Big gaps in China buys of U.S. energy, farm products | Covid hits U.S. apple, cherry farms
In Today’s Updates
* Beijing ‘ready to counter U.S.’ as both navies hold drills in South China Sea
* Trump mulls China steps as bill awaits signature
* China tells Canada to rethink extradition announcement
* Big gap in China's commitment to purchase U.S. energy products
* U.S. media outlets face deadline to meet Beijing's demands
* CBO: U.S. economy to shrink by 5.9% in 2020 due to coronavirus
* ECB’s Lagarde expects disinflation
* U.S. trade sinks to lowest in more than a decade in May
* Shipping prices for large-sized bulk carriers continue to climb
* U.S. crude supply falling at quickest pace ever
* Plunge in new drilling activity may damp U.S. crude output moving forward
* Saudis raise oil pricing to U.S., Asia as energy demand recovers
* Japanese carmakers opt to triple Mexican pay rather than move to U.S.
* U.S. food supply update
* Thousand pork workers tested positive at JBS Plant in Brazil.
* Coronavirus hits U.S. key apple, cherry farms
* Combining food delivery rivals
* Update on reopening America... and around the world
* U.S. consumers buying again, but shopping patterns show broad fears
* Coronavirus update
* Australia to shut state border as Melbourne infections surge
* Grassley says Senate will not hold WTO disapproval vote
* Senators push bill to help rural electric co-ops
* July 8 is deadline for WTO candidates
* Commerce said impeding investigation Hurricane Dorian would hit Alabama LY
* Plans for natural-gas pipeline in America scrapped
* Dominion will sell pipeline business to Berkshire Hathaway
* Cotton AWP moves above 50 cents
Equities today: A surge in Chinese stocks is leading the global rally, and some analysts are noting supportive comments from Chinese state media as the cause — a signal to investors from Chinese state media suggesting investors should support a local bull market. Overnight, China's Shanghai Composite jumped 5.7% to record its largest one-day gain since 2015. The MSCI Asia Pacific Index gained 1.7% while Japan's Topix index closed 1.6% higher. In Europe, equities were higher, lifted by China’s upbeat mood. Futures suggested the S&P 500 would open up just over 1% higher when U.S. trading resumes following a three-day holiday weekend.
U.S. equities Thursday, July 2: The Dow rose 92.39 points, 0.4%, to 25,827.36, in the holiday-shortened week. The S&P 500 index was up 14.15 points, 0.5% to 3,130.01 and is down just 3% in 2020. The Nasdaq rose to a new all-time-high, gaining 53 points, 0.5% to 10,207.63. Markets were closed Friday for the Independence Day holiday.
For the week, the Dow rose 3.3% and the S&P 500 climbed 4.0% to mark the biggest weekly gain since June 5. The Nasdaq Composite advanced 4.6%.
On tap today:
• IHS Markit's U.S. services index for June is out at 9:45 a.m. ET.
• Institute for Supply Management's nonmanufacturing index for June, due at 10 a.m., is expected to rise to 50.1 from 45.4 a month earlier.
• Japan's household spending for May and provisional trade figures for June are out at 7:50 p.m.
CBO: U.S. economy to shrink by 5.9% in 2020 due to coronavirus. The U.S. economy is expected to contract by 5.9% this year due to coronavirus-related shutdowns and won't recover to its pre-pandemic level until the middle of 2022, according to a new Congressional Budget Office (CBO) report issued late last week. Still, the CBO estimates economic growth will take off in the second half of the year, growing at a 12.4% annual clip between July and the end of December.
The outlook through 2030 has "deteriorated significantly" since the agency's initial assessment in January, according to the report, which contains the CBO's first set of 10-year projections since the virus began pummeling the nation.
Inflation-adjusted GDP would grow by 4.8% in 2021, slow down to 2.2% in 2022, and then level off at an average of between 2.2% and 2.1$ for the rest of the decade.
CBO projects the unemployment rate will peak at over 14% in the third quarter of this year before falling quickly as economic activity increases in the second half of 2020 and through 2021. However, the unemployment rate is projected to remain above its pre-pandemic level of 3.5% through 2030, the CBO report said. Unemployment is estimated at 7.6% in 2021, 6.9% in 2022, before falling to an average of 4.4% by 2025-2030.
The agency estimates the interest rate on 10-year Treasury notes will rise from an average of 0.9% this year to 1.6% by 2024, and then average 2.6% between 2025 and 2030.
Meanwhile, the Office of Management & Budget (OMB) is skipping its economic forecast in its 2021 budget update, riling Democrats. Citing the unpredictability of the coronavirus pandemic, the White House did not provide an updated economic forecast in its midsession budget review last week, a move that triggered Democrats' criticism.
ECB’s Lagarde expects disinflation. European Central Bank President Christine Lagarde said the euro zone faces about two years of downward pressure on prices, but could see a turnaround after that because the coronavirus crisis will accelerate the transformation of the economy. The ECB head said in a webinar on Saturday that the pandemic will spur the preexisting shift toward greater digitization and automation, shorter supply chains, and greener industries. In the meantime, the central bank will need to keep its monetary policy exceptionally loose, and financial instruments will need to be developed that allow the economic transformation to be funded, she said. “The transition to new economic models will be disruptive -- they will probably be more disruptive in the first two years, obviously hitting employment and production -- and then we can hope it improves productivity,” Lagarde said. “So the inflation dynamic will necessarily be impacted, probably with a disinflationary, deflationary aspect at first, and then an inflation dynamic.”
U.S. trade sinks to lowest in more than a decade in May. U.S. exports of goods and services sank in May to the lowest in more than a decade as the coronavirus pandemic halted demand and shipments. The overall gap of goods and services widened to $54.6 billion in May from a revised $49.8 billion in April, according to Commerce Department data released Thursday. The median estimate of economists surveyed by Bloomberg had called for a widening to $53.2 billion.
Exports declined from the prior month by 4.4% to $144.5 billion, the weakest since November 2009, the department said. Imports fell 0.9% to $199.1 billion, the lowest since July 2010. Combined, the value of U.S. exports and imports decreased to $343.6 billion, the lowest since April 2010.
• Shipping prices for large-sized bulk carriers continue to climb. Demand tends to be seasonal, but the latest gains have impressed some analysts.
• Oil prices mixed, with U.S. crude essentially steady from Friday's finish, trading around $40.65 per barrel, while Brent crude was moved higher and is trading around $43.25 per barrel.
• U.S. crude supply is falling at its quickest pace ever, easing a global oil glut and spurring a swift recovery in fuel prices. Weekly U.S. output recently fell to 10.5 million barrels a day, down from a near-record of 13 million barrels a day from late March, government data show. U.S. crude has risen to $40.65 a barrel and its highest level since early March, paring some of its 2020 decline after starting the year above $60. Prices briefly turned negative in late April due to a global glut.
• A plunge in new drilling activity may damp U.S. crude output moving forward. The number of wells drilling for oil in the U.S. has tumbled to its lowest level in more than a decade and a fraction of the total from the start of the year, figures from Baker Hughes show.
• Japanese carmakers opt to triple Mexican pay rather than move to U.S. The U.S.-Mexico-Canada Agreement (USMCA) requires 40% or more of parts for each passenger vehicle to be manufactured by workers who are paid at least $16 an hour as a condition to make them tariff-free in the region. President Trump hailed that feature as a way to boost production in the U.S., which has a higher hourly rate than Mexico. One reason cited is the cost of moving production.
• Saudis raise oil pricing to U.S., Asia as energy demand recovers. Saudi Arabia raised pricing for August oil shipments to Asia, the U.S. and northern Europe amid signs that energy demand is continuing to recover from its coronavirus-triggered collapse. The move comes as the world’s biggest crude exporter pushes other major producers to join it in cutting supply to re-balance the market. State producer Saudi Aramco lifted the official selling price for flagship Arab Light crude to customers in Asia, its biggest market, for a third-straight month, though by less than traders expected. The grade will sell in Asia at $1.20 a barrel above the Middle East benchmark, compared with a $0.20 premium for July, the company said in a statement. Traders and refiners, who are struggling to deal with low margins, expected the premium to climb to $1.45, according to a Bloomberg survey.
The winning sand sculpture of the Texas Sand Sculpture Festival. This was last year's winner. This year's festival has been postponed.
— Update on China:
- Beijing ‘is ready to counter U.S.’ as both navies hold drills in South China Sea. China has accused the U.S. of having “ulterior motives” in sending two aircraft carrier strike groups to the disputed South China Sea, while its state media reported that Beijing stands ready to counter the challenge posed by Washington. The U.S. has sent two aircraft carriers, USS Ronald Reagan and USS Nimitz, to the disputed waters for military exercises starting on Saturday – overlapping with drills China is holding in the region. “They have seen us, and we have seen them,” Rear Admiral James Kirk said from the Nimitz.
- Trump mulls China steps as bill awaits signature. Trump has yet to sign a bill that would levy sanctions on some Chinese officials over Beijing’s tightening grip on Hong Kong, but other moves are possible. An administration official told reporters on Saturday that Trump is looking at two or three actions against China, with a high probability something could be unveiled soon.
- A bipartisan group of U.S. lawmakers called for Secretary of State Mike Pompeo and Treasury Secretary Steven Mnuchin to impose sanctions on Chinese officials involved in human-rights abuses against Muslims in Xinjiang. “The Chinese government has committed horrific acts” in the northwestern Xinjiang province, including mass internment, family separations, forced labor and forced renunciations of faith,” Sen. Marco Rubio (R-Fla.) and Rep. Jim McGovern (D-Mass.) wrote in a letter.
- China’s leading chip maker, Semiconductor Manufacturing International, is preparing a $6.55 billion stock offering, as Beijing moves to shore up its semiconductor capabilities amid heightened tensions with the U.S. The offering is much larger than expected.
- China condemned Canada’s suspension of its extradition treaty with Hong Kong, calling it a “serious violation” of international law and a “flagrant interference” in its domestic affairs. “We urge the Canadian side to correct its mistake and stop interfering in Hong Kong affairs and China’s domestic affairs to prevent further damage to bilateral relations,” Chinese foreign ministry spokesman Zhao Lijian said at a daily briefing in Beijing on Monday, responding to a question about new Canadian measures including the treaty’s suspension and an updated Hong Kong travel advisory. “China condemns that and reserves the right to take further actions,” Zhao said. “All consequences shall be borne by the Canadian government.” The Chinese embassy in Canada advised Chinese citizens traveling to the country to exercise caution citing “frequent use of violence from local law enforcement” and protests in Canada, according to the embassy’s official WeChat account.
- If you think China's purchases of U.S. farm products via Phase 1 commitments are lagging, the gap is much wider regarding promised U.S. energy buys. The Wall Street Journal takes a look at the topic (link) and notes that China's energy purchases “are behind — maybe hopelessly far — an ambitious target for purchases of oil, natural gas, refined petroleum products like propane and butane, and coal, prompting concerns from the U.S. energy industry which is encouraging the U.S. Trade Representative to increase pressure on China to reach the goal.” One of the targets of this year's trade deal was that China would purchase more than $25 billion of U.S. energy products, such as oil, natural gas and coal. But, so far this year, China has purchased only $2 billion of that sum, due in large part to the collapse in energy demand resulting from the coronavirus pandemic.
U.S. Trade Representative Bob Lighthizer points out that the export numbers only reflect finalized exports and don't take into account purchase agreements that have been made but haven't yet been shipped.
- China's purchases of U.S. farm products, while increasing, still significantly lag promised totals. Take a look at two Farm Bureau-created charts:
- Link to U.S./China Phase 1 purchase tracker.
- U.S. media outlets face deadline to meet Beijing's demands. China's government has given four American news organizations until Tuesday to submit information about their operations in the country. A similar request earlier this year came in connection with Beijing's decision to revoke the press credentials of several reporters at other U.S. titles.
— Update on next aid package:
- Next aid package by August congressional recess. Senate Majority Whip John Thune (R-S.D.) said last week that talks over the next coronavirus relief/stimulus bill are making progress and that a plan will likely come together by the next recess in August. “There’s a lot of work that’s been done,” he said. “It’s realistic but challenging for sure,” Thune said on whether senators could finalize a plan before the chamber’s summer recess in August. “In the end, if we need to move and we need to act, we will,” he said.
— Update on implementation of CARES 1, including CFAP:
- President Donald Trump on Saturday signed lawmakers latest relief effort, a measure to extend the Paycheck Protection Program (PPP) for small businesses through Aug. 8. The House approved the plan last week to extend the PPP hours after the deadline for applications lapsed with over $130 billion still available.
— Food and beverage supply/industry update:
- A thousand pork workers tested positive at JBS Plant in Brazil. More than 1,000 workers at a JBS SA pork plant in Brazil, or a quarter of those tested, were infected with Covid-19, according to figures from the Labor Prosecutor’s Office. While almost all have recovered, the high rate of infection reveals the challenges Brazilian meat companies face to keep plants running as the virus spreads in the nation. Mass testing at JBS’s Dourados plant in Mato Grosso do Sul state started on May 25. Of 4,134 employees tested, 1,075 were positive through July 1. JBS says 20 people, out of the plant’s 4,300-strong workforce, are currently off work due to Covid-19. The company said in a statement it implemented its contingency plan just after getting the first case confirmed at the plant, helping to avoid further contamination among workers.
China recently suspended meat imports from more than 20 plants in different countries that had reported Covid-19 outbreaks, including four Brazilian facilities, one owned by JBS.
- Coronavirus hits U.S. key apple, cherry farms. A surge in coronavirus cases in one of the country’s top regions for apples and sweet cherries is challenging agricultural operations already limited by rules aimed at preventing such outbreaks, underscoring the difficulty of keeping farmworkers safe. Farms are now hiring fewer guest pickers and delaying their arrival. Farms present special hurdles because big operations like those in Washington state rely on workers that live in temporary housing during the harvest season. Still, the United Farm Workers union says many big producers are paying only passing notice to guidelines for stemming the spread of coronavirus even as cases increase. Link to WSJ for details.
- Eating out, but also dining in. The online grocery boom is easing, but people are still spending a lot on grocery delivery, with continuing strength of delivery services like Grubhub, DoorDash, UberEats, and Goldbelly.
- Combining food delivery rivals. Reports signal that Uber is close to revealing a deal to acquire food-delivery rival Postmates, continuing the trend of consolidation in a sector which has been a big winner due to the Covid-19 pandemic. The $2.65 billion all-stock agreement is expected to be announced this morning and would see Uber's head of food delivery (Pierre-Dimitri Gore-Coty) run the larger combined business. Postmates was last valued at $2.4 billion, when it raised $225 million in a private fundraising round last September, and accounts for 8% of the U.S. meal delivery market.
— Update on reopening America... and around the world:
- U.S. consumers are buying again, but their shopping patterns show broad fears of persistent health risks amid the pandemic. Coronavirus cases, after reaching a plateau in April and May, are rising across the South and West, sparking fears of a resurgence, according to a Wall Street Journal article (link). The data show consumers have in many ways been mindful of the risks all along, consistently shunning hotels and air travel and spending on driving and Airbnb bookings.
— Coronavirus update:
- Summary: The U.S. saw a slight dip in confirmed cases on the Fourth of July as the nation celebrated a subdued holiday. The number of daily new cases declined to just over 45,000 on Saturday, according to data compiled by Johns Hopkins University, following three consecutive days that each saw more than 50,000 infections. The U.S. has recorded some 2.84 million cases so far, and nearly 130,000 deaths, according to Johns Hopkins data. The death rate has slowed mostly to the hundreds a day in recent weeks, from a peak of more than 2,000 daily during several weeks in April. The percentage of fatal cases, which measures deaths per positive Covid-19 tests and gives an idea of how many cases result in death, currently stands at around 4.4%, according to data from the Covid Tracking Project. That number has dropped some from about 5.1% over the past two weeks.
11,304,534: Confirmed cases world-wide, and 531,659 deaths
45,283: New U.S. cases recorded Saturday
2,841,124: Total confirmed cases in the U.S.
242: Deaths in the U.S. recorded Saturday
129,689: Total U.S. deaths
34,858,427: Tests conducted in the U.S.
Link to Covid Case Tracker
Link to nine charts
- Florida on Sunday passed the 200,000 total confirmed case count — with around 10,000 new cases reported July 4, a slight decrease from the day before, when the state had a record 11,443 new cases. The state public health department reported that 17% of the 70,000 tests administered on July 4 came back positive, on the high end of the range seen in the past two weeks. Deaths in Florida rose to 3,731, and hospital admissions to 15,895. Florida has reported at least 10,000 new cases a day for the past four days straight. It is just the second state to report that rate.
- 'Protests had a lot to do with it': Florida official says demonstrations contributed to coronavirus spike. Miami-Dade County Mayor Carlos Gimenez said the massive protests that took place in Florida and elsewhere throughout the country likely contributed to the new spike in coronavirus cases. Gimenez, who is the highest-ranking official in Miami-Dade County, Florida, said on Sunday that the protests "obviously" contributed to the spread of the virus, but he noted that there are several other factors at play, including socialization at beaches and in restaurants. "I think obviously the protests had a lot to do with it. We had, you know, thousands of young people together outside, a lot of them not wearing masks. And we know when you do that, and you are talking, and you are chanting, etc., that really spreads the virus," he told Face the Nation.
- Texas’s health department said Saturday that Texas had added 8,258 new cases over the past day, for a total of 190,790 cases. The rise has pushed some hospitals to near capacity for the most critical patients. Gov. Greg Abbott last week ordered hospitals in four Texas counties to stop nonessential procedures as of Saturday to make sure beds are available for coronavirus patients. The governor also announced a pause to the next steps to reopen Texas.
- Arizona on Sunday reported 3,536 new cases, bringing the total state count to 98,000. The number was down from more than 4,700 new infections reported Wednesday. The steady rise in cases has led to crowded hospitals. Nearly 90% of the state’s intensive-care unit beds are in use, according to the Arizona Department of Health, up from between 60% and 70% throughout March and April.
- Mexico on Saturday became the fifth country to see fatalities top 30,000, after the U.S., Brazil, the U.K. and Italy. The country reported nearly 7,000 new infections on Saturday, bringing its total to 252,165. Street vendors protested in Mexico City against current restrictions that prevent them from doing business, the Associated Press reported.
- Australia to shut state border as Melbourne infections surge. Authorities are preparing to close the border between the country’s two largest states, as Australia’s second-largest city, Melbourne, recorded two deaths and its highest-ever daily increase in infections today. The border between the states of New South Wales — home to Sydney — and Victoria — home to Melbourne — is due to be shut late Tuesday.
OTHER ITEMS OF NOTE
- Grassley says Senate will not hold WTO disapproval vote. The Senate will not vote this year on a potentially contentious resolution of disapproval of U.S. membership in the World Trade Organization, the chairman of the Senate Finance Committee said.
- Senators push bill to help rural electric co-ops. A bipartisan Senate group including Sens. John Boozman (R-Ark.), John Hoeven (R-N.D.), Tina Smith (D-Minn), and Kyrsten Sinema (D-Ariz.) introduced a measure that would allow electric cooperatives and small, rural telecommunications providers to refinance Rural Utilities Service debt at current market rates without penalty, assisting them in recovering from the pandemic. An identical bill was also introduced last Thursday in the House.
- July 8 is the deadline for candidates to submit their application to be the next World Trade Organization director-general. Incumbent Robert Azevêdo leaves the post on Aug. 31.
- The Commerce Department is impeding investigation of whether high-ranking officials pressured NOAA into backing Trump's false statement that Hurricane Dorian would hit Alabama last year, the inspector general said.
- Plans for a natural-gas pipeline in America were scrapped. Dominion and Duke Energy, the two firms involved in building the Atlantic Coast Pipeline, to run from West Virginia to North Carolina, blamed legal uncertainties. Estimated costs rose from around $5 billion to $8 billion. Meanwhile, Dominion will sell its pipeline business to Berkshire Hathaway, Warren Buffett’s investment firm, for $9.7 billion.
- Cotton AWP moves above 50 cents. The Adjusted World Price (AWP) for cotton rose to 50.13 cents per pound, effective July 3, the first time the AWP has been above 50 cents per pound since March 13, 2020. The higher AWP still leaves an opportunity for an LDP of 1.87 cents per pound. USDA also announced that Special Import Quota #11 will be established July 9 for 17,878 bales of upland cotton, applying to supplies purchased not later than Oct. 6 and entered into the US not later than Jan. 4. The smaller quota level is the equivalent of one week’s consumption of cotton by domestic mills at a seasonally adjusted rate for the March-May period.