CFAP found wanting on several fronts | China clamps down on Hong Kong; reacts awaited
In Today’s Updates
* China plans to impose new national security legislation on Hong Kong
* Hong Kong stocks tumble on China's Hong Kong grip
* Oil prices slump on potential Hong Kong reactions
* AAA travel forecast another Covid-19 casualty
* China drops GDP forecast from planning confab, but releases defense funding info
* China issues pledge to implement Phase 1 accord with U.S.
* Kudlow, USTR, USDA all note progress re: Phase 1 agreement
* Is China worried about Covid-19 impact on Brazil?
* NOAA predicts an 'above normal' 2020 Atlantic hurricane season
* GOP-controlled Senate adjourns for 10-day recess
* Some are making USDA's CFAP more complex than it is
* Ag-sector items to be debated in next aid package sometime in June
* U.S. food supply update
* Here come the robots
* Covid-19's impact on one Minnesota town: Worthington
* Seafood suppliers are struggling to overhaul their supply chains
* Update on reopening America... and around the world
* Companies confront the unforgiving economics of coronavirus
* Coronavirus update
* Trump: ‘we’re not gonna close the country’ again if a second wave of coronavirus hits
* Senate agenda in June
* Office of the Comptroller of the Currency nomination
* NRC nominees confirmed
* Senate Judiciary Committee markup took no action on three agenda items
* USDA unveils $1 billion in loan guarantees to backstop rural businesses
* Cotton LDP moves up
* Biden talks about VP selection, says no one has been vetted
Equities today: Hong Kong stocks were hit as China’s security law blindsided traders. Beijing’s move to impose legislation raises concerns over the city’s future as a finance hub. The law — which is expected to pass China’s rubber-stamp parliament before the end of its annual session May 28 — will curb secession, sedition, foreign interference and terrorism in the former British colony. Privacy advocates fear the law will lead to increased surveillance and censorship in Hong Kong. This means the end of the “one country, two systems” arrangement that Beijing promised for 50 years after 1997. Hong Kong’s benchmark Hang Seng index fell 5.6%, marking the index’s worst one-day performance in nearly five years. Japan’s Topix index dropped 1.1% and Australia’s S&P/ASX 200 was down 0.9%. U.S. equity futures signal a lower open.
U.S. equities yesterday: The Dow declined 101.78 points, 0.41%, at 24,474.12. The Nasdaq lost 90.90 points, 0.97%, at 9,284.88. The S&P 500 was down 23.10 points, 0.78%, at 2,948.51.
In the U.S., workers filed another 2.4 million claims for unemployment insurance last week, down significantly from a peak of nearly 7 million at the end of March. While layoffs appear to have subsided, the number of people without work remains at record-high levels: The number of people receiving benefits — a proxy for overall levels of unemployment — increased to 25.1 million.
Sales of previously owned homes in April posted their biggest monthly decline since 2010. Stay-at-home orders prevented real-estate agents from showing homes in person in some states, and widespread job losses and tightening credit requirements have made it more difficult for buyers to qualify for loans. While the number of transactions declined, prices continued to rise. The median existing-home price rose 7.4% from a year earlier to $286,800.
But U.S. applications for mortgages to purchase a home have risen for five weeks straight, according to a Mortgage Bankers Association survey. That's no guarantee the market will continue to gain ground, but it does suggest activity has stabilized.
Oil prices slumped on the prospect of increased tensions between Washington and Beijing. Brent crude, the international benchmark, fell 4.6% to $34.40 a barrel, while U.S. marker West Texas Intermediate dropped 6%, trading just below $32 per barrel.
AAA travel forecast another Covid-19 casualty. The American Automobile Association (AAA) said that for the first time in 20 years, they will not be issuing a travel forecast of how many people will be traveling for the holiday. The group said earlier this month they would not issue the forecast “as the accuracy of the economic data used to create the forecast has been undermined by Covid-19.” However, they pledged the annual forecast would return again in 2021.
They did note that gasoline prices for those traveling will be much cheaper. “At the start of the Memorial Day work week, the national gas price average is $1.87,” AAA said. “The last time the national gas price average leading into the holiday was under $2 per gallon was 17 years ago in 2003. That year motorists paid, on average, $1.50 to fill-up. Gas prices this year won’t be as cheap as 2003, but today’s national average is a dollar cheaper than one year ago.”
Treasury reported the total pile of Treasuries held by foreign investors shrank in March -- when the market was getting lashed -- by the most in data going back to 2000.
NOAA sees busy hurricane season colliding with Covid-19. The U.S. could experience up to 19 named Atlantic storms this year, in a hurricane season that comes as communities across the country are dealing with the coronavirus pandemic that would complicate emergency responses, including conditions at evacuation centers. The National Oceanic and Atmospheric Administration (NOAA) said in a report Thursday (link) it expects an “above normal” hurricane season from June 1 to Nov. 30. The agency predicted 13 to 19 named storms, which have speeds of at least 39 miles per hour. If this hurricane season remains above normal as predicted, Gerry Bell, lead hurricane season forecaster with NOAA’s Climate Prediction Center, said it would be the fifth consecutive year of higher than normal storm activity. This year, six to 10 of the predicted storms could become hurricanes with winds of 74 mph or higher, including three to six major hurricanes with winds of 111 mph or higher. An average hurricane season produces 12 named storms, of which six become hurricanes, including three major hurricanes with winds of 111 mph or higher.
A cat has nine lives and Argentina has default number nine. Argentina is set for its ninth sovereign debt default today as talks with creditors to restructure $65 billion in foreign debt took "a positive course." That's according to Economy Minister Martin Guzman, who declined to comment on whether the government would make around $500 million in bond payments. "There is still an important distance to cover," he added, "but all sides are at the table trying to find a solution."
The Chinese People’s Political Consultative Conference (CPPCC) opened today in Beijing. The seven Politburo Standing Committee members plus Wang Qishan, and the vice-chairs of the CPPCC all were not wearing masks, while everyone else was. Would the U.S. press keep asking them why they are not wearing a mask? (On Thursday, President Trump, as he toured a Ford plant, did not wear a mask, despite the plant’s own guidelines and the urging of Michigan’s attorney general. He did wear one in a private area, he said, explaining, “I didn’t want to give the press the pleasure of seeing it.”)
— Update on China:
- Beijing scraps GDP target. The government omitted a numerical target for the first time since it began the practice in 1994 as it battles economic shock from coronavirus.The National People's Congress kicked off, which was delayed by almost three months this year owing to the pandemic. Li Keqiang, the Chinese premier who delivered the work report, noted that the government refrained from setting a GDP target not because of domestic conditions but because foreign markets were so uncertain.
China did, however, announce a 6.6% rise in military spending, to Rmb1.27 trillion ($178 billion) for 2020. Last year China raised military spending by 7.5% to Rmb1.19 trillion, or 1.2% of GDP. The International Institute for Strategic Studies, a London-based think-tank, normally adds about 33% on top of the given figure. An independent estimate by the Stockholm International Peace Research Institute think-tank put the U.S. military budget in 2019 at $732 billion, representing 38% of global defense spending, compared with China’s $261 billion over the same period.
Hu Xijin, editor of nationalist tabloid Global Times, argued on microblog Weibo that China needed to keep increasing its budget owing to the shifts in the global order during the pandemic, which made the U.S. act in an “unprecedentedly rash” manner. “China needs to strengthen military strength as a deterrence and to ensure that the U.S. dares not carry out a reckless attack,” he wrote. He previously reported on upcoming Chinese actions, tweeting last week that China would retaliate against any further American limits on Huawei by activating the "unreliable entity list."
China's economy contracted by 6.8% in the first quarter of the year after activity ground to a halt during the coronavirus outbreak. Many economists’ outlooks for 2020 are less than half of the 6.1 per cent growth rate posted last year.
The report said that China was expected to raise its fiscal deficit to more than 3.6% of GDP, up from 2.6% last year. It will also issue Rmb1 trillion ($140 billion) in treasury bonds to mitigate the impact of Covid-19.
- Beijing's dramatic plans to tighten its grip on Hong Kong spurred outrage in the city and abroad. Opposition lawmakers warned that its status as an international financial center was in jeopardy as China announced an intention to "establish sound legal systems and enforcement mechanisms for safeguarding national security." Link to the BBC for details.
President Trump said details on Beijing’s plans aren’t yet known and promised to “address that issue very strongly” if China proceeds. U.S. senators said they were introducing a bipartisan bill that would sanction Chinese officials and entities who enforce the new national-security laws in Hong Kong, and penalize banks that do business with the entities.
State Dept. comments. "Any effort to impose national security legislation that does not reflect the will of the people of Hong Kong would be highly destabilizing," the U.S. State Department declared.
- President Trump has sent several tweets criticizing China and its leader Xi Jinping, though without mentioning his name. One of them: “China is on a massive disinformation campaign because they are desperate to have Sleepy Joe Biden win the presidential race so they can continue to rip-off the United States, as they have done for decades, until I came along!”
- China's propaganda organs and certain officials have recently mocked President Trump and the United States. Hu Xijin of the Global Times continued the mocking: “On the contrary, Chinese netizens wish for your re-election because you can make America eccentric and thus hateful for the world. You help promote unity in China and you also make intl news as fun as comedy. Chinese netizens call you 'Jianguo,' meaning 'help to construct China.'”
- China issued a separate pledge to implement Phase 1 of its trade deal with the U.S. despite a growing number of setbacks. “We will work with the United States to implement the Phase 1 China/U.S. economic and trade agreement,” Premier Li Keqiang told the annual gathering of lawmakers in Beijing. “China will continue to boost economic and trade cooperation with other countries to deliver mutual benefits.”
This comes as the pace of recriminations between the U.S. and China is complicating the picture for investors. Beyond President Trump’s Twitter feed, a U.S. Senate push against the stock exchange listing of some Chinese companies signals how a trade war is becoming more focused on financial flows. This comes after a recent amendment of an export rule by the U.S. Commerce Department, designed to stop semiconductors being sent to Huawei Technologies. President Trump recently halted the investment of federal retirement funds in China. All this comes as the U.S. Treasury debt held by China is $1.1 trillion, second only to Japan, and at a time when Washington is stuck with annual budget deficits in the trillions of dollars.
- Kudlow: China Phase 1 deal in good shape despite tardy purchases. China is importing U.S. ag and other goods a bit slower than originally hoped for, but the Phase 1 trade pact is still being successfully implemented, National Economic Council (NEC) Director Larry Kudlow said Thursday. “I guess the Chinese purchases are a little behind, but I think that’s more because of poor economic and market conditions … and China has every intent of implementing (phase one),” Kudlow said in a Washington Post interview.
Kudlow said China is not currently looking to renegotiate the trade pact, saying that’s not happening. “At the present time … there’s no renegotiating at all,” he said. “We’re looking for steady implementation and we’ll be monitoring it very closely.”
USDA and the U.S. Trade Representative said in an update (link) on the U.S.-China trade deal that Beijing is making progress "despite difficult times for both our countries" with agricultural purchases, exemptions on retaliatory tariffs and approvals of more U.S. exports of farm products. USDA Secretary Sonny Perdue was also upbeat about recent steps China has taken to open its market to U.S. avocados, blueberries, barley, meat, dairy and forage products. “China is a market of tremendous potential for U.S. agriculture and these actions will help U.S. exporters expand their sales there. We look forward to continued cooperative work with China on implementation of Phase 1 commitments, and immediate increases in U.S. exports of all manner of agricultural products," Perdue said. The White House released a document on Thursday (link) on the administration’s “strategic approach” toward China, which called the Phase 1 agreement a sign of “critical progress toward a more balanced trade relationship.”
Meanwhile, reports have surfaced that Chinese purchasers are becoming concerned about reliability of supply with Covid-19 outbreaks increasing in South America’s largest agricultural exporting nation, Brazil.
- One thing to ponder: If President Trump late in the year internally thinks he is going to lose the presidential election, would he turn very aggressive against China? Some China watchers think so. China, meanwhile, has already turned more aggressive.
— Update on next aid package — Phase 4/CARES 2:
- The GOP-controlled Senate adjourned for a 10-day recess without considering an alternative to the $3 trillion-plus economic relief bill passed with Democratic votes in the House of Representatives. “We need to assess what we have already done, take a look at what worked and what didn’t and we will discuss the way forward in the next couple of weeks,” Senate Majority Leader Mitch McConnell (R-Ky.) said after a lunch this week with fellow Republican senators and President Donald Trump. “There is a high likelihood we will do another rescue package, but we need to be able to measure the impact of what we’ve already done, what we did right, what we did wrong, and correct that,” McConnell told Fox News on Thursday evening. “We’re not quite ready to intelligently lay down the next step, but it’s not too far off.”
What some GOP senators want: Sen. Lindsey Graham (R-S.C.) has called for big investment in infrastructure in recent days. Sen. Rob Portman (R-Ohio) has proposed a $450 “return-to-work” bonus to encourage people claiming unemployment benefits to re-enter the workforce. “We do need to continue unemployment insurance, it is extremely important at a time like this, but to pay people more not to work than to work doesn’t encourage resuming your job,” McConnell told Fox News. “That will end in July, and we think that in order to create jobs, we need to incentivize people to go back to work, not encourage them to stay home.”
McConnell has also called for increasing protections for employers facing coronavirus-related litigation, calling the issue a “red line” for Republicans in any future talks.
— Update on implementation of CARES 1, including CFAP:
- Some are making CFAP even more complex than it is. The always-worrying ag sector is at it again, this time making a byzantine ag aid package (CFAP) more convoluted than it already is.
The confusion is being created by USDA itself. The rule does not specify 2019 inventory. The CFAP page for non-specialty crops says "Total 2019 production that was not sold as of January 15, 2020." What the rule says: Eligible inventory for the purpose of non-specialty crops is the lower of self-certified unpriced inventory that an eligible producer has vested ownership in as of January 15, 2020, or 50% of the eligible producer's 2019 production of that commodity.”
Comments: Analysts trying to make this harder than it is should FOLLOW THE RULE.
- What is not in CFAP and what ag-sector items will debated in the next aid package sometime in June:
• Funding beyond the current $16 billion in direct payments will be part of the aid package coming in June.
• USDA’s CCC will see additional funding and perhaps a big boost in its current $30 billion borrowing cap. USDA can tap $14 billion after June for additional payments.
• An effort to do away with payment caps for CFAP and future ag aid payouts.
• Indemnity payments for livestock producers who had had to euthanize animals will also be part of the coming aid plan.
• Some lawmakers want to expand liability protections for meat plants. A bill by Rep. Vicky Hartzler (R-Mo.) immunizes meat processing companies. Exceptions are lawsuits proving criminal misconduct or gross negligence.
• Biofuel sector will also get some aid utilizing USDA’s CCC. Sens. Chuck Grassley (R-Iowa) and Amy Klobuchar (D-Minn.) introduced legislation to support biofuel producers hit by the pandemic. It would require USDA to reimburse biofuel producers for feedstock purchases from Jan. 1, 2020 through March 31, 2020 via the CCC.
• The cotton merchandising supply chain has incurred major carrying charges, logistical costs, and market disruptions with delayed and cancelled sales and shipments and increased stocks. A push is on to help aid this sector.
— U.S. food supply/industry update:
- Here come the robots. Sure, that has been forecast before, but the pandemic is now accelerating investment in purchases and robotic research. The pandemic has forced countries to re-examine the resilience in their supply chains such as food and healthcare. As a result, some companies are likely to “reshore” manufacturing activities closer to home. Link to McKinsey & Company report on How to rebuild and reimagine jobs amid the coronavirus crisis.
- Covid-19's impact on one Minnesota town. Worthington’s meatpacking plant turned the town into a global melting pot. When an outbreak closed the plant this spring, it had massive ripple effects on the local economy. Link to WSJ article.
- Seafood suppliers are struggling to overhaul their supply chains as the coronavirus crisis undercuts their core business. The pandemic is hitting seafood businesses even harder than the meat industry, the Wall Street Journal reports (link), crippling many of their key markets as fishermen and processors strain to redirect their highly perishable products. U.S. supermarket shoppers are buying more fish and shellfish to prepare at home during quarantine, but experts say 70% of seafood is consumed in restaurants and the sales to consumers aren’t offsetting the lost business. Fishermen across the country have docked vessels and distributors have rerouted what fresh fish they can towards grocery stores and into freezers, while sometimes destroying the rest, the article informs. Meanwhile, prices for many items have plummeted as costs climb for processors trying to prevent the virus from spreading in seafood plants as it has in slaughterhouses.
— Update on reopening America... and around the world:
- Companies confront the unforgiving economics of coronavirus. Many retailers, fast-food chains and salons are realizing that staying open for business is almost as hard as being closed. Link to WSJ article.
— Coronavirus update:
- Summary: Global Covid-19 cases stand at 5,121,639, according to data from the Center for Systems Science and Engineering (CSSE) at Johns Hopkins University (JHU), with the death count at 333,323. The U.S. case count is at 1,577,758 with 94,729 deaths.
- Trump says he won't close the country if second wave of coronavirus hits. President Trump said “we are not closing our country” if the U.S. is hit by a second wave of coronavirus infections. “People say that’s a very distinct possibility, it’s standard,” Trump said when asked about a second wave during a tour of a Ford factory in Michigan. “We are going to put out the fires. We’re not going to close the country,” Trump said. “We can put out the fires. Whether it is an ember or a flame, we are going to put it out. But we are not closing our country.”
- British-Swedish pharmaceutical giant AstraZeneca has received orders for 400 million doses of its Covid-19 vaccine — largely from the U.S. Despite the vaccine still being under development with Oxford University, the company says it expects to start shipping as early as September.
- Oxfam, one of the world’s biggest humanitarian-aid agencies, said it would close operations in 18 countries and lay off about 1,500 staff. The organization currently works in over 60 countries directly. Oxfam’s charity shops have been shuttered during the pandemic, hitting its revenues.
OTHER ITEMS OF NOTE
- Senate agenda in June. Senate Majority Leader Mitch McConnell (R-Ky.) said that next month, the Senate will work on the fiscal 2021 defense authorization bill and is expected to take up a public lands package. That measure (S 3422) would permanently fund the Land and Water Conservation Fund and establish a fund for maintenance of national parks and other public lands. McConnell also set up a series of votes to confirm more of President Donald Trump’s nominees. McConnell locked in a schedule for brief pro forma sessions with no planned business until June 1. The Senate will gavel in and out on Friday, and then again twice next week.
- Office of the Comptroller of the Currency nomination. Treasury Secretary Steven Mnuchin has named former Coinbase chief legal officer Brian Brooks as chief operating officer of the Office of the Comptroller of the Currency, to take over from Joseph Otting, who announced he is leaving the role at the end of May.
- Senate Judiciary Committee markup took no action on its three agenda items Thursday, including a subpoena authorization relating to the FBI's investigation of possible Russian involvement with the 2016 Trump campaign. Chairman Lindsey Graham said the committee expects to mark up the items in June.
- NRC nominees confirmed. The Senate approved two energy-related nominations before heading out for their week-long Memorial Day recess. The chamber confirmed Republican Commissioner David Wright and Democratic nominee Christopher Hanson to terms on the Nuclear Regulatory Commission (NRC).
- USDA on Thursday unveiled $1 billion in loan guarantees to backstop rural businesses and certain farmers stung by the economic shutdown and supply chain disruptions. Link for details.
- Cotton LDP moves up. The Adjusted World Price (AWP) for cotton is at 48.01 cents per pound, effective today (May 22), up from 47.36 cents per pound the prior week. This leaves an opportunity for an LDP of 3.99 cents per pound on eligible 2019 production.
- Joe Biden to Stephen Colbert on CBS' The Late Show, regarding his V.P. pick: "I honest to God don't know who. I promise you right now." Biden said the "very invasive process" of formal vetting by a team of lawyers — "every vote they've ever taken ... everything from their financial statements to their health circumstances" — is about to begin: "No one's been vetted."