Focus on futures trading on USDA report day | Grassley wants more info on SREs
In today's updates:
* Trump delayed new tariffs on some Chinese goods
Markets: Former Federal Reserve Chairman Alan Greenspan says he wouldn’t be surprised if U.S. bond yields turn negative. And if they do, it’s not that big of a deal.
Grateful Dead night at Nationals Park brought thousands more to Tuesday night's game that saw the Nats come alive to beat the Cincinnati Reds. A pre-game concert by On the Bus, a local Grateful Dead tribute band, was a huge success.
— U.S./China trade policy update:
- President Trump reversed himself and suspended plans to impose new tariffs on just over $150 billion of $300 billion in previously threatened Chinese goods, saying the move was driven by concerns about the impact an escalating trade fight would have on businesses and consumers ahead of the holiday shopping season. The shift shows that no analysis of the initially threatened tariffs to take place Sept. 1 had been done prior to Trump's tweet announcing the surprising action. “We’re doing this for Christmas season, just in case some of the tariffs would have an impact on U.S. customers,” Trump said on Tuesday. The quick retreat came less than two weeks after Trump announced the new tariffs.
- Details: The Trump administration agreed to postpone until Dec. 15 tariffs of 10% on smartphones, laptops, toys, videogames and other products that were set to take effect on Sept. 1. Link to delayed tariffs. About $112 billion of Chinese goods will be hit with the 10% levy on Sept. 1, according to Chad Bown, a senior fellow at the Peterson Institute for International Economics. Another $160 billion in goods will be subject to the tariff as of Dec 15, he estimated. The U.S. said tariffs on some products would be removed from the tariff lists entirely — the U.S. Trade Representatives office said it was dropping 25 types of products from the tariff list altogether “based on health, safety, national security and other factors.” The items include car seats, shipping containers, cranes, certain fish, and Bibles and other religious literature, a spokesman said. The list of imports that will be hit by tariffs on Sept. 1 are products where less than 75% of 2018 U.S. imports came from China. The Dec. 15 list contains products where the U.S. in 2018 imported 75% or more of from China, according to a White House document. Actual trade in 2018 in the items affected by the threatened tariffs on $300 billion in Chinese products was closer to $262 billion, according to WSJ calculations. The U.S. currently imposes tariffs of 25% on about $250 billion of Chinese imports.
- Impacts: The stock market soared after the tariff pullback announcement. Commodity futures were still largely impacted by USDA reports released Monday, with corn seeing additional losses and soybeans showing gains. Short-seller Jim Chanos, founder and managing partner of Kynikos Associates, used his “Diogenes” Twitter to say, “So then tell me why Xi should not continue to wait out The World’s Greatest Negotiator, who keeps “dealing” with himself?”
- On a phone call Tuesday, Chinese Vice-Premier Liu He spoke with U.S. Trade Representative Robert Lighthizer and U.S. Treasury Secretary Steven Mnuchin, Xinhua reported. Also attending China’s side of the call were Commerce Minister Zhong Shan; Yi Gang, the governor of the People's Bank of China; and Ning Jizhe, director of the National Bureau of Statistics of China. The two sides have decided to have another telephone call in the next two weeks.
- Now what? With Trump's partial retreat, questions include whether there will be a Chinese concession made before or during an announced telephone session between officials from both countries in around two weeks. China, some say, could again import some U.S. farm products as a show of good faith. If so, the Trump team could postpone tariffs on the additional Chinese products still threatened with tariffs as of Sept. 1. President Trump continued to berate China on Tuesday for not making such purchases and suggested that the tariffs might force it to do so. “As usual, China said they were going to be buying ‘big’ from our great American Farmers,” he wrote on Twitter. “So far they have not done what they said. Maybe this will be different!” Negotiators had been working on a deal that would have China agreeing to buy more U.S. farm products and the U.S. agreeing to ease off restrictions on China’s Huawei Telecommunications Co. Myron Brilliant, the head of international affairs at the U.S. Chamber of Commerce, said the U.S. pullback increases chances that a limited deal could be reached on U.S. farm products and Huawei. “It gives both sides more breathing room,” Brilliant said, “as they look to get back on track.”
- Taking stock of Trump. Some observers say Trump made the tariff suspension move because of plunging U.S. equities.
- Next step: telephone session. Leading to the suspension of some tariffs was a conference call between U.S. and Chinese negotiators, including Chinese Vice Premier Liu He, U.S. Trade Representative Robert Lighthizer and U.S. Treasury Secretary Steven Mnuchin. According to a statement from China’s Commerce Ministry, the call was initiated by the U.S. and the two sides agreed to meet by phone again in two weeks. The Commerce Ministry statement made no mention of plans for face-to-face talks, despite U.S. remarks a session will be held in Washington in September.
- China announced unexpectedly weak data for July. Industrial output growth dropped to a 17-year low of 4.8% from a year earlier, even lower than bearish forecasts, as the trade war intensified.
- Hong Kong airport resumed operations. The Airport Authority has banned protests there except in designated areas, after rallies turned violent. China likened the demonstrators to “terrorists.” President Trump called the mass protests in Hong Kong “very tough,” but did not criticize the government in Beijing. “We’ll see what happens. But I’m sure it’ll work out,” Trump added. Meanwhile, a spokeswoman for China's Foreign Ministry claimed that recent comments from American lawmakers, including House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Mitch McConnell (R-Ky.), demonstrate that Washington's real goal is to incite chaos in Hong Kong. Months of protests and large-scale disruptions have thrust the city into the global spotlight.
- Bottom line: Little real progress has been made in U.S./China negotiations since May, and there is no major evidence that either Washington or Beijing is prepared to make concessions on key issues. “This seeming de-escalation in ongoing tensions may be a temporary reprieve,” Elena Duggar, an associate managing director at the rating agency Moody’s told the Financial Times (link).
— Grassley wants RFS waiver info from SEC filings. Senate Finance Committee Chairman Chuck Grassley (R-Iowa) said he wants to use Security and Exchange Commission (SEC) filings to highlight the extent to which major oil companies are benefitting from the biofuel usage waivers provided to small refineries. “We can’t let (oil companies) hide behind proprietary information,” Grassley told reporters Tuesday. “If they are getting help from the government, the government needs to know the basis for their help and the public needs to know.” Confidentiality provisions currently preclude EPA from disclosing specific information on individual SREs granted.
— Trump talks wheat in hitting big trade deficit with Japan. President Trump during a speech Tuesday in Monaca, Pa., railed about the big U.S. trade deficit with Japan. “I told Prime Minister Abe — great guy. I said, ‘Listen, we have a massive deficit with Japan.’ They send thousands and thousands — millions — of cars. We send them wheat. Wheat,” Trump exclaimed. “That’s not a good deal. And they don’t even want our wheat. They do it because they want us to at least feel that we’re okay. You know, they do it to make us feel good.” This comes as Kyodo reported Tuesday that Trump had asked Japan to import a host of US farm products, including soybeans and wheat. However, Trump also noted Japan is buying “a lot of our stuff, including our military equipment.” Plus, he noted that “many, many of the Japanese car companies are coming over and building car plants in the United States. It doesn’t fully do the trick, but it helps. And those deficits will start coming down very substantially.”
U.S. and Japanese officials are trying to reach a deal on agriculture and autos before the United Nations General Assembly meeting in late September. Trump and Japanese Prime Minister Shinzo Abe will also meet at the G7 summit in France from Aug. 24-26.
— Other items of note:
At least one major group may propose suspending commodity trading for 10 minutes following major USDA reports to give market participants time to get information and put in their market orders.
Iowa farmers stick with Trump. As President Trump maps out his re-election bid, farmers in the battleground state of Iowa are backing him even with the Farm Belt bracing for deeper pain from the trade fight with China, according to a Wall Street Journal article (link).
Another Democrat has qualified partly for the September debate stage. Tom Steyer, the billionaire entrepreneur and climate change activist, revealed on Tuesday that he has reached the requisite 130,000 individual donors needed for inclusion for the next round of debates. Steyer is also on near the debate entry mark on polling. He has hit 2% in three separate polls, needing one more to qualify. Nine candidates have already reached the donor and polling threshold, with Steyer and two others — former Housing and Urban Development Secretary Julián Castro and Rep. Tulsi Gabbard (D-Hawaii) — reaching the donor prerequisite.
Former Gov. John Hickenlooper of Colorado is considering ending his presidential bid to challenge his state’s Republican senator, according to four Democrats. The deadline to qualify for the next Democratic presidential debates is Aug. 28.
— Markets. The Dow on Tuesday rose 372.54 points, 1.4%, to 26,279.91. The S&P 500 advanced 42.57 points, 1.5%, to 2,926.32. The Nasdaq gained 152.95 points, 1.9%, to 8,016.36.
U.S. inflation figures released Tuesday showed broad-based increases across consumer prices in July, adding more focus on how vigorously the Federal Reserve might loosen monetary policy. The Consumer Price Index rose 0.3% in July, right in line with estimates, and higher than June’s month-on-month growth of 0.1%. Over the past year, prices have grown at 1.8%, just above estimates of a 1.7% year-on-year rise.
Nothing is stopping the U.S. from getting sucked into the global trend of negative yielding debt, former Fed Chairman Alan Greenspan told Bloomberg, adding that "zero has no meaning, besides being a certain level." With global central banks engaging in unprecedented monetary easing, a record $15 trillion of government bonds worldwide now trade at negative yields. The U.S./China trade war is further putting pressure on the 10-year Treasury note, which inverted overnight with the 2-year Treasury rate, a historic recession indicator.
Germany’s gross domestic product shrank 0.1% in the three months to June as a negative hit from foreign trade outweighed solid domestic consumption, according to Germany’s statistics agency. The drop is sharply below the 0.4% expansion of the first quarter and considerably below second-quarter eurozone growth of 0.2%. Speaking before the widely-anticipated fall was published, Chancellor Angela Merkel said the economy was entering a "difficult phase," adding, "we will react depending on the situation." A survey of investors yesterday found German economic sentiment had plummeted to its lowest level since the eurozone crisis in 2011.