Delayed Results from Iowa Caucus as App Splats

Posted on 02/04/2020 6:27 AM

Report: China could delay some first quarter purchases from U.S., but make it up later

In today's updates:


* Global Times: China could delay some 1Q purchases from U.S., but make it up later
* USTR has not received a request from China for flexibility on commitments
* Some push Trump to lift remaining $270 bil. tariffs on China
* World Board may release info regarding Feb. 11 WASDE and China import forecasts
China will auction 10,000 tonnes of pork from state-owned reserves Feb. 7
* More than 20,000 coronavirus cases have been confirmed worldwide
* Xi Jinping calls outbreak a test
* International response accelerates to aid in coronavirus containment
Poultry farmers in Hubei province destroying young birds due to virus rules
* Supply chain disruptions are mounting re: coronavirus
* U.S. helps in search for vaccines
* Trump administration officials granting fewer exemptions to tariffs
* Chaos in Iowa Caucus results as the app used for reporting caucus results failed
* Several campaigns declared Iowa victory using their own internal numbers
* Theme of Trump’s State of Union address: the Great American Comeback  


Markets: U.S. crude oil prices have fallen 20% over the last three weeks as Chinese oil demand is expected to fall by two million barrels a day and global economic growth forecasts have declined. Copper is down 13% but appear to have stabilized, and iron and steel prices have tumbled. Coffee futures completely reversed the recent rally amid coronavirus fears (Starbucks closed some 2,000 Chinese stores). Global stocks rose sharply today on speculation that economic growth will prove resilient, as fiscal and monetary policies blunt the outbreak's impact on China’s economy. U.S. stock futures signal a strong opening. China’s central bank plowed another 500 billion yuan ($71.2 billion) of liquidity via reverse repo agreements into the financial system, adding to the $143 billion injection seen Monday. Reuters reports that additional stimulus measures such as trimming the reserve requirement ratios (RRRs) for banks and lower the key loan prime rate (LPR) in coming weeks. Support measures are expected to be targeted to retail, catering, logistics, transportation and tourism sectors — ones viewed as being hard hit by the situation.

Coronavirus will likely lead to an OPEC+ production cut by up to a million barrels a day. OPEC+ technical experts meet today to assess how the virus may hurt oil demand. The assessment will help decide if an emergency ministerial meeting is held this month to consider new production cuts. Saudi Arabia is pushing for a gathering and Russia said it's ready to participate after Vladimir Putin and King Salman bin Abdulaziz spoke by phone yesterday. China is, by far, the biggest market for OPEC+ crude exports. Estimates of the impact of the virus on oil demand are wide ranging. S&P Global Platts sees global oil demand falling by an “almost catastrophic” 2.6 million barrels a day in February and 2 million barrels in March in its worst-case scenario. One oil trader estimated that Chinese oil demand over the last two weeks has fallen about 2.5 million barrels a day, or close to 20% compared with the previous year. And China has cut the size of its March orders from Saudi Arabia, the New York Times reported.


     Four Asian countries took two-thirds of the crude passing through the Strait of Hormuz in 2019; China alone took almost a quarter. (Source of chart: Bloomberg tanker tracking; in million barrels per day.)

China fuels


China fuels



— U.S./China trade policy update:


  • Global Times says China unlikely to delay Phase 1 trade deal implementation. Chinese firms’ purchase of U.S. goods will be delayed in the first quarter due to coronavirus outbreak, but they can increase purchase later this year as the obligation is measured annually, Global Times cites Gao Lingyun, researcher at the Chinese Academy of Social Sciences, in an interview. The report says Gao is closely associated with the trade talks. Some other China watchers say any continued delay depends in large part on the time it takes to contain the coronavirus. It took around eight months to contain SARS in 2002-03. Meanwhile, a New York Times article (link) says the coronavirus “may delay hard-fought U.S. trade wins in China.”
  • The Office of the U.S. Trade Representative said it has not received a request from China for flexibility on commitments it made to purchase more U.S. products due to the coronavirus. "USTR has not received any requests from China’s government to discuss changes in China’s purchase commitments due to the coronavirus outbreak," a USTR spokesperson said in a statement.
  • The push is on President Trump to lift the remaining $270 billion in tariffs on Chinese exports to give Beijing more latitude to meet its promise to buy $200 billion more in U.S. products over the next two years.
  • Reports from China indicate that there are shortages of workers at ports, including inspectors and others due to the travel restrictions in place in China. The situation is also resulting in downstream delays as there are shortages of truck drivers to move cargo away from ports. Reuters reported that around 20 large ports and two interior shipping firms in China have reduced or eliminated demurrage and detention fees for container, bulk and oil shipments through Feb. 9 in a bid to try and keep goods flowing to market.
  • USDA’s World Board may release information before the Feb. 11 WASDE regarding how it will incorporate forecasts of China imports of U.S. farm products since the Jan. 15 signing of the Phase 1 agreement.
  • Trump administration officials are granting fewer exemptions to tariffs on Chinese imports, with the approval rate recently plunging to 3% in the third round of levies from 35% in the first two. Requests for exemptions have been made by more than 4,500 companies.


— China will auction 10,000 tonnes of pork from state-owned reserves Feb. 7. Coming purchases of U.S. pork, sources say, will initially go to replenish various reserves, both strategic and domestic.


— Coronavirus update:

  • More than 20,000 coronavirus cases have been confirmed worldwide — an eight-fold increase over the last week — and experts say hundreds of thousands may not yet have been diagnosed. The Wuhan coronavirus has now infected 20,438 in mainland China, with nearly 200 cases reported in other areas around the globe, and 427 have died. Hong Kong recorded its first death from the coronavirus and a second human-to-human case was reported by the U.S. Centers for Disease Control and Prevention (CDC). The agency said it is monitoring 82 in the U.S. for potential infections with the virus.
  • Xi Jinping calls outbreak a test. China's leader described the outbreak as a major test of the country’s system of governance, and vowed consequences for officials who shirk responsibility in tackling the crisis.
  • Poultry farmers in Hubei province are said to be destroying young birds as rules to contain the coronavirus have banned movement of live poultry and feed supplies have been disrupted, according to Reuters. Others have opted to feed birds less as their feed supplies have dwindled since the virus outbreak. The report also indicated that farmers producing eggs indicated they had no way to get their product to market. Other reports indicate that other livestock farmers are also being impacted by the travel restrictions relative to feed supplies.
  • Supply chain disruptions are mounting. For example, about 80% of active ingredients used by drug-makers to produce finished medicines come from China. Economic impacts are also starting to mount as Hyundai Motors said it would gradually suspend production at its South Korean factories due to parts shortages. A weakened bulk shipping market is proving highly susceptible to China’s coronavirus. A bellwether of the global commodities shipping market plummeted deeper into negative territory this week, the Wall Street Journal reports (link), “in a stark sign of how the fast-spreading virus and uncertainty around its impact on the world’s economy have rocked markets and sent commodities prices to multi-month lows.” The Baltic Exchange’s capesize index, a part of the Baltic Dry Index, tracks the largest dry-bulk vessels carrying raw materials like iron ore and coal. Bulk carriers have already been under pressure from weakening factory activity and excess shipping capacity. Now China's lockdown aimed at containing the coronavirus is extending factory shutdowns, crimping demand for industrial transport.

    Baltic Index

  • International response: Members of the G7 agreed to coordinate on travel regulations and research into the virus. The World Health Organization (WHO) announced progress in coordinating with China, with a team including U.S. experts expected to head to Wuhan as early as this week. The WHO is organizing a teleconference this week with travel and tourism industry representatives to lay out recommendations on protecting crews to facilitate a resumption in flights. This comes after more global air carriers have indicated they will reduce the number of flights to China.
  • Search for vaccines. The National Institutes of Health and the Food and Drug Administration are working on the longer-term project of developing vaccines, diagnostics and therapeutics. There is not yet any proven therapy to treat the virus. CDC is working with the White House Office of Management and Budget to tap $105 million in funds available for immediate response efforts. The Health and Human Services Department may notify Congress of its intent to transfer another $136 million for its response, the Washington Post reported on Monday. Officials said they expect CDC employees to form part of the World Health Organization team deploying to the Hubei Province to work with Chinese officials there. Meanwhile, the CDC doesn’t recommend face masks, and frequent handwashing remains the best defense against spreading viruses.

— Other items of note:

  • Democratic Iowa caucus results delayed. According to a statement issued late last evening by Mandy McClure, communications director of the Iowa Democratic Party, “We found inconsistencies in the reporting of three sets of results. In addition to the tech systems being used to tabulate results, we are also using photos of results and a paper trail to validate that all results match and ensure that we have confidence and accuracy in the numbers we report. This is simply a reporting issue, the app did not go down and this is not a hack or an intrusion. The underlying data and paper trail is sound and will simply take time to further report the results.” The mobile app that appears to have caused problems during the caucuses was built by a small Washington, D.C.-based company called Shadow Inc., a tech company affiliated with a prominent Democratic nonprofit, Acronym.

    Biden campaign protest letter:

    Biden protest letter

  • The Iowa Democratic Party will release three sets of election results: 1) the number of state delegate equivalents each candidate received, 2) the first raw vote of caucus goers, and 3) the second and final raw vote featuring only viable candidates who crossed the 15 percent threshold. Trump received all 40 Republican delegates. Democrats will award 41 pledged delegates proportionally after all the results are tabulated. .Among Democrats, if a candidate did not receive 15% support at any precinct, he or she was not allocated any delegates from that location and the candidate's supporters had the opportunity to realign — or caucus for another candidate — for the final vote counts. Link to results when they are released.
  • South Bend Mayor Pete Buttigieg appeared to claim victory, declaring “So, we don’t know all the results,…But, we know, by the time it is all said and done, Iowa you have shocked the nation. Because, by all indications, we are going on to New Hampshire victorious.” Meanwhile, Bernie Sanders also delivered a victorius-sounding speech.
  • President Trump delivers his third State of the Union address tonight before a joint session of Congress at 9:00 pm ET. The speech theme is “The Great American Comeback." Administration officials say Trump will spend a portion of his address spotlighting his special guests. Trump’s guests at the speech will include a Border Patrol agent and an Army veteran who struggled with post-traumatic stress disorder, addiction and homelessness. Members of Congress are also allowed to bring a guest. Link to Associated Press article.
  • India's sugar output is down almost 24% from a year earlier due to sugarcane supply shortages. The rally in sugar futures continues.
  • Burger King said it has never billed its plant-based “Impossible Whoppers” as vegan products in a court filing last week, after a customer proposed a class action suit against the restaurant chain because the patty he ordered was cooked on the same grill as meat. Link to Reuters for details.
  • Cancer diagnosis for Rush Limbaugh. The longtime conservative radio talk show host, 69, revealed that he had advanced lung cancer. Limbaugh said he will take time off his normal broadcast schedule to seek treatment. Last night, Trump tweeted about Limbaugh's diagnosis, calling the host "a great guy & fantastic political talent," and wishing him "a speedy recovery."

— Markets. The Dow on Monday rose 143.70 points, 0.51%, at 28,399.81. The Nasdaq moved up 122.47 points, 1.34%, at 9,273.40. The S&P 500 was up 23.40 points, 0.73%, at 3,248.92.


     The yield on the 10-year Treasury has fallen by about 30 basis points this past month to 1.53%, causing the yield curve to invert again.


     Foreign investors were net sellers of U.S. commercial real estate last year for the first time since 2012. Chinese were by far the biggest foreign sellers of U.S. office towers, retail centers, hotels and other commercial property, unloading $20 billion more than they bought, according to data from Real Capital Analytics. But investors from Japan, Canada, the U.K. and elsewhere were also active sellers last year.


     Real estate



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