China summons U.S. envoy in Beijing | China signals more stimulus ahead
China summoned a U.S. envoy in Beijing today to protest against remarks by Washington over Hong Kong's controversial extradition bill.
20 candidates qualified for Democrats' opening presidential debates, set for June 26-27 in Miami. An NBC News drawing today will divide the large field between the first and second debate night, per the Associated Press. Party officials have promised to weight the drawing so that top tier and lagging candidates are spread roughly evenly over the two nights. Montana Gov. Steve Bullock and Rep. Seth Moulton of Massachusetts were the only major candidates who failed to meet the DNC's polling or grassroots fundraising measures for a debate spot.
— Does CCC have enough current funding to start implementing MFP 2? It could initially be close until Commodity Credit Corporation (CCC) funding is replenished later this year, but the Fiscal Year 2020 appropriations funding process will provide sufficient leeway for USDA to execute the $16 billion Market Facilitation Program (MFP) 2 package.
Still, Sen. Debbie Stabenow (D-Mich.) on Thursday questioned whether USDA can come up with the $16 billion. She said USDA only has about $7.7 billion in additional spending authority through its CCC account.
“Are you going to assume Congress will authorize an additional amount?” she asked. USDA Chief Economist Rob Johansson informed there should be no problem because the CCC’s $30 billion in annual spending authority will be replenished at the start of the fiscal year, which begins Oct. 1.
Perspective: Tentative plans as the Trump administration releasing around 50%, $8 billion), of the MFP 2 plan in August; with another 25% ($4 billion) in December and the last 25% ($4 billion) in February. The second and third installments would be contingent on ongoing trade policy discussions. The timing of USDA’s coming FY 2020 appropriations is murky, with sources signaling an eventual spending package approval or a continuing resolution (CR) prior to Oct. 1. A CR could contain additional funding for the CCC should that be needed. USDA, sources advise, could also reprogram some existing funding to the CCC if needed.
— USTR’s Doud, when asked if he could say when the U.S. and China may reach a trade accord, said: “No.” Gregg Doud, the chief ag trade negotiator at the USTR said the same response when asked about pending U.S./Japan trade talks. Most assume a deal with Japan will come after the country’s July elections.
USMCA approval a focus. Doud, during a Thursday hearing, spent the most time in his testimony on the need for Congress to ratify the U.S.-Mexico-Canada agreement (USMCA).
White House chief economic adviser Larry Kudlow said he met recently with President Donald Trump and U.S. Trade Representative Robert Lighthizer and indicated the administration is still deferring to House Speaker Nancy Pelosi (D-Calif.) on timing for bringing the USMCA the floor. Republicans are pressing for a vote on the deal before the August recess or shortly after lawmakers return from the month-long break, but most think that is an optimistic timeline. “I think, if and when the speaker gives us a vote, yeah, I think it will pass. I wouldn’t dare predict timing,” Kudlow said at a Thursday event at the Peterson Institute for International Economics. “As I said earlier, I think the speaker has been very accommodative to us, given us a fair hearing on it. So, let’s be hopeful.”
Meanwhile, House Democrats’ Trade Working Group includes nine members tasked with resolving Democratic demands to overhaul certain parts of the USMCA. Pelosi named lawmakers to the group this week, setting in motion a process for negotiating with the Trump administration. House Ways and Means Chairman Richard Neal (D-Mass.) will lead the group. The group is divided into four subgroups: drug pricing, labor, environment and enforcement.
— U.S./China trade policy update:
- President Trump could retaliate if Xi balks at trade meeting. The president could take further action against China if President Xi Jinping doesn’t agree to a meeting at the Group of 20 summit in Japan this month, the White House’s top economic adviser Larry Kudlow said. Kudlow said there are no “formalized” plans for a meeting between Trump and Xi at the June 28-29 G20 summit in Osaka, Japan. Trump has said he has no deadline for imposing additional tariffs on China but has also threatened to take action if Xi doesn’t show up.
- China summoned a U.S. envoy in Beijing today to protest against remarks by Washington over Hong Kong's controversial extradition bill. Vice Foreign Minister Le Yucheng summoned Robert Forden, deputy chief of mission at the U.S. embassy in Beijing, for the protest, the Chinese foreign ministry said in a statement. Le said China did not accept foreign forces meddling in Hong Kong affairs. Le’s protest came after Beijing issued a stern warning to the United States over the extradition bill.
- American lawmakers introduced a bill threatening to erase some of Hong Kong’s trading privileges with the U.S. if it passes the Beijing-backed extradition law that has sparked huge protests there.
- China’s industrial output hit a 17-year low. Growth in May slowed to 5%, below expectations. The weaker numbers could prompt Beijing to ramp up stimulus measures, as the U.S./China trade spat continues to weigh on the world’s second-largest economy. The unexpectedly low factory numbers, along with other weak data, prompted China’s central bank to provide 300 billion yuan ($43 billion) in fresh support for smaller banks. Broader support, likely through a further reduction in banks’ reserve requirement ratios, is expected soon to boost liquidity.
- Former PBOC governor Zhou Xiaochuan issued a warning about a possible yuan devaluation, while the Chinese government has faced much criticism for its response to the mass protests in Hong Kong. If things couldn't get worse, Xi said overnight he would promote steady development ties with Iran "no matter how the situation changes," against the backdrop of tanker attacks in the Gulf.
- Some 600 U.S. companies signed an open letter criticizing Trump’s tariffs.
— India to raise tariffs on some U.S. imports such as walnuts, almonds and apples, Reuters reports, citing two unidentified people familiar. Higher tariffs would come next week after a delay of about a year. Tariffs on U.S. goods will have an impact of about $220 million.
Background. On June 1, President Trump removed India from a list of countries that receive special trade privileges because it hasn’t done enough to open its markets to U.S. companies.
— Other items of note:
U.S. Secretary of State Mike Pompeo blamed Iran for the explosions that crippled two oil tankers in the Gulf of Oman. America’s secretary of state released a video which purports to show members of the country’s Revolutionary Guard removing an unexploded mine attached to the ships. Iran said it “categorically” rejected responsibility. America fingered Iran for an attack on four other tankers last month. The price of Brent crude oil is up about 2% since the attack. Shares in shipping companies — including those in Frontline, which owns one of the vessels attacked yesterday — jumped yesterday amid expectations of higher shipping rates. The attacks off the coast of Iran have reignited fears of trade disruption in the Strait of Hormuz, a key transit point for the world's shipped oil. Link to Wall Street Journal article on the topic.
Russia responded angrily to news that America will send 1,000 troops to Poland. The foreign ministry released a statement arguing that the deployment was a “severe blow” to a deal struck between Russia and NATO to restrict military build-up in Eastern Europe. It added a warning shot: “We see this as a sign of preparation for subsequent large-scale deployments.”
Tariffs loom over car makers, despite Mexico deal. The auto industry continues to weather trade-related fallout despite a deal the U.S. and Mexico struck that shelved President Trump’s plan to impose tariffs on imports. The trade unrest comes as auto companies are already facing a slowdown in U.S. car demand that is denting earnings across the sector. Link to WSJ article.
EU trade chief Cecilia Malmström said it’s “quite likely” that the U.S. will run out the clock on the World Trade Organization’s Appellate Body, leaving it useless by the end of the year. “If nothing happens, the 12th of December the system will die,” Malmström said Thursday at a Brussels think tank. “I think it’s quite likely, unfortunately,” she added. The U.S. is blocking appointments of new members to the court over complaints of legal overreach and a failure to follow the process and deadlines for issuing decisions as laid out in WTO rules.
Sarah Huckabee Sanders, the White House press secretary, will step down at the end of June after two years. Separately, America’s government watchdog recommended that Donald Trump sack Kellyanne Conway, a White House aide, for breaching campaign rules in Alabama. The president declined.
Bayer said it would invest $5.64 billion to develop alternative weedkillers over the next ten years and reduce its environmental impact. Its share price has been battered since its purchase last year of Monsanto for $63 billion. That exposed the company to a series of lawsuits which link its glyphosate-based weedkillers with cancer. "We listened. We learned," the company said on its website as it battles more than 13,000 lawsuits and billions of dollars in awards.
— Markets. The Dow on Thursday gained 101.94 points, 0.39%, at 26,106.77. The Nasdaq moved up 44.41 points, 0.57%, at 7,837.13. The S&P 500 rose 11.80 points, 0.41%, at 2,891.64.
Economists say the Fed's next move is a rate cut. More than three quarters of economists surveyed by the Wall Street Journal expect the Federal Reserve’s next move will be to lower interest rates, which most expect to happen by the fall. Fed officials have held their benchmark federal-funds rate steady since December in a range between 2.25% and 2.5%. Link for details.
IEA cuts oil demand growth forecast. Following yesterday's bearish report from OPEC that trimmed its forecast for world oil demand, the IEA has also slashed its estimates for the second straight month. "Until recently, the focus has been on the supply side with the familiar list of uncertainties — Iran, Venezuela, Libya, and the Vienna Agreement," the agency wrote in its latest monthly report. "Now, the main focus is on oil demand as economic sentiment weakens." Revising down its estimate by 100K barrels, the IEA now expects oil demand growth to reach 1.2M bpd this year, before rebounding to 1.4M bpd in 2020.
Boris Johnson is the frontrunner after the first round of voting to choose the Conservative Party’s new leader, and so the next prime minister of Britain. Johnson was supported by 114 MPs, more than the combined total of the next three candidates (Jeremy Hunt, Michael Gove and Dominic Raab). The second round of voting is on June 18.