as protesters debate a halt to vandalism. Treasuries, the yen and gold were little changed.
A true “baseball hedge” for the NLCS. The writer of this dispatch was born and raised around St. Louis, Missouri, and was and still is an avid Cardinals fan... but he became an even more volatile fan of the Washington Nationals. Asked which team he wants to win more: the Nats, because “something has to be right in this town. Also, most Cubs fans will likely root for the Nats!”
— U.S./China trade policy update:
- Trump to meet with China's top trade negotiator. U.S./China trade talks continue amid expectations that Beijing’s emissaries are ready to offer or have already offered compromises aimed at getting President Trump to hold off on tariff increases. Trump will meet with Chinese Vice Premier Liu He at the White House at 1:45 p.m. CT. Speaking to reporters Thursday evening, the president said, “We had a very, very good negotiation.” The meetings stretched into the afternoon, and at one point a black SUV was seen delivering large brown bags from Clyde’s, a Washington restaurant, for a working lunch. Liu had a hamburger, and U.S. Trade Representative Bob Lighthizer had stir-fried chicken with aubergine, according to Chinese vice-commerce minister Wang Shouwen. “Neither of them had coffee or tea, but drank boiled water. You have to look for common ground,” Wang said.
- Signal, not noise. “Unlike much of this week’s noise, the announcement of a meeting is significant,” said former White House trade official Clete Williams on Thursday. “I’ve been in that room in the past, and the president’s direct involvement has always helped move things forward.”
- An early interim agreement could include China offering more agriculture purchases, a joint pact to deter Beijing from devaluing its currency, and, on the U.S. side, suspending planned tariffs and relaxing export bans against blacklisted Chinese telecom giant Huawei Technologies Co. Trump last week approved licenses for some American companies to sell nonsensitive goods to Huawei Technologies Co., the New York Times reported, citing people familiar with the move. While Trump committed to the move after meeting President Xi Jinping in June, no licenses have been issued yet. The Chinese side are pushing for an agreement to prevent Trump from raising tariff level to 30% from 25% on $250 billion of annual imports from China on Oct. 15 — and new 15% tariffs on around $160 billion of consumer products from China on Dec. 15.
- U.S.-China Business Council President Craig Allen, who met with Liu in Washington on Wednesday, said China’s top negotiator “seemed to take a very pragmatic view on what could be expected from the U.S. in terms of producing a balanced agreement and noted this would be a process rather than a single deal that would resolve all issues.” China’s state-owned Xinhua news agency reported that the Chinese side “came with great sincerity, and is willing to engage in serious exchanges with the U.S. on trade balance, market access, investor protection and other mutual core issues.”
- White House mulls other options re: China. Larry Kudlow, director of the National Economic Council, acknowledged on Tuesday that the administration was looking for ways to protect Americans who were investing in Chinese companies. “We’ve opened up a study group to take a look at it,” Kudlow said on the Fox Business Network. Several media today reports that a memo drafted by Michael Pillsbury, a China scholar at the Hudson Institute and an outside adviser to the White House, proposes holding Chinese companies and their employees criminally liable for financial disclosure violations, broadening the criteria that could get prominent Chinese companies blacklisted in the U.S. and blocking public and private pension funds and university endowments from certain Chinese investments. Other options go beyond financial scrutiny of Chinese companies. The memo describes the possibility of fostering deeper ties between the U.S. and Taiwan and disrupting the flow of capital between Hong Kong and mainland China if it is determined that Hong Kong’s autonomy is not being respected. It also lays out legislation in Congress, which Trump has yet to endorse, that would impose sanctions on China for activity in contested areas of the South China Sea and crack down on Chinese-funded Confucius Institutes at American universities.
- While the tone surrounding the talks in Washington has been positive, the People's Daily today published a harsh editorial, lashing out at the U.S. for actions to put 28 Chinese firms on its export control list this week for human-rights issues in the Xinjiang region. "The latest act of the U.S. has once again exposed its sinister aim to impede the counter-terrorism efforts in Xinjiang and stability and development of China," said Zhong Sheng. "There is no so-called "human rights issue" in Xinjiang. The U.S. has repeatedly turned a blind eye to facts, distorted black and white and made groundless accusations against China, which are merely excuses deliberately created to interfere in China's internal affairs." The pen name Zhong Sheng is often used to convey the paper's views on policy issues, with its meaning said to be "Voice of China."
- It was game on for the NBA in China last night. After a tense week between the NBA and China, the Brooklyn Nets defeated the Los Angeles Lakers in an exhibition game in Shanghai.
- Bottom line: Pending the important meeting between Trump and Liu, both countries appear close to an interim deal. China wants a U.S. tariff ceasefire and an easing of American restrictions on Huawei. In return, Washington is seeking pledges from Beijing to buy more agricultural commodities, refrain from currency manipulation and open domestic industries to more foreign ownership. If so, there must be a specific timeline for bigger issues that Trump campaigned for and the reasons he started a trade war in the first place: U.S. accusations of intellectual-property theft, forced technology transfer and complaints about Chinese industrial subsidies. The English-language newspaper China Daily said Liu left Thursday “with a smile.” What really matters next is whether he’s still grinning after the Friday afternoon show in the Oval Office.
— USDA corrects August trade data to trade surplus, not deficit. USDA has corrected its figures released Oct. 7 on US ag export and imports for August, essentially swapping the figures for the two categories. USDA now says that exports in August totaled $11.27 billion and imports at $10.46 billion, putting the monthly balance at a surplus of $813 million. USDA on Oct. 7 reported the figures as exports at $10.46 billion against imports of $11.27 billion for a trade deficit of $813 million. The adjustment by USDA means the U.S. has only registered a trade deficit in agriculture three months of Fiscal Year (FY) 2019 and would indicate a deficit for the entire FY is now far less likely.
— Other items of note:
Deutsche Bank says it doesn’t have Trump’s federal tax returns. The German bank told a federal appeals court yesterday that it does not have President Trump’s tax returns, the New York Times reported (link).
Michael McKinley, a career diplomat and senior adviser to Secretary of State Mike Pompeo, resigned in the wake of the Ukraine developments.
Italy will start taxing digital companies like Facebook and Alphabet, following France with an initiative that has raised the prospect of U.S. sanctions.
WTO in a crisis. The Geneva-based organization is in crisis and needs reform to play its global role effectively, according to the trade minister of Finland, which holds the EU presidency.
Top House appropriator Lowey announces she will not run in 2020. House Appropriations Chair Nita Lowey (D-N.Y.), the first woman to lead the panel, announced Thursday she will not seek re-election in 2020. That has set off a potential contest to replace her atop the panel that controls government purse strings. Rep. Rosa DeLauro (D-Ct.) announced she will seek the top position, a move that would put a sharp critic of the current administration’s food safety and Supplemental Nutrition Assistance Program (SNAP) in charge of the panel that decides on House versions of government spending. DeLauro also has pushed a means test and other restrictions on crop insurance to limit its use by large farms. But Rep. Marcy Kaptur (D-Ohio) is also mentioned as a possible contender and is the second-ranking Democrat on the panel — DeLauro is the third-ranking Democrat in terms of seniority. However, Democrats have not relied solely on seniority relative to full committee chair roles.
Food and beverage companies are hunting for profits in the garbage. Mondelez, Starbucks Corp. and Anheuser-Busch InBev SA are among several industry giants looking to develop foods and drinks from foodstuffs such as cocoa husks and spent brewing grain that they and their suppliers have typically discarded. The Wall Street Journal reports (link) the moves to upend their sourcing strategies is part of an effort to attract consumers who say they want companies to waste less and limit their environmental impact. “They’re certainly not lacking for raw materials: One study says U.S. farmers and manufacturers create around 11 million tons of food waste a year. Food makers are joining textile companies in the effort, and the market appears to be ripe. Sales of consumer goods marketed as sustainable, simple or organic grew to some $130 billion in the U.S. last year, up 12% from 2015.”
Cotton AWP rises but remains under 54 cents per pound. The Adjusted World Price (AWP) for cotton moved up to 53.90 cents per pound, effective today, up from 53.36 cents per pound the prior week. This marked the third straight week the AWP has been under 54 cents per pound, a mark it briefly touched the week of Sept. 20.
— Markets. The Dow on Thursday gained 150.66 points, 0.57%, at 26,496.67. The Nasdaq rose 47.04 points, 0.60%, at 7,950.78. The S&P 500 was up 18.73 points, 0.64%, at 2,938.13.
Fresh geopolitical tensions in crude markets with Iranian tanker missile hit. An Iranian oil tanker in the Red Sea, the Sabity, was damaged by missiles launched from the Saudi Arabian port of Jeddah, according to the Iranian state-run news agency IRNA. The reports of the explosion prompted gains in global oil markets as it resurfaced fears of geopolitical tensions in the region. The situation is the latest in a string of developments in the Middle East with Iran being blamed for attacks on oil tankers in the region and the U.S. and Saudi Arabia have said they believe Iran was behind the drone attacks carried out on Saudi oil installations last month. With extra capacity in the crude oil market not plentiful, the attack has increased fears of supply disruptions.
IEA cuts oil demand outlook. "We expect growth in 2019 to be the weakest since 2016, following evidence of a slowdown in several major consuming regions and countries," according to the International Energy Agency (IEA). Demand growth estimates for 2019 were reduced by 65,000 barrels a day to 1 million, while 2020 forecasts fell by 105,000 bpd to 1.2 million. Cutting the figures for the second consecutive month, IEA's revisions will add pressure on OPEC and its allies to make deeper output cuts in November.