Charlie Cook on why 'Blue Wave' never materialized | GOP gains in House continue
In Today’s Updates
* WSJ survey: Forecasters expect U.S. economic recovery to remain on track
* Fed chair: Too early to say how progress in vaccine will influence U.S. economy
* U.S. consumer prices were flat in October following four straight months of gains
* U.S. budget deficit opens FY 2021 at $284 billion
* Gold bugs grow
* Natural gas one of best investments this quarter so far
* Low pathogenic avian influenza in Missouri
* ECB President Christine Lagarde: Central bank digital currencies coming
* Central Corn Belt sees 2% rise in farmland values
* China’s aggressive grain buys will have major global implications
* Ukraine’s grain exports well behind year-ago 4.5 months into marketing year
* Indian veg oil imports drop 13% in 2019-20
* COFCO crushing plant in Argentina partially resumes operations
* EPA gets Dec. 14 extension in biofuel case
* USDA sets general CRP, CRP Grasslands signup efforts for 2021
* White House stepping back from negotiations over new stimulus package
* China gets largest free trade deal ever
* Export sales to China continue on soybeans, sorghum, cotton and pork
* China cancels some U.S. corn sales
* China could take over the world’s top corn importer position: Reuters
* China congratulates Biden
* President Trump bans U.S. investment in Chinese companies with military ties
* China's Xi Jinping personally blocked Ant Group's historic $37 billion IPO
U.S. food & beverage industry update:
* Grocery stores reinstating purchase limits on some items
* Food supply chains bent under coronavirus pandemic but haven’t broken: WSJ
* State and local officials slapping new restrictions amid resurgence of Covid
* Fewer Covid-19 fatalities
* First Caribbean cruise to sail since pandemic ended early
* Taiwan blocked from participating in WHO meeting about pandemic
Politics & Elections:
* Joe Biden won Arizona’s 11 electoral votes
* Where presidential election count stands this morning
* Grassley gives a deadline
* Runoff elections in Georgia drawing a flood of GOP cash
* Wasserman sizes up House elections; could impact Fudge as head of USDA
* Charlie Cook on why 'Blue Wave' never materialized
* California groups back Rep. Costa to lead House Ag panel
* Judy Shelton’s Fed nomination is back on track
Other Items of Note:
* Flying cars are coming
* Cotton AWP moves up
Equities today: The MSCI Asia Pacific Index slipped 0.1% while Japan's Topix index closed 1.4% lower. U.S. equity futures point to higher openings.
Heading into Friday's trading, the Dow and S&P 500 were tracking for weekly gains, while the Nasdaq was looking at losses for the week. All three stock benchmarks hit intraday all-time highs Monday, but none of them closed at records.
U.S. equities yesterday: The Dow finished with a loss of 317.46 points, 1.08%, at 29,080.17. The Nasdaq fell 76,84 points, .065%, at 11,709.59. The S&P 500 lost 356.65 points, 1.00%, at 3,537.01.
On tap today:
• U.S. producer price index for October is expected to rise 0.2% from the prior month. (8:30 a.m. ET)
• USDA Weekly Export Sales report, 8:30 a.m. ET.
• University of Michigan's preliminary consumer sentiment index for November is expected to tick down to 81.5 from 81.8 at the end of October. (10 a.m. ET)
• Federal Reserve: New York’s John Williams speaks at a virtual Financial Times conference at 7 a.m. ET and St. Louis’s James Bullard speaks to the Economic Club of Memphis at 8:30 a.m. ET.
• Bank of England Gov. Andrew Bailey speaks at a virtual UBS conference at 11 a.m. ET.
Forecasters expect the U.S. economic recovery to remain on track following the presidential election, with a potential coronavirus vaccine and a new fiscal stimulus package in sight, a new Wall Street Journal survey shows (link). Economists surveyed see an unemployment rate of 6.7% at the end of this year, down from 7.8% in last month’s survey. They now expect gross domestic product to contract 2.7% this year, measured from the fourth quarter of 2019, an improvement from the 3.6% contraction they predicted last month. When asked how much near-term support the economy needs, the majority of economists in November’s survey, 58%, said a stimulus package should be in the $1 trillion to $2 trillion range.
Federal Reserve Chairman Jerome Powell said it is too early to say how progress in the global hunt for a coronavirus vaccine will influence the U.S. economy, particularly given concerning increases in infections that could weaken the recent economic recovery. “We do see the economy continuing on a solid path of recovery, but the main risk we see to that is the further spread of disease here in the United States,” he said.
Powell said again yesterday that Congress may need to do more to combat the effects of the pandemic on the economy.
U.S. consumer prices were flat in October following four straight months of gains, a sign of subdued inflation amid weak demand for a range of goods and services. Higher costs for dining out and groceries last month were offset by declines for items such as apparel and household furnishings. The longer-term trend also showed only modest inflationary pressure: The overall CPI rose only 1.2% from a year earlier. The weak aggregate readings mask some big gains and losses for underlying prices that reflect shifting demand and occasional supply disruptions related to the pandemic.
U.S. budget deficit opens FY 2021 at $284 billion. The U.S. registered a budget deficit of $284.1 billion in October, the opening month of fiscal year (FY) 2021, according to the U.S. Treasury Department. Spending totaled $522 billion in October, a 37% rise from year ago, while revenue declined 3.2% to $238 billion. The U.S. budget gap rose 111% in October, due to higher federal spending last month on health-care and safety-net programs, and lower federal tax collection, according to the monthly Treasury data. Over the 12 months ending in October, the U.S. continued to run a deficit about three times as large as it was over the previous year as it continues to combat the coronavirus pandemic. The 12-month budget gap totaled $3.3 trillion last month, about 15.5% of gross domestic product.
• Outside markets: U.S. Treasury bond and note yields have backed off a bit Friday after rising to eight-month highs earlier this week. The yield on the benchmark 10-year U.S. Treasury note futures is currently trading at 0.88% after pushing closer to 1.0% this week. The U.S. dollar index is weaker early today. The other important outside market sees crude oil prices lower and trading around $40.50 a barrel.
• Gold bugs. A survey by Central Banking and Invesco says the Covid-19 pandemic has led to 23% of world central banks seeing gold as a more attractive asset, while the remaining 77% responded their view on gold had not changed. Central bankers generally expect their gold holdings to increase over the next year. General public investor demand for gold has been robust this year as the investing public still sees bullion as a safe-haven asset, the report said.
• Natural gas has been one of the best investments this quarter so far, with its price climbing 18%.
• Low pathogenic avian influenza in Missouri. Several countries have halted imports of poultry products from areas of Webster and Wright Counties in Missouri due to the detection of low-pathogenic avian influenza (LPAI), according to notifications from USDA’s Food Safety and Inspection Service (FSIS). Notices posted by the agency indicate recently revised export requirements for Jordan, Hong Kong, Qatar, Taiwan, Curacao, South Korea and Peru.
• Central bank digital currencies. "My hunch is that it will come," ECB President Christine Lagarde said during a virtual panel discussion with her U.S. and British peers. "If it's cheaper, faster, more secure for the users then we should explore it. If it's going to contribute to a better monetary sovereignty, a better autonomy for the euro area, I think we should explore it." It still might be two to four years before the project could be launched as the ECB addresses concerns over money laundering, privacy and the technology involved. On the same panel, Jerome Powell said the Fed will "carefully and thoughtfully" review the issue, while Bank of England Governor Andrew Bailey said there's a "lot of hard work to think through the implications."
• Central Corn Belt sees 2% rise in farmland values. Farmland values across the central Corn Belt rose 2% in the third quarter of 2020 from a year ago, according to the quarterly survey of agriculture bankers conducted by the Federal Reserve Bank of Chicago. The bank notes the lift in values came from support from lower interest rates, additional government payments and some rising agricultural prices. However, values for “good” agricultural land in the district overall were the same in the third quarter of 2020 as in the second quarter. “The district had not seen this large of a year-over-year increase in its farmland values during the past six years,” notes David Oppedahl, senior business economist, who conducts the survey. Indiana and Wisconsin led the way with year-over-year jumps in values of 6% and 3%, respectively; the 2% rise in farmland values in Illinois and 1% boost in Iowa were more modest. Some 82% anticipate stable district farmland values in the fourth quarter of 2020.
Items in Pro Farmer's First Thing Today include (Link to subscribe to FTT):
• China’s aggressive grain buys will have major global implications
• Ukraine’s grain exports running well behind year-ago 4.5 months into the marketing year
• Indian veg oil imports drop 13% in 2019-20
• COFCO crushing plant in Argentina partially resumes operations
— EPA gets Dec. 14 extension in biofuel case. The extension allows EPA more time to respond in a Supreme Court case that could alter how the agency allocates small refinery exemptions (SREs). The original response was due Thursday. The agency cited the pandemic in asking for more time. Link for details via Supreme Court.
Background: The U.S. EPA on Nov. 4 filed a motion with the U.S. Supreme Court asking for a one-month extension to file its response to a petition filed by HollyFrontier and Wynnewood Refining in September seeking a review of the ruling on SREs handed down by the Tenth Circuit Court of Appeals in January 2020.
— USDA sets general CRP, CRP Grasslands signup efforts for 2021. A general Conservation Reserve Program (CRP) signup will be held from Jan. 4-Feb. 12 and a CRP Grasslands signup will run from March 15-April 23, USDA’s Farm Service Agency announced Thursday.
As of September, there were 21.9 million acres enrolled in CRP with contracts on 5.36 million acres expiring as of September 30. Via the last general CRP signup, contracts on 3.4 million acres were approved with contracts having an Oct. 1 starting date. USDA data shows another 1.2 million acres were approved for CRP Grasslands enrollment with 425,777 acres enrolled via continuous CRP signup efforts during fiscal year 2020. USDA has not indicated what the CRP acreage total is as of October, but it would appear that around 21.6 million acres are enrolled in the program.
— White House is stepping back from any negotiations over a new stimulus package, leaving it to Senate Majority Leader Mitch McConnell (R-Ky.) to revive talks. Both Republicans and Democrats continue far apart on the funding level, with low odds of a breakthrough. Instead, lawmakers will focus on McConnell's moves to agree on funding measures which would avoid a government shutdown on Dec. 11.
President-elect Joe Biden, House Speaker Nancy Pelosi (D-Calif.) and Senate Minority Leader Charles Schumer (D-N.Y.) conferred about a stimulus measure. Pelosi told reporters on Thursday that Democrats continue to push for a stimulus bill in excess of $2 trillion, with that stance only being hardened since last week’s election. "It has been our position all along to crush the virus," Pelosi said during a joint press conference alongside Schumer when asked if her position is the same as before Election Day. "We're at the same place. Even more-so.”
McConnell continues to call for a “targeted” Covid package of roughly $500 billion, which the Senate voted to support twice before Nov. 3. “I gather [Pelosi] and the Democratic leader in the Senate still are looking at something dramatically larger. That’s not a place I think we’re willing to go,” McConnell told reporters on Thursday. “But I do think there needs to be another package. Hopefully we can get past the impasse we’ve had now for four or five months and get serious.”
McConnell's approach was dismissed out of hand by Democrats. During the press conference, Schumer referred to McConnell’s proposed plan as “emaciated,” with the gulf between both sides as wide as it’s ever been.
— Update on China:
- China gets the largest free trade deal ever. China will sign a mega trade deal this weekend with Japan, South Korea, Australia, New Zealand and the 10 ASEAN member countries, wrapping up years of negotiations before the next U.S. administration comes into office. The Regional Comprehensive Economic Partnership, (RCEP), which covers 30% of global GDP and trade, aims to reduce tariffs, strengthen supply chains with common rules of origin and codify new e-commerce rules. Beijing has looked to RCEP as an opportunity to write regional rules and diversify its avenues of trade amid declining economic relations with the U.S. after it pulled out of the Trans-Pacific Partnership (TPP) in 2017 and engaged in a broader tariff war.
Export sales to China continue on soybeans, sorghum, cotton and pork; some corn cancelations. Exporters continue to report sales of U.S. commodities to China, but some reductions were also reported for the week ending Nov. 5.
For 2020-21, business included net reductions of 6 tonnes of wheat, net sales of 10,644 tonnes of corn (but 66,000 tonnes of sales were canceled/one cargo), 245,170 tonnes of sorghum, 745,611 tonnes of soybeans, and 31,062 running bales of upland cotton. Commitments for corn are still at 10.774 million tonnes, with 8.732 million outstanding. With funds long and profits this week, the small cancellation could give a reason for selling, some say.
For 2020, sales of 3,498 tonnes of beef and 21,148 tonnes of pork were reported, 9,445 tonnes or pork for delivery in 2021.
- China could take over the world’s top corn importer position: Reuters. One of this year’s major stories is China’s voracious appetite for grain, with many calling for the usually self-sufficient country to take over the position of the world’s No. 1 corn importer. Rebuilding after African swine fever and some weather issues left the country with a domestic shortfall far sooner than many expected. Reuters reports China has already purchased around 17 MMT of corn for 2020-21, and is set to buy more. Purchases to date put China in line with Japan as the world’s second largest corn importers, and more buys could push it beyond top-buyer Mexico. A purchasing manager and feed producer in southern China notes that “As corn prices are constantly rising and are expected to continue to rise, when it comes to substitute grains including imported barley, sorghum, and wheat, I am already making purchases for January-June next year.” The country has purchased 20.86 MMT of barley, corn, sorghum and wheat for the first nine months of 2020, an 83.3% surge from year-ago.
- China congratulates Biden. China became the latest country to congratulate him and Vice President-elect Kamala Harris for their victory.
- President Trump bans U.S. investment in Chinese companies with military ties. A White House executive order bars Americans from investing in 31 companies, including Huawei and China Telecom. It’s the latest effort by the Trump administration to decouple the American and Chinese economies.
- China's Xi Jinping personally blocked Ant Group's historic $37 billion IPO after Jack Ma criticized government officials over new regulations. The billionaire's comments didn't go down well with the president.
- U.S./China Phase 1 tracker: China’s purchases of U.S. goods. Link.
— Food and beverage industry update:
- Here we go again... out of stock. Grocery stores are reinstating purchase limits on items like paper towels or soap for the first time since the spring, as consumers stock up on staples amid rising Covid-19 cases. With people staying at home more, retailers say there is renewed demand for paper products and frozen foods. Stores also are reporting new shortages in staple cooking ingredients like butter and spices, the WSJ reports (link).
- Food supply chains bent under coronavirus pandemic but they haven’t broken. Food supplies have defied dire warnings of global shortages by holding up through months of turmoil, the WSJ reports (link), as suppliers, distributors and markets have adapted to disruptions from production to transportation. The value of food imported in the first half of 2020 was roughly in line with the first of half of 2019, one sign that food supply chains “have been remarkably resilient,” says Michael Rogers, chief executive of Australian Fresh Produce Alliance. There have been problems along the way, especially in fruit and vegetable supply chains, but experts say some nations abandoned protectionist policies adopted earlier in the pandemic and developing countries have filled supply gaps. Food organizations warn that levels of acute hunger are growing as economies and incomes falter, however, and that delays at ports are persisting.
— Coronavirus update:
- Summary: Global cases of Covid-19 are at 52,788,524 with 1,294,657 deaths, according to data compiled by the Center for Systems Science and Engineering (CSSE) at Johns Hopkins University. The U.s. case count is at 10,555,469 with 242,435 deaths.
Link to Covid Case Tracker
Link to Our World in Data
- State and local officials are slapping new restrictions on daily life amid a resurgence of the coronavirus. Governors in New York, Maryland, Minnesota, Iowa, Utah and other states have imposed new social-distancing measures as daily confirmed U.S. coronavirus cases sustain highs not seen since the pandemic began and record hospitalizations begin to strain the health-care systems in some states and cities. Mayors in some major cities, including Chicago and San Francisco, have also announced their own local measures.
- Fewer Covid-19 fatalities. A study by the University of Washington’s Institute for Health Metrics and Evaluation found that the fatality rate has dropped by 30% since April due to improvements in treatment.
- The first Caribbean cruise to sail since the pandemic ended early after five passengers tested positive for Covid-19.
- It's called China. Taiwan hasn’t recorded a locally transmitted coronavirus infection in seven months but has been blocked from participating in a World Health Organization meeting about the pandemic.
POLITICS & ELECTIONS
- Joe Biden won Arizona’s 11 electoral votes on Thursday night, according to the state’s ballot count and projections by all the major news outlets, cementing his presidential victory. Biden is the first Democratic presidential candidate to carry Arizona since President Bill Clinton in 1996, underscoring the demographic and political shifts in what had once been a reliably red state.
- Where the presidential election count stands this morning:
— Arizona: Biden is now projected to be the winner with a lead of 11,434 votes, 49.41% to 49.07%;
— Georgia: Biden is ahead by 14,116 votes, 49.52% to 49.24%;
— North Carolina: Trump is ahead by 71,399 votes, 49.91% to 48.62%.
- Grassley gives a deadline. When asked for a date by which Trump should accept the reality of his loss, Chuck Grassley (R-Iowa), chairman of the Senate Finance Committee, set a firm deadline: Dec. 13, one day before the Electoral College delegations will cast their votes for president. Each state’s electors will then cast their votes on Dec. 14, and most states have laws that force their electors to vote for the candidate who is certified as that state’s winner. On Jan. 6, Congress will count and certify the electoral votes, and the winner will be sworn in two weeks later.
- Runoff elections in Georgia are drawing a flood of GOP cash. The National Republican Senatorial Committee has combined with the campaigns of Georgia Sens. David Perdue and Kelly Loeffler to raise $32 million over the past six days.
- Wasserman sizes up House elections. Here is the gist of what Cook Political Report House editor David Wasserman says about still-not-complete House contests: “Democrats' bad election night in the House hasn't gotten any better with time. Speaker Nancy Pelosi (D-Calif.) will hold onto the gavel, but Republicans are on pace to cut Democrats' majority by more than half, leaving her with little margin for error. Ten Democratic incumbents have lost so far, and Rep. Cheri Bustos (D-Ill.) has already announced that she will not run for another term as DCCC chair. Democrats have secured 221 seats to 207 for the GOP with seven races still too close to call (Republicans have leads in six of the seven). If Democrats' current 233 seat tally is ultimately whittled to 222, Pelosi could not afford to lose any votes beyond the 'Squad' quartet to pass anything, and a President Biden might be reluctant to plunder the House for new Cabinet members. So far, Democrats have flipped just three GOP open seats (GA-07, NC-02 and NC-06), while Republicans have defeated ten incumbents. Impressively, all ten Republicans who beat those Democrats are women and/or minorities.”
Comments: Note what Wasserman says about Biden perhaps not tapping into the House for any Cabinet positions. This could impact the chances for Rep. Marcia Fudge (D-Ohio) being Biden's pick to head up USDA. But that seat should be an easy Democratic win should Fudge be tapped.
- Charlie Cook of Cook Political Report comments on why the ‘Blue Wave’ never materialized. Writes Cook: “It is difficult for me to fathom that so many polls, conducted by dozens of pollsters from both parties using different methodologies, could all be wrong, and in the same direction. In my judgment, there was a blue wave building, a pretty big one, then something happened, like a fish getting spooked before taking a bite out of a lure. Too many of the most experienced political operatives in both parties could see it coming. My guess is that while a majority, albeit a small one, wanted to unseat Trump, they got skittish about giving Democrats unified control. Was the electorate willing to put Biden in the driver’s seat, but not give him the full tank of gas and a credit card that a Democrat-controlled Congress would provide? Did the label of 'socialist' finally give enough swing voters cause for hesitation? What about charges that Democrats were going to push Medicare-for-all, or pack the Court? What about questions of exactly what would be in a Green New Deal and what would it do to jobs during a fragile economy? Was there a fear that Democrats would or could not keep law and order, given the 'Defund the Police' movement?”
- California groups back Rep. Costa to lead House Ag panel. More than 60 California farm and ag groups have joined the California Farm Bureau Federation in backing Rep. Jim Costa (D-Calif.) in his bid to become Chairman of the House Ag Committee. The California Farm Bureau earlier this week declared their backing of Costa who is seeking the top spot on the panel in the wake of current House Ag Committee Chairman Collin Peterson (D-Minn.) losing his bid for re-election to the House. Costa ranks third on the panel in terms of seniority, behind Rep. David Scott (D-Ga.) who is also seeking the gavel. Scott has picked up the endorsement of Peterson, which many view as a key backing to lead the panel.
- Judy Shelton’s Fed nomination is back on track. After it stalled over the summer on questions about her qualifications and unorthodox views on issues like the gold standard, it appears to be back on track. Senate Republicans set up a vote for next week on her nomination to the board of governors, and Sen. Lisa Murkowski (R-Alaska), who had been a skeptic, said she would vote in favor of Shelton.
The University of Oregon's Tim Duy writes at his Fed Watch blog (link): "The gold bug turned dove will almost certainly revert to her hawkish ways now that the Democrats have regained control of the White House. I don’t believe that Shelton is qualified to be on the Fed. That said, the potential damage she might cause is limited. She is no longer a contender for the Fed chair and she is being appointed to a term that ends in 2024, so she will be out the door soon enough. As far as her potential impact on policy, I think her colleagues will treat her with respect publicly and largely ignore her privately. She will not be the first ineffective Fed governor nor will she be the last.”
OTHER ITEMS OF NOTE
- Flying cars are coming. The city of Orlando, Fla., and German aviation startup Lilium have unveiled plans to build the first hub for flying cars in the U.S. The $25 million, 56,000-square-foot transportation hub, called a vertiport, is scheduled to be completed in 2025 and will enable passengers to bypass Florida's congested highways. Electric-powered aircraft, still in developmental phase, will be able to take off and land vertically (eVTOL) from the ground-based hub and reach a top speed of 186 miles per hour.
- Cotton AWP moves up. The Adjusted World Price (AWP) for cotton rose to 56.71 cents per pound, effective today (Nov. 13), up from 56.01 cents per pound the prior week. The AWP continues to eliminate the possibility for an LDP. Meanwhile, USDA announced that Special Import Quota #4 will be established Nov. 19 for 37,244 bales of cotton, another increase in the quota level which reflects the continued recovery in U.S. mill use. The new quota level is equivalent to one week's consumption of cotton by domestic mills at the seasonally adjusted average rate for the period July 2020 through September 2020. The quota would apply to supplies purchased not later than February 15 and entered into the U.S. not later than May 17.