Trump drops plan to host G7 summit at his Florida golf resort | Focus on U.S. ag economy
In today's updates:
* China's Liu confirms Phase 1 of deal with U.S. is making progress
Markets: Federal-funds futures market is putting an 89.3% probability of the Federal Open Market Committee (FOMC) voting for a one-quarter percentage-point reduction in its key policy interest rate on Oct. 30, according to the CME Group’s FedWatch. Dallas Fed President Robert Kaplan said Friday he hoped the current sequence of rate cuts would be “modest, limited and restrained” and not the start of a “full-fledged rate-cutting cycle.”
— U.S./China trade policy update:
- Vice Premier Liu He, China’s top trade negotiator, offered positive signals that talks with the U.S. are making “concrete progress” and both sides are working toward a partial trade deal, but he added negotiations must be on an equal basis. “China and the U.S. have made substantial progress in many aspects and laid an important foundation for a phase one agreement,” Liu said at a virtual reality conference in Nanchang, in eastern China’s Jiangxi province, on Saturday. He reiterated that China is “willing to work in concert with the U.S. to address each other’s core concerns on the basis of equality and mutual respect.”
- President Donald Trump on Friday said he thinks a trade deal between the two countries will be signed by the time the Asia-Pacific Economic Cooperation (APEC) meetings take place in Chile on Nov. 16 and 17. "I think it will get signed quite easily, hopefully by the summit in Chile, where President Xi and I will both be," Trump told reporters at the White House, without providing details. “We're working with China very well," Trump also said. The agreement would take three to five weeks to draw up, and work on a second phase would begin as soon as the first was signed, Trump said, adding that the deal might be ratified by himself and Chinese President Xi Jinping during the APEC leaders’ meeting in Chile.
- China: Working on Phase 1 text; preliminary work on Phase 2. Chinese Ministry of Commerce spokesman Gao Feng said last Thursday that Chinese officials were working closely with their U.S. counterparts on the text for the agreement and had already begun discussions on the second stage. The further opening up of China’s financial services market would be an element of the first phase of the deal, while the issue of technology transfers would be addressed in the second, he said.
- U.S. Treasury Secretary Steven Mnuchin said there had been no invitation from Beijing for another high-level meeting with Liu, but that deputies from the two sides would hold phone conferences. China is looking to hold additional discussions as soon as the end of this month to finalize details of the Phase 1 trade deal. Some reports have surfaced that China wants the U.S. to cancel a planned tariff increase slated for Dec. 15 along with the one that was set to take effect last week.
- China's Liu on Saturday played down concerns over the recent volatility in China’s economy, saying it was “resilient” and that the government had ample policy tools to ensure it achieved its growth targets. The economy was undergoing “profound structural adjustments and rebalancing” while moving away from a rapid growth model towards a more measured expansion, he said. China’s gross domestic product rose 6% in the third quarter of the year, its slowest rate since records began in 1992 (a figure many private analysts think is likely lower than what China released). Despite those figures, Liu said China’s rapidly expanding middle class was becoming an important force in driving economic growth both at home and around the world. In the field of virtual reality he said the government would improve intellectual property protection, especially for small- and medium-sized enterprises, and encourage the “most advanced companies, the most active investors and the most innovative people” to engage in the sector.
- China's central banker says yuan level 'appropriate,' trade tensions risk to global economy. China's top central banker said on Saturday that potential escalation of trade tensions and policy uncertainty were the major risk factors facing the world economy, and market forces were keeping China's yuan at an appropriate level.
- Huawei is struggling to replace Google apps on its mobile phones after being hit by U.S. sanctions, the company’s executives have admitted, saying it will be years before they can develop their own alternatives. The Chinese telecoms company, which is in the middle of a global technology war between Washington and Beijing, is being hurt by the U.S. export ban, its executives told the Financial Times (link).
- Tyson Foods is the latest major meatpacker to stop using ractopamine in its pork production, hoping to tap into China’s accelerating demand for imported protein as African swine fever decimates Chinese hog herds. The FDA approved ractopamine in 1999, but China has banned the drug since 2002, alleging it can harm consumers. Tyson said farmers have until Feb. 4 to meet the new requirement. Earlier this month, Brazilian meat processor JBS SA said its U.S. branch will eliminate the drug from its pork supply, and Chinese-owned Smithfield Foods already didn’t use it.
- China-led African swine fever dramatically lowering country's hog count, and bacon prices around the world are rising. China's pork output is down 17% in Q1-Q3 2019, but the decline accelerated to 42% during the third quarter, according to data released by the country's National Bureau of Statistics. September consumer price data show an increase in all meat prices, led by a 69% increase in pork costs. By the end of 2020, China’s swine herd will slump to 275 million head, down almost 40% since the beginning of 2018, before the world’s largest animal disease outbreak began, according to USDA. That will reduce global pork production by 10% in 2020. Impact on bacon prices is seen in this Bloomberg-generated graphic:
— President Trump's trade mitigation program is working as designed, but a review shows it benefiting some states and congressional districts over others. The total program payments almost exactly offset the revenues farmers lost, compared with 2018, according to an analysis by Gro Intelligence, a software company focused on the global food and agriculture markets. Illinois was the biggest loser, with a net difference of over $2 billion between its lost revenue and bailout payments. Minnesota and Wisconsin were in the top five of state beneficiaries. “These districts are large agricultural producers, with more acres of crops that have suffered bigger trade damages,” a USDA spokesman said.
The state of the U.S. ag sector economy is the topic of a Farm Foundation session on Tuesday. U.S. agriculture is in the throes of a multiyear recession, so it will be interesting to see what the participants will say could bring the sector out of its funk.
President Donald's Trump's trade policies have in part contributed to uncertainty and lost export markets, but some analysts say it masks other ongoing problems. Meanwhile, the Trump administration's trade mitigation program (Market Facilitation Program I and 2) has definitely aided some of the income woes in farm country, with one ag lobbyist saying it now constitutes around 38% of net farm income in his state.
— Farmers, biofuel lobbyists say Trump and EPA must rewrite RFS rule to carry through on pledge. Angst and threats of legal action are nothing new when it comes to the Renewable Fuel Program (RFS), from both proponents and opponents. But the degree of anger is clearly rising among farmers and biofuel producers as they attempt to pressure the Trump administration to rewrite its new rule on blending requirements, threatening court action if the rule is not substantially altered. Link to EPA proposal.
USDA Deputy Secretary Steve Censky assured farm-state lawmakers last week that President Donald Trump and EPA Administrator Andrew Wheeler are committed to ensuring that oil refiners blend 15 billion gallons of ethanol into the U.S. gasoline pool, accounting for EPA’s exemptions for small refineries.
President Trump, during a recent public event after EPA’s announcement, raised biofuel producers’ hopes when he said EPA would be requiring 16 billion gallons of blending, a volume that exceeds what is allowed under statutory schedules. Administration officials indicated the extra gallons were taken off the table as a concession to the oil industry.
“There’s no trust left with EPA whatsoever,” said Geoff Cooper, president and CEO of the Renewable Fuels Association. “They’re asking us to make a leap of faith we’re not willing to make.”
"People are not happy,” Sen. Joni Ernst (R-Iowa). “They feel that once an agreement is reached, they should be standing by that agreement."
“No more Iowa nice,” said Iowa Corn Growers Association Chief Executive Office Craig Floss during a news conference last Wednesday, in relaying a message given him by a farmer. “Now it’s Iowa pissed.”
“We had a deal with the president. We stand by that deal with the president. And today we’re calling on the president to step in and get the EPA back online. Don’t let the EPA undermine your policy once again, Mr. President,” Iowa Renewable Fuels Association executive director Monte Shaw said. “I thought a deal was a deal. When Donald Trump makes a deal, isn’t it a deal?”
Democratic presidential candidate and U.S. Sen. Amy Klobuchar (D-Minn.) discussed ethanol and election security during a stop in Waterloo, Iowa, on Saturday. Klobuchar criticized the EPA under President Trump for giving 85 oil refineries exemptions from requirements ethanol be blended into the gasoline they sell. That has removed 4 billion gallons of corn-based ethanol from the market, angering farmers who rely on the ethanol industry to buy nearly 40% of the corn crop produced to make the renewable fuel additive. "This is a self-inflicted wound. This doesn't need to happen," Klobuchar said. "What the president has done is grant secret waivers to over 80 oil companies." The waivers are supposed to be for small refineries burdened by the blending requirements, she said. "(President Donald Trump's) used it now over 80 times, actually over 30 since he visited the ethanol plant over in Council Bluffs," Klobuchar said. "It's an unbelievable thing to me. He pledged that he was going to do something, and then he granted 30 more waivers." The ethanol waivers and the trade war with China have been rough on the agricultural economy, she said. "Hopefully our Midwest can come back and push and try to get something better, but a lot of the damage has been done," Klobuchar said.
— USMCA update:
- Perspective: House Democrats are just about holding as many meetings with U.S. Trade Representative Bob Lighthizer as they are having regarding the Trump impeachment inquiry. And, both are behind closed doors.
- Three meetings were held last week with Lighthizer. House Ways and Means Chairman Richard Neal (D-Mass.), who leads the working group, said Friday the hope is that three more meetings will be held this week. The first session is expected today.
- Timeline for USMCA House vote: murky. While Neal noted “steady progress” is being made, he refrained from suggestions that an announcement of a deal is imminent. “I don’t know that we’re within days of it,” he said.
- Vice President Mike Pence will be in Pennsylvania today to highlight the importance of passing USMCA, at an event hosted by the National Association of Manufacturers and glass manufacturer SCHOTT North America.
— Other items of note:
Trump reverses decision to host G7 at his Florida resort. President Trump nixed a decision he had made days earlier to hold next year’s Group of Seven (G7) summit at his luxury golf resort near Miami, citing scrutiny by Democrats and the media. “I thought I was doing something very good for our Country,” Trump said, responding to what he called “crazed and irrational hostility.” He added that he would have offered his resort at no profit and even no cost to the U.S. if permitted.
Rep. Francis Rooney (R-Fla.), who wouldn't rule out impeaching Trump, will not seek re-election. Rooney, a two-term congressman from a reliably conservative district, announced on Fox News on Saturday that he has decided not to run for re-election. A day earlier, Rooney became the first House Republican to say he would consider voting to impeach President Trump.
Energy secretary nomination. Trump announced in a tweet that he will nominate Deputy Secretary Dan Brouillette to replace Rick Perry as Energy secretary. Brouillette served in the Energy Department during the George W. Bush administration. He was nominated by Trump to the No. 2 role and easily confirmed by the Senate in a 79-17 vote in August 2017. He served as an Energy Department assistant secretary between 2001 and 2003 and also worked as chief of staff to the House Energy and Commerce Committee. Before joining the Trump administration, Brouillette served as senior vice president and head of public policy for USAA, a financial services firm. He also previously worked as a vice president at Ford Motor Co. Trump said Perry likely will remain on the job until late in the year.
President Trump asked USDA Sec. Sonny Perdue to permit logging on much of the Tongass National Forest, at the request of Alaska Gov. Michael J. Dunleavy (R) and the state's congressional delegation, according to several federal officials.
Transporting liquefied natural gas by rail. The Pipeline and Hazardous Materials Safety Administration and the Federal Railroad Administration published a notice of proposed rulemaking that seeks to make it easier to transport liquefied natural gas by rail. The rulemaking is a result of Trump's executive order urging the department to look into the possibility.
African swine fever takes toll on China’s corn sector, as prices tumble after steep decline in demand for hog feed. Link to Financial Times article.
Costco’s chicken processing complex in Fremont, Neb., has been ramping up production since its lines started running on Sept. 9. The plant will soon grow its workforce from 600 employees to 1,000 and aims to quadruple its production to 2 million birds per week, the Lincoln Journal Star reports (link).
Brexit uncertainty continues. On Saturday, U.K. lawmakers delayed a vote on Prime Minister Boris Johnson's departure deal with the European Union. That forced him to request an extension from the EU past Oct. 31, which he did, though pairing it with a letter to a top EU official urging against granting the extension. According to an analysis by the Financial Times based on past voting records and public statements, there could be a majority of five for the Brexit deal. Some 320 MPs currently appear set to back Johnson’s deal, with 315 opposed. The British government insisted on Sunday the country will leave the European Union on Oct. 31 despite the letter that Prime Minister Boris Johnson was forced by parliament to send to the bloc requesting a Brexit delay. Johnson since has asked European lawmakers for an extension of the Brexit deadline until the end of January 2020. He was forced to capitulate after Parliament voted 322 to 306 to withhold support for the deal until the passage of legislation to implement it.
Sen. Elizabeth Warren (D-Mass.) said yesterday that she would release a proposal showing how she plans to pay for her Medicare-for-all health care plan. Link to NYT article.
Canadians vote today. Polls show the elections deadlocked between Justin Trudeau’s Liberal Party and Andrew Scheer’s Conservative Party. A Canada-based analyst informs: “Polls are pointing to a very tight race that will conclude in a minority government. There is an expectation that the Liberals will form a coalition with the NDP. This will definitely lead to a further move left on climate policy, regulation and labour standards. With a liberal minority gov it will be interesting to see if Trudeau can appease the NDP enough to prevent another election in 9 months. If Andrew Scheer shows poorly he is destined to face a leadership review as there are players already lining up to replace him.”
— Markets. The Dow on Friday dropped 255.68 points, 0.95%, to 26,770.20. The Nasdaq Composite declined 67.31 points, 0.83%, to 8089.54. The S&P 500 fell 11.75 points, or 0.39%, to 2986.20.
Federal Reserve has begun buying $60 billion a month of Treasury bills, which it contends doesn’t constitute a policy move like past quantitative-easing, or QE, purchases (but it really is). The New York Federal Reserve started its first round of expanding its balance sheet by purchasing $7.501 billion in Treasury bills out of $32.569 billion in offerings from dealers. The Fed earlier this month said it would start growing its $3.9 trillion in overall holdings by purchasing up to $60 billion of Treasury bills monthly through the first half of 2020.
Economic chiefs consider fiscal stimulus to stoke growth. At meetings in Washington, D.C., finance ministers and central bankers were warm to the idea of fiscal stimulus, but there was little agreement on precisely what to do. U.S. Treasury Secretary Mnuchin believes "all tools" should be used as the benefits of monetary easing shrink.
Lagarde: U.S. at risk of losing global leader role. Christine Lagarde, the departing head of the International Monetary Fund who is set to take over as president of the European Central Bank, said in an interview that the U.S. risks diminishing its role as a global leader and warned of dire consequences of its trade war with China. “I was brought up as a citizen of this world. The risk I see is that the United States is at risk of losing leadership. And that would be just a terrible development,” Lagarde said in a 60 Minutes program that aired Sunday. Lagarde also warned President Trump against pushing the Federal Reserve for lower interest rates because it could spur inflation. “When the unemployment rate is at 3.7%, you don’t want to accelerate that too much by lowering interest rates,” she said. “Because the risk you take is that then prices begin to go up. You have to be very careful. You know, it’s like navigating a plane.” She said she would tell Trump: “Market stability should not be the subject of a tweet here or a tweet there. It requires consideration, thinking, quiet and measured and rational decisions.”
Bank of Japan mulls more monetary stimulus to hit inflation target. Facing a weak global economy and softer domestic demand after a recent sales tax hike, the BOJ is considering even more stimulus aimed at hitting its 2% inflation target. The central bank projects 1% inflation this fiscal year and lower than 2% the following two years.
China’s growth rate is expected to continue to slow, and will be a smaller driver to global GDP growth in the near term. China’s share of global GDP growth is expected to fall from 32.7% in 2018-2019 to 28.3% by 2024 -- a relatively steep 4.4 percentage point reduction. Weaker global growth, expected to fall to 3% this year and the slowest since the global financial crisis, will affect 90% of the world, according to estimates released this week by the International Monetary Fund (link for details).
Bloomberg used International Monetary Fund projections, adjusted for purchasing power parity, to identify these growth engines.
The U.S. in 2024 is projected to fall to third place, after India.