Chinese officials fret about economy | Mexico’s president wants Pelosi to hold USMCA vote
In today's updates:
* Mnuchin comments on Phase 1 and talks soon with Chinese officials
* Florida Tomato Exchange calls for reopening of antidumping probe
Markets: Pork prices in China jumped 69.3% in September from a year ago as the country continued to battle a shortage of the meat that followed an outbreak of African swine fever. That increase in pork prices have been a major driver in the overall increase in China's consumer prices
— U.S./China trade policy update:
- Mnuchin comments on Phase 1. “What I will tell you is we made substantial progress last week in the negotiations,” Treasury Secretary Steven Mnuchin said Monday on CNBC. “We have a fundamental agreement, it is subject to documentation, and there’s a lot of work to be done on that front.” He said the deal includes “very significant structural issues in agriculture” as well as the promise of buying up to $50 billion of U.S. commodities. China had “some concerns as to whether our farmers can meet those numbers. We think they can,” Mnuchin said. “The next phase is deputy-level calls that will be going on this week,” Mnuchin said in an interview with CNBC. “Ambassador Lighthizer and myself will have a principal-level call next week with the vice-premier. My expectation is [that] we’ll have the deputies meet between now and Chile, and my expectations are that we will be meeting with the vice-premier in Chile before the presidents meet to finish the deal.”
- What’s next? China has invited Mnuchin and U.S. Trade Representative Bobt Lighthizer to Beijing for talks ahead of a meeting between Trump and Chinese President Xi Jinping in Chile at the Asia-Pacific Economic Cooperation summit Nov. 16-17 in Chile.
- China details farm product buys from the U.S. China has already bought 700,000 tonnes of U.S. pork and 700,000 tonnes of U.S. sorghum this year to meet market demand, along with 320,000 tonnes of cotton, 230,000 tonnes of wheat and 20 million tonnes of U.S. soybeans, according to Foreign Ministry spokesman Geng Shuang.
- State-affiliated social media in China now says both sides have the same stance. After some distance-separating comments over the weekend, Taoran Notes, a social media account affiliated with the official Economic Daily, today said China and the U.S. essentially shared the “same position” on the progress of the trade talks. “If the Chinese side has disagreement with [what US President Donald Trump has said], it will make a response immediately,” it said. “People who are familiar with China’s situation would know that China takes a very cautious approach when it comes to official language used in announcements to the public … but we can confirm that both sides essentially share the same stance.” Over the weekend, Chinese state media warned of uncertainties and cautioned against being “overly optimistic” about negotiations. But on Monday, the Chinese foreign ministry confirmed that progress was made on issues including agriculture, intellectual property protection, exchange rates, financial services, the expansion of trade cooperation, technology transfer and dispute settlement. An editorial from China’s state tabloid Global Times published today also echoed the more hopeful tone with a commentary under the headline, “The breakthrough in China-U.S. [talks] should be celebrated instead of being dismissed.” “China and the U.S. have made a breakthrough in the negotiations. Both sides are satisfied with the progress and expressed strong will to reach a final deal.”
- Growing Chinese concern regarding its economy. Data overnight showed China’s factory deflation deepened in September due to slowing output growth and falling raw material prices. Chinese Premier Li Keqiang has urged local authorities to do everything possible to tackle ‘downward economic pressure’ amid U.S./China trade war tensions. Li told five provincial governors on Monday that local officials must “enhance the sense of urgency and responsibility” to ensure stable economic growth and “must put growth in a more prominent position” on their work agenda, according to a statement on the Chinese government’s website. “The downward pressure on the economy is increasing continuously, and many real economic entities are struggling amid weak domestic demand,” Li said. He added local authorities must do everything they can to “make sure targets for this year are achieved.” The premier’s address was the first time the government has suggested its full-year targets — including a minimum gross domestic product (GDP) growth rate of 6% — are at risk of being missed. The country’s GDP growth figures for the third quarter, set for release on Friday, are expected to show a further deceleration from the second-quarter rate of 6.2%.
- China data continues to signal economic struggles. Inflation at the wholesale level in China declined 1.2% in September compared with year ago, according to the PPI data released by the National Bureau of Statistics, the steepest drop in more than three years. Consumer prices, however, rose 3% in September from year-ago marks, faster than expected, and the biggest rise since prices rose 3.2% in October 2013. The CPI data was pushed up in large part by a food price increase of 11.2%, fueled by a rise of 69.3% in pork prices. Pork prices rose 46.7% on an annualized basis in August. Meanwhile, Chinese banks extended 1.69 trillion yuan ($238.98 billion) in new loans in September, above the August mark and above trade expectations. Outstanding yuan loans increased 12.5% from year ago, up from a 12.4% pace in August.
- Perspective: Follow-up meetings between U.S. and Chinese officials were suggested last week and on Friday, so it was bewildering to those closely watching the matter as to how some U.S. media (Bloomberg and others) focused on discord, suggesting there were big differences between the two countries regarding elements of the Phase 1 framework agreement. U.S. officials acknowledged last Friday that putting the Phase 1 commitments on paper could take three to five weeks. Anyone familiar with trade negotiations should be aware that to get to a final text on an agreement will take additional discussions. As noted above, Chinese state media has taken a different, more accommodating, position relative to the current state of talks than they initially did with their more strident weekend commentaries. The usual negative tone of Bloomberg reporting on this topic continues with the service noting China “will struggle to buy $50 billion of U.S. farm goods annually unless it removes retaliatory tariffs on American products, and doing so would require reciprocal action by President Donald Trump, people familiar with the matter said.” It added Beijing is willing to start purchasing more U.S. agricultural products as part of the “phase one” trade deal, but it is not likely to reach the $40 billion to $50 billion touted by Trump under current circumstances. “The condition highlights how far apart Washington and Beijing remain, even after reaching the handshake accord touted by the U.S. last week… Beijing’s position makes a deal more complex than initially described.” Some ask how Bloomberg can say the two sides are far apart when China’s Commerce spokesman says they have the same understanding of the deal.
— China’s wheat program limits purchases. China's minimum price for wheat will remain steady at 2240 yuan/metric ton in 2020, but a new 37-million-metric-ton limit on purchases at the minimum price will be introduced. The limit on wheat purchases will be divided up into two batches, according to an announcement issued by the Administration of Grain and Commodity Reserves and four other departments. A basic purchase limit will be set at 33.3 mmt. If purchases reach 90% of the initial limit, provincial branches of Sinograin — the government's grain reserve company — can make recommendations for allocating an additional 3.7 MMT to provinces. The Administration of Grain and Commodity Reserves will make a determination based on monitoring of production, market prices, volume of farmers' unsold grain and other factors. If needed, the Administration will post the allocations of the second batch of reserve purchases on a web site. (Source: Dim Sums: Rural China Economics and Policy)
Wheat purchases at the minimum price were 30.9 MMT during 2019. Purchases were much higher than in recent years because production increased and demand is weak this year, so prices fell to the minimum level in many regions. Large portions of the 2018 crop were below quality standards due to heavy rains, but there were few quality problems this year. The last time minimum-price wheat purchases exceeded 37 MMT was in 2009.
— Mexico’s president wants Pelosi to accelerate USMCA ratification vote. Mexican President Andres Manuel Lopez Obrador said Friday he sent a letter to House Speaker Nancy Pelosi (D-Calif.) asking her to speed up the process of ratifying the U.S.-Mexico-Canada Agreement, (USMCA), according to reports out of Mexico City. Obrador, in a press conference, said the letter was a follow up to a visiting delegation of House Democrats last week, according to a translation published in the New York Times. “There's agreement, and I took the opportunity to send Mrs. Pelosi a letter explaining that it's in the interest of the three peoples, the three nations, that this deal is approved,” Obrador said.
USMCA vote count signals ratification. Lawmakers and others in recent days have signaled the votes are sufficient in both the House and Senate to clear USMCA, as early as the end of November, but possibly taking into December. Veteran congressional observers say Pelosi may not have the majority of her membership that will vote for ratification, but will have enough of them, along with House Republicans, to clear the measure.
— Florida Tomato Exchange calls for reopening of antidumping probe. The U.S. Commerce Department is being asked to reopen its antidumping investigation on imports of tomatoes from Mexico, with the request from the Florida Tomato Exchange (FTE) coming as they maintain that Mexico could walk away from the recently reached deal. Both sides had welcomed the deal when it was reached, but FTE said that Mexican tomato growers have been threatening to either launch legal challenges to the deal or seek to renegotiate the pact. Given the situation, FTE said they had “no choice” but to ask that Commerce reopen the investigation. It is not clear yet whether Commerce will take the requested step.
— WTO clears U.S. retaliation against EU over airbus subsidies. The special meeting Monday at the WTO requested by the U.S. saw the U.S. granted approval to impose sanctions on $7.5 billion in goods from the European Union (EU). The EU continued to contend the U.S. action was unfair while the U.S. maintained the position that the dispute has been ongoing for some 15 years without any changes on the part of the EU.
Incoming EU Trade Commissioner Phil Hogan said he would seek a negotiated settlement with the U.S. and said the block would likely finance and aid a plan for olive farmers as they are among the sectors that will be hit by tariffs.
The U.S. intends to hit the full $7.5 billion slate of products with tariffs, setting them at 10% for large commercial aircraft and 25% on agricultural and industrial goods. The tariffs will take effect Oct. 18.
— Other items of note:
Fourth Democratic presidential nomination debate. Twelve of the Democratic presidential candidates will debate tonight in Westerville, Ohio. It is the first debate since Bernie Sanders suffered a heart attack on October 1; a poll released last Wednesday showed that voters are concerned about his health and electability. The debate is the first since the start of an impeachment inquiry into Donald Trump.
U.S. hits Turkey with penalties. President Trump authorized sanctions and raised steel tariffs on Turkey, while threatening more powerful financial penalties if Ankara continued a military offensive against Kurdish militias in northern Syria. The White House called on Turkey for an immediate cease-fire, just as Syrian government forces pushed closer to the Turkish border after striking a deal with Kurdish fighters. Meanwhile, the EU’s member states agreed to stop selling arms to Turkey. The bloc’s chief diplomat said Turkey’s incursion into north-eastern Syria raised fears about a resurgence of Islamic State.
African swine fever drives up European pork prices. The steep rise this year could mean more expensive bacon in Spain, Germany and Poland, the Financial Times reports (link). Pork prices in Europe have jumped 35% since the start of the year. Poland has also been affected by ASF as a producer, as has Romania. Outbreaks of the disease — which is deadly to pigs but does not harm humans — have until recently been largely confined to wild boar, but the virus has been spreading to farmed pigs.
Bloomberg in or out of Democratic contest? Michael Bloomberg, the billionaire former mayor of New York, and former Democrat, former Republican and independent, has indicated to associates in recent weeks that Joe Biden's recent struggles against Sen. Elizabeth Warren are making him rethink his decision to stay out of the 2020 Democratic primary. He's only in if Biden drops out before or during the early stages of the primary, CNBC reported.
John Deere is spending billions to ramp up its leasing program, according to the Wall Street Journal, in an effort to combat declining demand for farm tractors and construction equipment.
— Markets. The Dow on Monday was down 29.23 points, 0.11%, at 26,787.36. The Nasdaq fell 8.39 points, 0.10%, at 8,048.65. The S&P 500 eased 4.12 points, 0.14%, at 2,966.15.
General Motors and the United Auto Workers union continue to negotiate, with a strike in its fifth week. The UAW called a Thursday meeting of union leaders from around the nation to update them on the status of talks. Historically, such a meeting indicates either a tentative deal was reached or a vote is needed to pursue a new action. Last Friday, the UAW said it had countered an offer from GM.