China Wants to Double Size of Its Middle Class

Posted on 12/01/2020 8:05 AM

GOP winning some remaining razor-thin House races, narrowing margin in chamber

 


In Today’s Updates


 

Market Focus:
• Bitcoin surges to a new record
• Dow ended November with 12% gain
• Fed’s Powell lauds recovery but continues to warn outlook ‘extraordinarily uncertain’
• Mnuchin to call state and local lockdowns threats to economic growth
• China factory activity strongest in decade

• Global debt is on track to hit $277 trillion by year-end
• Death of LIBOR postponed
• Rhodium prices soaring to record highs
• Consultant cuts Brazilian soybean, corn crop estimates

• Big areas of South American crops under moisture stress

• Bigger soy crush, less corn-for-ethanol use expected

• Russian wheat crop a mixed bag

• France working to boost production of protein-rich crops

• Unions of oilseed workers and grain inspectors launch strike in Argentina

• Favorable palm oil prospects for 2021

 

Policy Focus:
• CFAP 2 payments over $11.1 billion
• USDA forwards final rule on hemp program to OMB
• RMA expands pilot multi-peril crop insurance plan for hemp

 

U.S./China update:
• U.S./China tensions starting to touch freight transport operations
• Why China wants to double the size of its middle class
• China purchased record $4.8 bil. U.S. food, ag & seafood products during October

 

Energy & Climate Change:

• CARB’S Nichols would take EPA top role if offered
• OPEC put off until later this week decision about extending oil output cuts
• Exxon Mobil takes huge write down
• Brazil’s space agency: More than 4,247 square miles of Amazon rainforest destroyed
• United Nations Development Program (UNDP) faces corruption allegations


Coronavirus update:
• Moderna asks U.S. and European health regulators to authorize use vaccine
• Coronavirus vaccine supply chain preparing to move into a faster gear: WSJ
• Study: Covid-19 infected people in U.S. in mid-December 2019
• Grassley returns to office following quarantine

 

Politics & Elections:
• Wisconsin and Arizona certified election results Monday
• Georgia officials investigating third-party groups trying to register people
• GOP Miller-Meeks certified winner in Iowa by only six votes
• GOP House candidates continue to win remaining seats
• House Ag chair to be nominated Thursday, full caucus vote in January


Other Items of Note:
• Senate clears FERC nominees, fully staffing regulatory agency

 


MARKET FOCUS


 

Equities today: Overnight the MSCI Asia Pacific Index rose 1% while Japan's Topix index closed 0.8% higher. Dow futures pointed to a strong gain at today’s open, setting up Wall Street to start December with a strong rally.  

 

     U.S. equities yesterday: The Dow finished 271.73 points, 0.91%, at 29,638.64. The Nasdaq eased 7.11 points, 0.06%, at 12,198.74. The S&P 500 was down 16.72 points, 0.46%, at 3,621.63.

 

    Despite the losses for the day, the Dow ended November with a gain of 12%, its best finish since January 1987, while the Nasdaq rose 12% and the S&P 500's 11% rise was its best monthly result since April. Energy (was by far the best monthly sector performer, up more than 30%.

 

     Nasdaq trading volume on Monday, the last day of the month, was 7,693,139,279 shares, the most-active day since at least May 28, 2019. The average volume this year has been 3,879,077,760.

 

On tap today:

 

     • Bank of England Gov. Andrew Bailey speaks at a webinar on history and central bank policy at 9 a.m. ET.
     • IHS Markit's U.S. manufacturing index for November is expected to tick down to 56.5 from a preliminary reading of 56.7. (9:45 a.m. ET)
     • Institute for Supply Management's manufacturing index for November is expected to fall to 58 from 59.3 a month earlier. (10 a.m. ET)
     • U.S. construction spending for October is expected to rise 0.8% from the prior month. (10 a.m. ET)
     • Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven Mnuchin appear before the Senate Banking Committee at 10 a.m. ET.
     • European Central Bank President Christine Lagarde speaks to the Atlantic Council at 12 p.m. ET.
     • Federal Reserve: Governor Lael Brainard discusses the Community Reinvestment Act at 12 p.m. ET, San Francisco’s Mary Daly speaks at a virtual Arizona State University economic forecast event at 1:15 p.m. ET, and Chicago’s Charles Evans appears on CNN International at 3 p.m. ET.

 

Fed’s Powell lauds recovery but continues to warn outlook ‘extraordinarily uncertain.’ The U.S. economic recovery from the Covid-19 pandemic has continued since the sharp drop in the second quarter, with Fed Chairman Jerome Powell telling lawmakers in prepared testimony that consumer spending on goods, especially durable goods, has “moved above its pre-pandemic level.” However, spending on services has remained low in sectors requiring people to gather closely such as travel and hospitality. In testimony before the Senate today, Treasury Secretary Steven Mnuchin is expected to call state and local lockdowns threats to economic growth.

 

     “The overall rebound in household spending is due, in part, to federal stimulus payments and expanded unemployment benefits, which provided essential support to many families and individuals,” Powell said in his remarks. More than half of the 22 million jobs lost in March and April have been regained, he noted. “As we have emphasized throughout the pandemic, the outlook for the economy is extraordinarily uncertain and will depend, in large part, on the success of efforts to keep the virus in check,” Powell cautioned.

 

    Noting that news on a vaccine has been positive for the medium-term, Powell also noted, “It remains difficult to assess the timing and scope of the economic implications of these developments with any degree of confidence.”

 

     While he did not outright call for additional fiscal stimulus for the U.S. economy, he and other Fed officials have been consistent in their urging for lawmakers to approve additional financial help for businesses and consumers and he will not doubt make that plea again during his Senate testimony today and in the House Wednesday if given the opportunity by lawmakers.

 

     Meanwhile, more than 30 Democratic senators are pushing for an extension of special pandemic unemployment benefits that cover 12 million workers and expire the day after Christmas. The move comes as roughly a dozen senators from both sides of the aisle try to break the stalemate ahead of the deadline to fund the federal government.

 

China factory activity strongest in a decade. The November Caixin/Markit manufacturing PMI for China came in at 54.9, up from 53.6 in October and the strongest reading since November 2010. The sector has continued to recover from the pandemic and the rise echoes the official PMI reading released Monday that came in above expectations. Total new orders and factory output components of the readings were also at 10-year highs.

 

Global debt is on track to hit $277 trillion by year-end — a record 365% of world gross domestic product. The huge sums reflect how the Fed and other central banks, by slashing interest rates and buying trillions of dollars of fixed-income securities, have helped borrowers ride out tough times caused by the global pandemic.

 

    Global debt

 

Death of LIBOR, a benchmark interest rate that underlies more than $200 trillion-worth of financial contracts, has been delayed. ICE Benchmark Administration said it intended to keep publishing the most popular dollar variants until June 30, 2023, 18 months later than first planned. The Federal Reserve and other regulators urged banks to switch away from LIBOR “as soon as practicable” — U.S. regulators asked banks to stop using the LIBOR offered rate for new transactions — including with corporates — by the end of 2021.

 

Market perspectives:

 

     • Outside markets: The U.S. dollar index is lower today after hitting a 2.5-year low Monday. The other important outside market sees January Nymex crude oil futures prices near steady and trading around $45.25 a barrel. The OPEC oil cartel is meeting this week and will be discussing keeping its present production cuts — see related item. The yield on the benchmark 10-year U.S. Treasury note futures is currently trading at 0.85%.


     • Crude oil futures are weaker, with U.S. crude trading around $45.10 per barrel and Brent crude around $47.75 per barrel. Futures were under pressure in Asian trading with U.S. crude down 36 cents at $44.98 per barrel and Brent crude around 32 cents at $47.56 per barrel.

 

     • Bitcoin surged on Monday to set its first fresh record in nearly three years. The price of Bitcoin set a new high, at just over $19,850, three years after its previous peak (previous record of $19,782 set on Dec. 18, 2017). This time, the cryptocurrency’s rise is being fueled by more than pure retail speculation, with institutional investors and companies “treating Bitcoin as an alternative asset, somewhat like gold,” the New York Times notes (link).

 

        Bitcoin surge

 

       Other cryptos

 

     • Rhodium prices are soaring to record highs. Never heard of the precious metal? It helps strip pollutants out of car fumes and is one of the best-performing commodities in 2020.

 

        Rhodium rally

 

Items in Pro Farmer's First Thing Today include (Link to subscribe to FTT):

     • Consultant cuts Brazilian soybean, corn crop estimates
     • Big areas of South American crops under moisture stress
     • Bigger soy crush, less corn-for-ethanol use expected
     • Russian wheat crop a mixed bag
     • France working to boost production of protein-rich crops
     • Unions of oilseed workers and grain inspectors launch strike in Argentina
     • Favorable palm oil prospects for 2021

 


POLICY FOCUS


 

—  CFAP 2 payments over $11.1 billion. Payments under the Coronavirus Food Assistance Program 2 (CFAP 2) total $11.15 billion as of Nov. 29.

 

     Acreage-based payments total $5.5 billion and account for 49% of payments made, while livestock payments are at $3.0 billion, sales commodities are at $1.6 billion, dairy is at $$1.1 billion and eggs/broilers are at $44.35 million.

 

     Payments for five commodities totaling $1 billion or more: Corn ($3.0 billion), cattle ($2.4 billion), sales commodities ($1.6 billion), soybeans ($1.2 billion) and milk ($1.1 billion).

 

     Iowa still leads all states at $1.0 billion, with the rest of the top states being Nebraska ($755.8 million), California ($751.67 million), Minnesota ($719.8 million), and Illinois ($706.3 million).

 

     CFAP 2 deadline is Dec. 11. USDA could still reach the estimated total payments under the program of $13.2 billion.

 

— USDA forwards final rule on hemp program to OMB. The process of getting a final rule for a domestic hemp production program is closer as USDA’s Agricultural Marketing Service (AMS) has forwarded its revised final rule to the Office of Management and Budget for review.

     The current target for a final rule is listed as October 2021. USDA reopened its comment period on the interim final rule through Oct. 8, 2020, and the stop-gap funding plan that keeps the government operating through Dec. 11 included a provision to extend the hemp pilot program through September 2021.

 

     Meanwhile, USDA’s Risk Management Agency (RMA) also expanded the pilot multi-peril crop insurance plan for hemp to include Arizona, Arkansas, Nevada and Texas, and added 13 counties in states where the coverage was already available. RMA also made other adjustments to the pilot effort.

 

      The RMA changes include:

 

      ▪ Expanding the program

 

        New states included with select counties in Arizona, Arkansas, Nevada and Texas;

 

        Thirteen new counties in states with existing coverage: In Colorado, Conejos, La Plata, Moffat, Routt, and San Miguel counties; in Kentucky, Kenton and Whitley counties; in New Mexico, San Miguel and Valencia counties; Houghton County, Mich.; Granite County, Mont.; Scott County, Tenn.; Alleghany, Va.

 

      ▪ Allowing broker contracts for hemp grain

 

      • Adjusting program, reporting and billing dates

 

        Sales closing, cancellation, production reporting and termination dates adjusted to match dates of similar crops

 

        Acreage Reporting Dates adjusted based on regional final planting dates

 

        Premium billing dates for all states changed to August 15

 


U.S./CHINA UPDATE


 

U.S./China tensions are starting to touch freight transport operations. China is accusing American officials of harassing Chinese airline and shipping crews that arrive in the U.S., the Wall Street Journal reports (link), and is warning that Beijing may retaliate for what it calls “provocative actions.” China says U.S. law-enforcement personnel had recently boarded 21 ships owned by state-owned Cosco Shipping Holdings and Shanghai Zhenhua Heavy Industries after they berthed in the U.S. and questioned them extensively about Communist Party membership and their links with the Chinese government. China Daily reported that similar actions were taken with arriving Chinese airlines and their flight crews. China says it will “undertake countermeasures” if the actions continue. That would be unlikely to affect U.S. maritime operations if China targets transportation, but American cargo airlines have extensive operations across the Pacific, the WSJ item notes. Those include freighter flights carrying medical equipment from China to the United States.

 

— China’s ruling Communist Party wants to ‘significantly expand’ the number of middle-income earners by 2035 to unlock domestic demand and continue growing the economy. The South China Morning Post notes: “The Communist Party has not specified the target in its 2035 vision — vowing only to “significantly expand the middle income group” — but the message is clear among top policymakers: China must increase its middle class to avoid the middle income trap, where a developing country’s growth stagnates because of structural obstacles that impede development.” Officially about 400 million Chinese are categorized as middle income, which is generally defined by the National Bureau of Statistics as a family of three earning between 100,000 yuan (US$15,200) to 500,000 yuan annually, though the definition is not always consistent. The SCMP concludes: “If China were to increase its middle-income population to near 60%, some 800 million people would fall into the category, creating a consumer market larger than the populations of the U.S. and European Union combined, and giving it huge economic leverage on the international stage.”

     China to overtake U.S. to become world’s top consumer goods market ‘very soon.’  China continues to express confidence that its domestic consumer goods market will soon surpass the United States to become the world’s largest. “China’s retail sales for the first time surpassed 40 trillion yuan in 2019, an increase of more than 42% from 2015. It will overtake the United States to become the top consumer goods market very soon,” Lian Weiliang, deputy chairman of China’s top economic planning agency, told the China Reform Forum at the weekend, according to the official Xinhua News Agency. “We must well take advantage of our super-large market, trying to build a high-quality market system in five years.”

 

— China purchased a record $4.8 billion of U.S. food, agricultural and seafood products during October. Soybeans accounted for the bulk of sales, $3.5 billion, in October, according to Census Bureau data. Purchases also included $190 million of corn, $172 million of cotton, $155 million of nuts and $96 million of pork. China’s purchases of $4.8 billion in October broke the November 2013 record of $4.7 billion, said chief economist John Newton of the American Farm Bureau Federation.

 

     Sales to China could total around $24 billion for the year, highest since the start of the China/U.S. trade war, according to FAPRI at the University of Missouri.

 

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

 

     China FB chart

 


ENERGY & CLIMATE CHANGE


 

— CARB’S Nichols confirms she would take EPA top role if offered. As Washington speculation grows about who will be in the cabinet for a Biden administration, current California Air Resources Board (CARB) Chair Mary Nichols has been mentioned as a possible choice to become EPA Administrator. “Not everybody has actually run a climate action program, or an air program for that matter. And I like working with large bureaucracies,” Nichols told the Associated Press in an interview. “If they offered it, I would take it.” Nichols is in her second term as head of CARB and at 75, said she hoped she is not yet finished in her public service career. She also has experience at EPA, having been at the agency from 1993 to 1997 as head of the Office of Air and Radiation. She also has a history with Sen. Kamala Harris (D-Calif.) who will become vice president.

 

— OPEC put off until later this week a decision about whether to extend oil output cuts, according to reports, rolling the decision into Thursday when the cartel plans to meet with Russian-led producers.

 

— Exxon Mobil takes a huge write down. The oil giant said it would write off up to $20 billion in investments in natural gas and drastically cut spending on exploration and production. Completing its strategic review, Exxon expects 15% global workforce reductions by the end of 2021. Capital spending next year is seen at $16 billion to $19 billion, and then $20 billion to $25 billion annually through 2025. Next up is elimination of less strategic assets like certain dry gas resources in the Appalachian and Rocky Mountains, Oklahoma, Texas, Louisiana and Arkansas in the United States, and in western Canada and Argentina. That’s expected to produce a mammoth, non-cash, after-tax charge of $17 billion to $20 billion in Q4. CEO Darren Woods on the moves: "Continued emphasis on high-grading the asset base — through exploration, divestment and prioritization of advantaged development opportunities — will improve earnings power and cash generation and rebuild balance sheet capacity to manage future commodity price cycles while working to maintain a reliable dividend."

 

— Brazil’s space agency said that more than 11,000 square kilometers (4,247 square miles) of the Amazon rainforest was destroyed between July 2018 and August 2019 — the highest level of deforestation since 2008. Jair Bolsonaro, Brazil’s climate-change-denying president, sees clearing space for Amazonian farmers and miners as essential to the country’s economic development. Observers note he has weakened the bodies charged with protecting the forest.

 

— United Nations Development Program (UNDP) faces corruption allegations linked to the Global Environment Facility (GEF), a multibillion-dollar organization dedicated to tackling environmental issues. The GEF has funded $7 billion of UNDP projects. An internal audit of this portfolio found signs of “fraudulent activities” according to the Financial Times. The UNDP said it “takes all cases of financial mismanagement and other irregularities extremely seriously.”

 


CORONAVIRUS UPDATE


 

 Summary: Sources: Johns Hopkins University as of 5:30 a.m. ET; Hospitalization figures from the Covid Tracking Project as of yesterday.

       • 63,315,184: Confirmed cases world-wide, and 1,469,835 deaths
       • 157,901: New U.S. cases recorded yesterday
       • 13,545,792: Total confirmed cases in the U.S.
       • 1,172: Deaths in the U.S. recorded yesterday
       •
268,103: Total U.S. deaths
       • 96,039: People currently hospitalized in U.S.

 

       Link to Covid Case Tracker
       Link to Our World in Data

 

— Moderna earlier on Monday asked U.S. and European health regulators to authorize use of its Covid-19 vaccine after a full analysis of its pivotal study showed it to be 94.1% effective - with 100% efficacy in preventing severe infection. A panel of outside experts advising the U.S. FDA will meet Dec. 17 to review the evidence for Moderna's vaccine and vote on whether to recommend that the agency authorize its emergency use. A similar meeting has been set for Dec. 10 for the Pfizer/BioNTech vaccine. It is unclear how long the FDA will take to make a decision, but Moderna CEO Stéphane Bancel says it is possible the agency could decide within a few days of the advisory panel meeting, or between Dec. 18-20.

 

— The coronavirus vaccine supply chain is preparing to move into a faster gear. An advisory panel is expected to recommend today who should get initial doses, the Wall Street Journal reports (link), a key step that comes as drug maker Moderna prepares to ask U.S. and European authorities to authorize use of its vaccine. The timing keeps Moderna on track to become possibly the second provider of a vaccine in the U.S. by the end of the year. Pfizer and German partner BioNTech expect experts advising regulators to meet Dec. 10 to review the evidence for their vaccine, and Moderna’s review could come a week later. Approval would trigger a fast-moving, large-scale effort to deliver doses under priorities set by regulators with guidance from a panel of outside medical experts. Pfizer has already started chartering flights to get its doses in position.

 

— Covid-19 infected people in the U.S. in mid-December 2019, a new government study shows, adding to evidence that suggests the virus was present outside of China earlier than previously known.

 

— Grassley returns to office following quarantine. Senate Finance Committee Chairman Chuck Grassley (R-Iowa) returned to his Washington office after completing a quarantine due to testing positive for Covid-19, his office announced. Grassley was asymptomatic throughout his quarantine and was cleared to return to the office by his doctors.

 


POLITICS & ELECTIONS


 

— Wisconsin and Arizona certified their election results Monday, further cementing Joe Biden’s win over President Trump.

 

— Georgia officials are investigating third-party groups trying to register people in other states to vote in Georgia, ahead of the Jan. 5 Senate runoffs.

 

— Republican Miller-Meeks certified winner in Iowa by only six votes. The Associated Press reports, “Iowa officials on Monday certified a Republican candidate as the winner by six votes of an open seat in the U.S. House, in what is shaping up to be the closest congressional election in decades.” State Sen. Mariannette Miller-Meeks (R) was certified the winner in IA2 with 196,964 votes to 196,958 for state Sen. Rita Hart (D). The Des Moines Register reports that though Hart “is likely to challenge the results in court, the action marks the end of weeks of recounts that showed a steadily narrowing race.”

 

— There have only been three federal elections in the last 100 years decided by fewer than 20 votes, according to FiveThirtyEight's Nathaniel Rakich. David Wasserman, Cook Political Report House editor, writes, “But in an insult to injury for House Democrats, who have already lost a dozen incumbents to the GOP, Democrats are currently trailing by a scant six votes in Iowa's 2nd CD and 12 votes in New York's 22nd CD as both races head for lengthy legal fights. The margins are infinitesimal but could make a huge difference in how the House operates. These two races will likely decide whether Democrats have a 222 or 224 seat majority and whether Speaker Nancy Pelosi can afford four, five or six defections and still pass legislation. There's a third race yet to be called in California's 25th CD, but GOP Rep. Mike Garcia holds a 405-vote lead that seems likely to hold.”

 

— House Ag chair to be nominated Thursday, full caucus vote in January. The House leadership will decide Thursday who to back for chairman of the House Agriculture Committee, a committee spokesman said. The two candidates are Reps. David Scott (D-Ga.) and Jim Costa (D-Calif.). House Agriculture Committee Chairman Collin Peterson (D-Minn.) who was defeated in the Nov. 3 election, has endorsed Scott.
 


OTHER ITEMS OF NOTE     


 

— Senate clears FERC nominees, fully staffing regulatory agency. The Senate Monday approved by voice vote the nominations of Republican Mark Christie and Democrat Allison Clements to be commissioners on the Federal Energy Regulatory Commission (FERC), putting the regulatory body at its full level of five commissioners—three Republicans and two Democrats. The Republican majority would be in place until June when the term of commissioner and former chairman Neil Chatterjee ends. Some speculate that a Republican-controlled Senate could block the nomination of a Democrat to replace Chatterjee, keeping the regulatory body at four commissioners. 

 


 

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