Trump Offers Flexibility on Aid Package; Pelosi Holds Firm | CFAP 2 Rule Cleared

Posted on 09/17/2020 8:02 AM

Branstad writes about declining U.S./China relationship that China would not publish

 


In Today’s Updates


 

Market Focus:
* Traders did not like what Fed head Powell said during presser Wednesday
* Fed says it will keep interest rates at near-zero through 2023
* Powell: 'powerful' forward guidance and plentiful tools to support economy
* More U.S. businesses closing permanently as coronavirus weighs on economy

* Farm Futures survey takes a look at U.S. 2021-crop plantings
* Natural-gas prices surged across the Atlantic following plunge in the spring
* OPEC+ sizes up production cuts
* U.S. retail sales growth is slowing
* Some hope for new Covid aid/stimulus package surfaced Wednesday
* Airline industry lobbies for another $25 billion

 

Policy Focus:
* CFAP 2 rule finished by OMB yesterday
* If you are a farmer accepting U.S. gov't payouts, are you a socialist?
* Trump administration eying at least $300 million in aid for refiners

 

U.S./China update:
* Branstad offers past and current views of the U.S./China relationship
* China again a buyer of U.S. corn, soybeans, cotton and more
* China makes no year-to-year changes in calendar year 2021 TRQ levels
* China/U.S. investment falls to lowest in almost a decade
* U.S. plans $7 billion arms deal with Taiwan
* Trade rift with China, e-commerce are pushing more cargo to East Coast port


Update on re-opening America... and around the world:
* Big Ten conference votes to open football season weekend of Oct. 23-24


Coronavirus update:
* President Trump suggests CDC Director Redfield misspoke
* Dr. Fauci on what it will take to put covid-19 behind us

 

Politics & Elections:
* Presidential campaign watch
* Biden leads Trump by nine points in Reuters/Ipsos poll


Other Item of Note:
* Greta Thunberg nominated for the Nobel Peace Prize

 


MARKET FOCUS


 

Equities today: U.S. equity futures are signaling a lower opening after a session of losses in Asian markets. While the FOMC on Wednesday said interest rates could stay anchored to the zero-bound through 2023 (as the central bank tries to spur inflation), Fed head Jerome Powell kept asset purchases at current levels and sounded some alarm bells. "More fiscal support is likely to be needed," he declared, signaling the Fed can't rescue the "highly uncertain" economy alone and Congress needs to act quickly on another coronavirus relief package. More FOMC details, below.

 

     U.S. equities yesterday: The Dow closed up 36.78 points, 0.13%, at 28,0322.38. The Nasdaq was down 139.85 points, 1.25%, at 11,050.47. The S&P 500 lost 15.71 points, 0.46%, at 3,385.49.

 

On tap today:

 

     • USDA Weekly Export Sales report, 8:30 a.m. ET.
     • Bank of England releases a policy statement at 7 a.m. ET.
     • U.S. jobless claims are expected to fall to 875,000 in the week ending Sept. 12, down from 884,000 a week earlier. (8:30 a.m. ET)
     • U.S. housing starts for August are expected to fall to an annual pace of 1.45 million from 1.496 million a month earlier. (8:30 a.m. ET)
     • Philadelphia Fed's manufacturing survey for September is expected to fall to 15 from 17.2 a month earlier. (8:30 a.m. ET)
     • Japan consumer prices for August are out at 7:30 p.m. ET.

 

Fed says it will keep interest rates at near-zero through 2023. The Fed as expected held interest rates near zero and signaled they would stay there for at least three years, vowing to delay tightening until the U.S. gets back to maximum employment and 2% inflation. The Fed also improved its outlook for this year's gross domestic product contraction to 3.7%, versus its June estimate of a 6.5% contraction. Chairman Jerome Powell said that the U.S.' recovery has been faster than feared, but “the path ahead remains highly uncertain,'' with the pace of activity likely to slow down.

     U.S. stock prices on Wednesday clearly reacted negatively during Powell's presser after he stopped short of promising changes to the Fed's massive bond-buying program.

 

     Fed loss

 

     Powell spoke of the central bank's "powerful" forward guidance and plentiful tools to support the economy. But he also again pleaded with Congress and the Trump administration to pump more fiscal aid into the economy. For now, Powell’s words may prove most powerful not by influencing investors, but by influencing Congress, the Wall Street Journal's Greg Ip writes (link).

 

     The Fed faced internal dissent after pledging to keep rates unchanged for years. Two Fed presidents voted against the plan, for different reasons: Robert Kaplan of Dallas wants more flexibility in setting rates, while Neel Kashkari of Minnesota wants a stronger commitment to keeping rates low for longer.

 

     Fed forecast

 

More U.S. businesses are closing permanently as the coronavirus weighs on the economy. A new report from review site Yelp shows almost 98,000 businesses that were open in March had closed up shop for good by the end of August. Restaurants are among the hardest hit, with sandwich shops, burger joints, and breakfast and brunch places all showing more than 50 closures per 1,000 businesses since March 1, according to Yelp.

 

     Business closures

 

Market perspectives:

 

     • Farm Futures survey takes a look at U.S. 2021-crop plantings. An August 2020 survey conducted by the Farm Futures team found farmers across the country are eager to plant more soybeans in 2021. Survey respondents reported a slight decline in corn acreage in favor of soybeans for next year’s crop as a recent uptick in soybean demand sparked a rally. Farm Futures respondents indicated planting 0.3% fewer corn acres in 202-/22 after demand destruction eroded 440 million bushels from the 2019-20 demand pipeline. While 2020-21 corn planting progress was largely underway when the pandemic caused corn demand to evaporate, farmers now have over six months of pandemic experience under their belts. Farm Futures respondents projected planting nearly 4.1 million more acres of soybeans in 2021 compared to 2020, totaling 87.9 million acres. If realized, 2021 soybean acreage will be the third highest planted soy acreage on record.

 

        Survey


     • Natural-gas prices have surged across the Atlantic following a plunge in the spring, the Wall Street Journal reports (link), making shipments to the region profitable again after a downturn in the spring. Although Asia is the biggest buyer of American liquefied natural gas, Europe plays a key role in the international gas market and generally absorbs fuel that isn’t needed in other regions. LNG exports to Europe have paid a slim profit margin since late August, and energy analyst Julien Hoarau expects exports to pick up in October, once Gulf Coast export terminals are fully up-and-running after weather disruptions.

 

        LNG Europe

 

     • Oil futures were lower ahead of the U.S. trading start as traders digest U.S. government supply data issued Wednesday. U.S. crude has traded under $39.90 while Brent has been under $42.05 per barrel. Crude was also lower in Asian trading, with U.S. crude at $39.88 per barrel and Brent at $42 per barrel.

 

     • OPEC+ sizes up production cuts. Warnings about oil are prompting OPEC+ producers to convene for an online meeting today, where they will review the market and discuss compliance, though further output cuts are not expected. The energy alliance agreed in July to cut production by 7.7 million barrels per day from August through to December, while Iraq and others pledged to pump below their quotas in September to offset overproduction earlier in the year. Already this week, OPEC and the IEA, two prominent forecasters, trimmed their 2020 outlook for crude demand, while oil major BP warned that demand may have peaked in 2019.

 

     • U.S. retail sales growth is slowing. Spending climbed for a fourth straight month in August, but there are signs that the expiry of economic stimulus is taking a toll.

 


POLICY FOCUS


 

CFAP 2 rule was finished by OMB yesterday. With the Office of Management and Budget (OMB) signing off on the package, that means details should come out today or tomorrow from USDA.

 

If you are a farmer accepting U.S. gov't payouts, are you a socialist? That is what some Biden supporters imply. Two farmers on a Biden campaign call suggested to reporters that farmers who are accepting government payments are essentially socialists.

 

     “If you’re a rural farmer taking money, you’re a socialist, right, and people don’t want to accept that at all,” said Ohio dairy, soybean and corn producer Tenah McMahan. She added that farmers would prefer to rely exclusively on the market for their income. It's the exclusively that is the key word.

 

     Meanwhile, Minnesota Farmers Union President Gary Wertish, who has been a Biden spinmeister of late, said the Trump administration’s Market Facilitation Program “definitely is a socialist-type program.”

 

     Perspective: McMahan and Wertish are confused. They have an Ayn Randian understanding of socialism which appears to encompass all government action in anything other than law enforcement and defense. Our Founding Fathers never held such a view but were far from socialist. We’ve had farm policy in this country in one form or another since its inception.

 

At least some hope for a new Covid aid/stimulus package surfaced Wednesday when President Trump called on Republicans to support a “much higher” level of spending than they have. House Speaker Nancy Pelosi (D-Calif.) and Senate Minority Leader Chuck Schumer (D-N.Y.) issued a statement saying they hope the White House will “finally meet us halfway with a bill that is equal to the massive health and economic crises gripping our nation.” Both statements had political and election-year overtones.

 

     What's up? The White House strongly signaled that it is willing to increase its offer in talks with Democrats and that Senate Republicans should go along in order to seal a stimulus deal in the next week to 10 days. Chief of Staff Mark Meadows said Trump is open to the compromise $1.52 trillion stimulus proposal from a bipartisan group of House lawmakers that was an effort to break a lengthy deadlock over bolstering the U.S. economy amid the pandemic. Meadows said he was "probably more optimistic about the potential for a deal in the last 72 hours than I have been in the last 72 days."

 

     Both Democratic and GOP naysayers. While Meadows said on CNBC that the amount is not a “show-stopper” House Speaker Pelosi has called it insufficient. Pelosi rejected calls from Democratic moderates to hold a vote on the new, smaller stimulus bill and doubled down on her push to get the White House to agree to a $2.2 trillion package. “What we want is to put something on the floor that will become law,” Pelosi said on MSNBC. Meanwhile, Senate Majority Whip John Thune (R-S.D.), the chamber’s second-ranking Republican, said a $1.5 trillion stimulus would cause “a lot of heartburn” for GOP lawmakers. Senate Majority Leader Mitch McConnell (R-Ky.) declined to comment when asked about Trump’s call for Republicans to go higher.

 

     On the biggest sticking point between the parties, the Problem Solvers offered up to $500 billion in direct aid to cash-strapped state and local governments. Republicans have offered $150 billion; Democrats are at $915 billion. Meadows told CNBC it would be up to Congress to find the "sweet spot" on state and local aid.

 

     The next step: Some Republicans acknowledge that if a deal is going to come together before the elections, it's likely to involve spending more than they prefer. "My concern is that the window probably closed at the end of this month and we need to get busy finding out what we can all agree on," Sen. Roy Blunt (R-Mo.), a senior appropriator, said. "And I think the number is going to be higher than our trillion dollars." But even if Republicans coalesced around $1.5 trillion, there's still a $700 billion gap to bridge with Democrats. Pelosi says her party has already compromised at $2.2 trillion, which is down substantially from the $3.4 trillion package the House passed in May. “We have come down, but with the needs of the America people we can only go so far,” Pelosi said on MSNBC Wednesday, adding that additional needs for "restaurants, airlines and the rest" that weren't evident in May also need to be considered.

 

     The final step: Pelosi continued to reject suggestions of a piecemeal strategy, or passing something smaller now and coming back later to pass additional legislation: “You think the administration is going to do another bill?” At the same time, Pelosi said Democrats believe they will have a new president to work with come January to bolster the $2.2 trillion. She said she thinks if the election were held today Democratic nominee Joe Biden would defeat Trump.

“Fortunately we’ll be able to correct some of it in January," she said. "But right now we have to do more than just have the Republicans check a box.”

 

     Bottom line: Politics is still the deciding factor in the aid debate. But some nonpartisan officials are clearly saying more aid is needed. This includes the U.S. Federal Reserve. Congress will probably need to provide more fiscal support for the economy, Federal Reserve Board Chairman Jerome Powell said in a press conference yesterday, saying a monetary response alone won’t be enough. “My sense is that more fiscal support is likely to be needed,” Powell said. “Of course, the details of that are for Congress, not for the Fed.”

 

Airline industry lobbies for another $25 billion. Several airline executives are planning to meet White House officials today with only two weeks to go before a ban on industry job cuts is set to expire. Airline CEOs and labor unions want another $25 billion in federal aid to preserve sector jobs through the end of next March as a recovery in travel demand hasn't yet materialized. The proposal has won bipartisan support in Congress, and while lawmakers and the White House have yet to reach a deal on a new coronavirus package (that could include another round of relief), President Trump is pushing Republicans to back a bigger stimulus bill.

 

Trump administration eying at least $300 million in aid for refiners. The Trump administration is considering at least $300 million in cash aid to U.S. oil refiners denied small refinery exemptions (SREs) on their 2019 blending mandates under the Renewable Fuel Standard (RFS).

 

     The president is once again trying to deliver a win-win for the ethanol and oil sectors. EPA has recently said it will deny gap-year SRE requests stemming from a 10th Circuit Court decision that exemptions going forward must qualify as an extension of previously granted waivers. But the cash payments to refiners will rile the ag sector since the funds will reportedly come funds within USDA, according to five sources familiar with the matter cited by Reuters.

 

     A spokesperson for the American Fuel and Petrochemical Manufacturers said the industry did not support the plan: "If the Administration truly wants to make things right with refiners, they need to prioritize making the RFS less expensive so it’s not a threat to good manufacturing jobs."

 

Update on China:

  • Outgoing U.S. Ambassador to China Terry Branstad offered his past and current views of the U.S./China relationship in an op-ed. The Chinese Communist Part squashed it, banning the op-ed in all Chinese publications. It clearly shows a declining and not strengthening relationship between the U.S. and China. Link to Branstad op-ed in both English and Chinese.
     
  • China again a buyer of U.S. corn, soybeans, cotton and more. Sales of U.S. ag commodities to China continue to mount, with USDA data through Sept. 10 showing the following for 2020-21: Net wheat sales of 1,286 tonnes, net corn sales of 359,683 tonnes, net sorghum sales of 121,800 tonnes, net soybean sales of 1,487,139 tonnes, and net upland cotton sales of 440,060 running bales.

    The sales of corn to China bring 2020-21 U.S. corn export commitments (outstanding sales plus accumulated exports) to 9.24 million tonnes, with 8.96 million tonnes of those sales yet to be shipped.

    For 2020, USDA reported sales of 1,821 tonnes of beef and 35,927 tonnes of U.S. pork.

     
  • China makes no year-to-year changes in calendar year 2021 TRQ levels for corn, wheat, rice or cotton. Today, China set its 2021 low tariff rate quotas (TRQs) for corn wheat and at 7.200 MMT, 9.636 MMT, and 5.320 MMT, respectively, unchanged from 2020 levels. Details: 60% of the corn TRQ will go to state firms and 90% of the wheat TRQ. These TRQs allow imports with duties as low as 1% versus the usual 65% tariff on shipments outside of these quotas. Given China’s aggressive corn bookings to date, with 9.3 MMT already on the books for 2020-21 (trade year basis), some had expected higher TRQ levels or another tranche of them. An unnamed Reuters source from a state-owned company indicated that “quotas for grain imports won’t change,” but the source added “there might be special permits [for the extra imports].” China also set the cotton quota at the same volume as in previous years at 894,000 MT, the state planner said in a separate notice. But in 2020, China later announced an additional 400,000 MT import quota for cotton processing.

    Note: China's low-rate TRQs are on a calendar year basis while the import data via USDA's WASDE is on a trade-year basis and the Phase 1 agreement is on a calendar year basis. As for the TRQ levels, China can do what they need to do to bring imports in at larger volumes. Also, USDA on Feb. 14, when the Phase 1 agreement went into effect, indicated they would track export sales of commodities covered by the agreement. But the comment from the Office of the Chief Economist indicating that there had not been a policy announcement from China relative to increasing the TRQ for corn indicates the agency does not appear to be sticking with their February stance that export sales would be a key factor relative to USDA’s forecasts of China’s purchases. As noted, Reuters reported that while the TRQs would not be changed, they quoted a source as indicating that there could be a “special” permit for extra imports, a situation which would match what China has done on cotton.

     
  • China/U.S. investment falls to lowest in almost a decade. Political tensions and coronavirus fallout hit commerce between the world’s biggest economies. Capital flows between the two countries amounted to $10.9bn in the first six months of 2020, lower than any period since 2011, according to a report from consultancy Rhodium Group and the National Committee on United States-China Relations, a non-governmental organization. The report found that cross-border investment would have been significantly lower had it not been for a single deal in the U.S.: Chinese technology company Tencent’s purchase of a $3.4 billion stake in Universal Music Group. The combined investment metric between the countries peaked in 2017 at $37 billion and has mostly declined since then.
     
  • U.S. plans $7 billion arms deal with Taiwan as China ratchets up military threat. The Trump administration is moving to bolster Taipei’s defenses as concerns grow about Beijing’s intentions, the WSJ reports. The weaponry would include cruise missiles, mines and other hardware, as well as $400 million worth of MQ-9B Reaper drones along with related sensors, logistics, ground control stations, training and other equipment. The $7 billion deal would be on top of the roughly $15 billion in arms sold to the country during the Trump administration (arms sales to Taiwan totaled roughly $14 billion over the course of the Obama administration’s eight years in office).
     
  • The trade rift with China and a boost in e-commerce are pushing more cargo to East Coast ports, the Wall Street Journal reports (link), raising concerns at West Coast seaports that have long been the major gateways for inbound Asia business. The recent arrival of a 15,000-container vessel at Atlantic seaboard sites offered one sign of the trend, but maritime executives say the change has been underway for several years and is accelerating under broad trade developments. Most recently, the U.S. trade dispute with China is pushing companies to set up production centers in Southeast Asia that put vessels in easier reach of the big population centers along the U.S. East Coast. That’s helping drive more investment in inland distribution networks, including rail connections aimed at getting goods into the Midwest.

    Trade shift

     
  • U.S./China Phase 1 tracker: China’s purchases of U.S. goods. Link.

Update on reopening America... and around the world:

  • Big Ten conference — which includes Ohio State, Michigan and Wisconsin — voted unanimously to open the football season the weekend of Oct. 23-24.

Coronavirus update:

  • Summary: Source: Johns Hopkins University as of 6:30 a.m. ET.

    — 29,893,298: Confirmed cases world-wide, and 941,345 deaths
    — 36,782: New U.S. cases recorded yesterday
    — 6,631,561: Total confirmed cases in the U.S.
    — 977: Deaths in the U.S. recorded yesterday
    — 196,804: Total U.S. deaths
    — 90,710,730: Tests conducted in the U.S.

    Link to Covid Case Tracker

    Link to Our World in Data

     
  • President Trump suggested Wednesday that CDC Director Redfield misspoke when he testified earlier in the day “that a coronavirus vaccine might not be widely available until next year and that face masks are a more effective way of fighting the disease.” Trump told reporters at the White House when asked about Redfield’s comments, “I believe he was confused.” He added, “I think he just made a mistake. … I think he misunderstood the question. I got the impression that he didn’t realize he said what he might have said.”
     
  • Dr. Fauci on what it will take to put covid-19 behind us. Dr. Anthony Fauci, the government’s top infectious-diseases expert, told the Wall Street Journal that lowering infection rates depends not only on a vaccine’s effectiveness, but on how many people use it. Link to more from the WSJ.

 


POLITICS & ELECTIONS


 

  • Links
    2020 Presidential Election Interactive Map
    The Green Papers
    Real Clear Politics
    — Presidential debates: Scheduled to occur Sept. 29, Oct. 15 and Oct. 22.
    — VP debate: Scheduled for Oct. 7.
    Days until election

     
  • Presidential campaign watch: Biden is participating in a town hall hosted by CNN today in Scranton, Pennsylvania, while Trump is holding a campaign event in Mosinee, Wisconsin.

    Both candidates will be in Minnesota on Friday. Biden is traveling Friday to Minnesota. The Democratic nominee is visiting the northern town of Duluth to tour a union training center and deliver a speech, according to his campaign. President Trump will also be in Minnesota on Friday, hosting a campaign event in Bemidji, Minnesota.

     
  • Biden leads Trump by nine points in Reuters/Ipsos poll. The poll of 859 likely voters nationwide (9/11-9/15) shows Joe Biden at 50% and President Trump at 41%, with 3% backing third-party candidates.

    New polls: Biden leads in Maine and Wisconsin, Trump in Kentucky and South Carolina. A Quinnipiac poll of 1,164 likely Kentucky voters (9/10-9/14) shows Trump at 58% and Biden at 38%. A Quinnipiac poll of 1,183 likely Maine voters (9/10-9/14) has Biden at 59% and Trump at 38%. A Quinnipiac poll of 969 likely South Carolina voters (9/10-9/14) has Trump at 51% and Biden at 45%. A WaPo/ABC News poll of 586 likely Wisconsin voters (9/8-9/13), shows Biden leads Trump 52% to 46% in the state.

 


OTHER ITEM OF NOTE


 

  • Greta Thunberg nominated for the Nobel Peace Prize. This year’s Nobel Peace Prize could go to green campaigner Greta Thunberg and the Fridays for Future movement to highlight the link between environmental damage and the threat to peace and security, some experts say. The winner of the $1 million prize, arguably the world’s top accolade, will be announced in Oslo on Oct. 9 from a field of 318 candidates. The prize can be split up to three ways. The Swedish 17-year-old was nominated by three Norwegian lawmakers and two Swedish parliamentarians.

 

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