Pelosi-Mnuchin stimulus talks begin today
In Today’s Updates
* EU leaders reach Covid aid agreement
* Talks on next Covid aid/stimulus package accelerate
* Senate Banking Committee to vote on Fed nominees
* Silver prices hit a nearly four-year high
* Gold reaches highest level since 2011
* CFAP payments clear $6.2 billion
* China's restocking of swine farms as proceeding 'faster than expected'
* China flooding worsens
* Backlog of hogs could top 2 million, NPPC warns in push for more aid
* Rural electric cooperatives push Congress to include provision in relief package
* U.S. food & beverage industry update
* Complaints against JBS plant in Greeley
* Update on reopening America... and around the world
* Florida’s teachers union files lawsuit challenging order to reopen schools next month
* Coronavirus update
* Trump to resume regular participation in coronavirus briefings
* Politics & Elections:
* Biden’s $775 bil. plan funded by real estate taxes, including like-kind exchanges
* If Joe Biden wins, running mate could be most consequential VP in history
* Rep. Omar married political consultant who earned $1 mil.-plus from campaign
* A sign of political enthusiasm on the left
* John Kasich expected to speak in support of Biden
* Other Items of Note:
* OMB director confirmed
* Seven-part spending minibus set for next week
* WTO decision expected this week on temporary leader
Equities today: In Asia, most major equity benchmarks ended higher. Hong Kong’s Hang Seng Index rallied over 2%. Japan’s Nikkei 225 rose 0.7%. European stocks climbed to a four-month high. The pan-continental Stoxx Europe 600 rose 1.1% after European Union leaders struck a historic deal overnight on the terms for a €1.8 trillion ($2.06 trillion) spending plan (details below). Futures tied to the S&P 500 rose 0.7% higher amid better-than-expected U.S. corporate earnings reports.
U.S. equities yesterday: The Dow finished with a modest advance, gaining 8.92 points, 0.03%, at 26,680.87. The Nasdaq shot up 263.90 points, 2.51%, at 10,767.09. The S&P 500 gained 27.11 points, 0.84%, at 3,251.84.
On tap today:
• Senate Banking Committee is scheduled to vote on the nominations of Judy Shelton and Christopher Waller to the Federal Reserve at 2 p.m. ET.
• President Trump holds a press conference at 5 p.m. ET.
• Japan's Jibun Bank composite index for the first weeks of July is out at 8:30 p.m. ET.
Leaders of 27 European Union countries reached a unanimous agreement on 750 billion euros ($860 billion) in coronavirus recovery funds, divided into grants worth 390 billion euros and low-interest loans worth 360 billion euros. Almost a third of the funds are earmarked for fighting climate change — the EU has said it wants to be climate neutral by 2050. The EU deal will need to be approved by the parliaments of member states. Under the recovery plan, the European Commission, the EU’s executive branch, will for the first time issue debt on a large scale to fund grants and loans for countries hit hard by the coronavirus pandemic.
Besides the recovery fund, the EU said its next budget, which will fund initiatives between 2021 and 2027, will total 1.074 trillion euros. The two combined bring upcoming investments to the level of 1.824 trillion euros.
The EU agreed that net debt issuance will end in 2026 and that they will repay all the new debt by 2058.
The euro rallied to a four-month high on the prospect of a deal, with some observers saying the currency could reach multi-year highs.
• The heatwave across the U.S. hasn't boosted natural gas prices. Increased U.S. production and a massive decline in LNG demand have been weighing on natural gas — LNG export production is down 60% from March.
• Canadian crude prices are rising amid lower inventories and higher demand from U.S. refiners. U.S. oil refiners have started making more gasoline for drivers who are returning to the road, increasing demand for Canadian oil, which is the largest source of crude for Midwestern refineries.
• Oil prices accelerated ahead of the U.S. trading start, with U.S. crude and Brent prices up more than 2.8%. U.S. crude is trading just under $42 per barrel while Brent crude is above $44.50 per barrel.
• Gold continues to edge up, reaching its highest level since 2011. It rose 0.4% to $1,824.90 per troy ounce. Gold is within 4% of its record hit that year.
• Silver rose for the ninth time in 12 sessions Monday, hitting a nearly four-year high. Longer-term charts suggest there is still much more upside price potential for silver. Front-month silver futures advanced 2.2% to $20.124 a troy ounce on the Comex division of the New York Mercantile Exchange, recording their highest close since August 2016. Prices are up 8.5% so far in July and have surged 71% from a low hit in mid-March.
• The clouds over the peak shipping season are growing as the critical period nears for importers and logistics operators. Retailers that reopened their stores hoping for a rush of back-to-school sales instead are facing the prospect of another disappointing season, the Wall Street Journal reports (link), signaling a new bout of inventory woes is likely to cascade through U.S. supply chains. The back-to-school season is a key landmark for retailers, but uncertainty is hitting school systems as coronavirus cases soar across parts of the country and cities begin to tighten restrictions to quell the outbreaks. The WSJ article notes: “Retailers have been wrestling with the volatility: The sector’s inventories to sales ratio soared in April to 1.68, its highest level since the mid-1990s, then plummeted in April to 1.35. That’s helped drive steep swings in import volumes at U.S. ports, and the volatility looks likely to extend into the fall.”
• The number of $100 bills in circulation outnumbered $1 bills for the first time on record in 2017. The gap has widened each year since, according to data from the Federal Reserve. Over the past decade, $100 bills in circulation have more than doubled while singles are up by less than one third. Another possibility for rising demand for high-denomination bills: an expanding underground economy.
Fauci to throw out first pitch. The Washington Nationals said Anthony Fauci will throw out the ceremonial first pitch on opening day for the reigning World Series champions. Fauci is the top U.S. infectious disease official.
— CFAP payments clear $6.2 billion. USDA has paid out $6.23 billion under the Coronavirus Food Assistance Program (CFAP) on 442,639 approved applications as of July 20.
Livestock producers remain the largest recipients, with $3.15 billion in payments. That is broken down as $2.73 billion to cattle producers, $394.3 million to hog producers and $28.8 million to sheep producers.
Dairy producers have received $1.25 billion.
Non-specialty crop producers have received $1.64 billion, with $1.1 billion to corn producers, $314 million to soybean producers, $155 million to upland cotton growers, $19 million to HRS wheat producers, and $13.3 million to sorghum growers.
Payments totaling $186 million have gone out to specialty crop producers.
Growers in seven states have received $300 million or more, including Iowa at $652 1 million, Nebraska at $460.1 million, Minnesota at $399.7 million, Wisconsin at $374.1 million, and Texas at $331.7 million, California at $325.1 million, and South Dakota at $316.7 million.
— Update on China:
- Hong Kong textile giant Esquel, supplier of Nike and Hilfiger, suspends operations at spinning mill as new coronavirus cases spark lockdown of Xinjiang’s capital — Esquel, one of the world’s largest cotton shirt makers, says it will close a mill in Urumqi as the city of 3.5 million people in western China shuts down amid the return of coronavirus. Link to article in South China Morning Post.
- Australia beef exports ‘rescued’ after China ban by demand from U.S., South Korea. A slump in U.S. beef production in May as a result of the coronavirus pandemic has “rescued” Australian beef exports hurt by a Chinese ban on four of its abattoirs, export data shows, though new demand is unlikely to last long term. Link to SCMP item.
- China's agriculture ministry said the country's restocking of swine farms as proceeding "faster than expected,” based on Q3 2020 numbers released by the statistical bureau last week. With local officials under orders to show results in this "major task,” there is strong incentive to inflate the numbers according to Dim Sums: Rural China Economics and Policy. Swine prices have climbed back to near-record levels despite the frantic rebuild... and peak pork consumption season is just a couple months away.
The National Bureau of Statistics reported that China's swine inventory had risen for the last three quarters to reach 340 million head at the end of June. The inventory had been 310 million at the beginning of the year — the lowest swine herd number reported by the bureau since 1984. Pork output in Q2 2020 was 9.6 million metric tons (MMT), down from 10.4 MMT in Q1. However, pork production in Q2 was just 6% less than a year earlier, a much narrower shortfall than the 29% shortfall in Q1 2020. Hog slaughter was 119.7 million in Q2 2020, down from 131.3 million in Q1.
The sow inventory has increased nine months in a row, a Ministry of Agriculture and Rural Affairs spokesperson said. The sow inventory in June 2020 was larger than a year earlier —the first year-on-year increase since 2018 and "an important turning point,” according to the spokesperson.
The Ministry's objective is to boost sow numbers to 43.9 million by the end of 2020 — the number of sows at the beginning of 2018 before the African swine fever epidemic began. The statistics bureau estimates sow inventory at 36.3 million at the end of June 2020. That means the herd needs to add 7.6 million sows in six months, a 21% increase.
The Ag Ministry spokesperson said farmers are now eager to raise hogs. The Ministry says 6,177 new large-scale swine farms were built in the first half of the year, 10,788 farms that killed off all their pigs last year have now restocked, and the Ministry's monitoring of villages shows that individual farmers have increased their swine holdings over the last five months, according to Dim Sums.
Massive flooding in southern China is slowing down the rebuild by disrupting transportation of piglets and breeding swine, and by raising prospects for resurgence of disease, Dim Sums noted. Last week, the Ministry of Agriculture issued a circular warning farmers and officials to guard against African swine fever, blue ear disease, avian influenza, anthrax and epizootic diseases due to flooding and decomposing carcasses.
- China to sell more pork. China will auction another 10,000 tonnes of frozen pork from state-owned reserves July 23, according to the China Merchandise Reserve Management Center. The country has already auctioned off 420,000 tonnes of pork from its state reserves in 2020. The sales come as China reported that pork prices fell 0.7% over the period from July 13-17, according to Ministry of Agriculture and Rural Affairs data cited by Xinhua.
- China flooding worsens. China leader Xi Jinping on Friday chaired a leadership meeting on the flood control and relief work. In Anhui, a dam on the Chu river was demolished Sunday as water levels inched close to historic highs. Local authorities said the action was taken to ensure the safety of people living nearby.
- U.S. Secretary of State Mike Pompeo is in London today for talks with British Prime Minister Boris Johnson and Foreign Secretary Dominic Raab. According to a State Department fact sheet (link), they will discuss “global priorities, including coordination on Covid-19 recovery and issues related to the People’s Republic of China (PRC).”
- On Friday Foreign Minister Wang Yi held a call with Russian Foreign Minister Sergey Lavrov. “It was noteworthy for the direct language Wang Yi used in attacking the United States,” says China Watcher Bill Bishop of Sinocism. “The U.S. has retaken the notorious McCarthyism and outdated Cold War mentality and intentionally stirred up ideological opposition, which breaches the bottom line and basic norms of international laws and international relationships,” Wang told Lavrov. “China will never let a small group of anti-China forces take the lead but will firmly defend its reasonable interests and dignity.”
- U.S./China Phase 1 tracker: China’s purchases of U.S. goods. Link.
— Update on next aid package:
- Pelosi-Mnuchin talks today. Treasury Secretary Steven Mnuchin and Speaker Nancy Pelosi (D-Calif.) will begin negotiations on the next virus relief plan even as Republicans are still hashing out an agreement among themselves. Pelosi and Mnuchin are scheduled to meet this afternoon, along with Senate Minority Leader Chuck Schumer (D-N.Y.) and White House Chief of Staff Mark Meadows. Mnuchin and Meadows will meet earlier in the day with Senate Republicans.
- Some 25 million to 30 million Americans face losing $600 a week in federal unemployment benefits by the end of July. Analysts say the $15 billion a week has provided vital support to the economy. But critics say the money, paid on top of state jobless benefits, discourages some recipients from returning to work as businesses try to reopen.
NEC director comments. “Some people are asking me, ‘Why are you getting rid of unemployment benefits when you still have a lot of unemployment?’ The answer is, ‘We’re not,’ ” Larry Kudlow, the director of the National Economic Council (NEC), told Fox Business on Friday. “We’re not getting rid of unemployment benefits. Now, a couple of things — we are looking at various ways to cap total unemployment benefits — federal and state and local. We’re looking at various ways to do that.” Kudlow has said President Trump favors a more limited measure that “will not be as large and will create an incentive to work.”
GOP lawmakers have discussed proposing the federal benefit be reduced from an additional $600 per week to between $200 per week and $400 per week.
House Democrats passed a bill in May that would extend the $600-per-week threshold through January 2021. That bill would increase spending by roughly $3 trillion, and Trump threatened to veto it.
- Rich Lesser of Boston Consulting Group has an aid proposal: The federal government should distribute masks, increase testing and distribute food to vulnerable populations at a cost of up to $100 billion a month. That’s a lot of money, but it could reduce hospitalizations by as much as 70%, he said, while costing less than the $1 trillion a month that the government spent on relief efforts from March through May.
- Backlog of hogs could top 2 million, NPPC warns in continuing to push for more aid. Persistent and growing processing backlogs at pork processing facilities mean producers urgently need aid to offset the costs of hog euthanization along with additional direct assistance payments or many more may be forced out of business, officials with the National Pork Producers Council (NPPC) emphasized in a Monday briefing to discuss economic conditions across the sector.
Already, pork producers are facing a $4.7 billion annual revenue hit industrywide, according to an analysis by Dr. Steve Meyer, an economist with Kerns & Associates, who joined NPPC officials on the call. Meyer’s analysis drew from lean hog futures price data between March 1 and July 10. Other losses associated with euthanasia, disposal and donation of pigs with no market outlet and insufficient space to hold them mean U.S. pork producers have lost nearly $5 billion in actual and potential profits for 2020, he said, adding that it appears those losses will continue into 2021.
“This is, by far, the worst financial disaster ever for American hog farmers, who were already in a weakened financial position due to two years of trade retaliation” said Meyer. “Roughly 2 million hogs are still backed up on farms and this is likely to cause more pigs to be euthanized to prevent suffering due to overcrowding. If Covid prompts additional plant disruptions — a real possibility — the number of hogs backed-up on farms will swell precipitously.”
Hog farmers are now looking at $5 billion in losses — or $37 per hog — relative to what they expected for 2020 before the Covid-19 crisis began,” Meyer detailed.
“Pork producers’ needs are twofold, the NPPC officials said. The immediate concern is aid to offset costs associated with depopulation of hogs unable to be processed, followed by additional direct payments to compensate for the loss of market for pork caused by shifts in food demand caused by Covid-19. USDA’s Coronavirus Food Assistance Program (CFAP) package provides some support for producers but does not fully compensate for the depth of the hardship being faced across the pork sector, NPPC officials stressed. “Our producers are really hurting,” said NPPC President Howard AV Roth. “Our folks really need a lifeline and they need it quickly.”
“Somewhere around a million pigs, maybe a little more” have already been euthanized this year due to backlogs linked to processing plant capacity shortfalls, Meyer said. In the initial months of the Covid-19 pandemic, scores of plants reduced capacity or shuttered completely due to infections among plant workers. Plants have now reopened but are still operating slightly below full capacity due to social distancing and other measures implemented to protect workers, the combination of which is leading to a growing backlog of animals unable to be processed.
The current backlog of hogs stands at 1.1 million, but could grow to 1.6 million by the end of August, Meyer detailed. The backlog could hit 2.5 million by year-end, and assuming processing capacity remains near the current 95% level. “If Covid prompts additional plant disruptions – a real possibility – the number of hogs backed-up on farms will swell precipitously,” he stressed.
To address the depopulation issue, NPPC is urging passage of the Responding to Epidemic Losses and Investing in the Economic Future (RELIEF) for Producers Act of 2020. The measure is meant to compensate livestock producers for disposal costs associated with euthanizing animals unable due to pandemic related processing backlogs. The legislation would compensate producers based on the national average market value of euthanized or disposed livestock between March 1 and the date of enactment. Reimbursements would be calculated for a 30-day period beginning with the date of initial depopulation and would cover 85% of the value of losses. The value of losses for each subsequent 30-day period would be reduced by 10%.
The bill would also modify the Commodity Credit Corporation (CCC) Charter Act to allow USDA to tap CCC funds for the removal and disposal of livestock and poultry due to supply chain disruptions during a public health emergency. It would also give the secretary authority to provide assistance to ag processing plants via the CCC during public health emergencies to ensure there is a market for U.S. livestock. While some states have put programs in place to compensate producers for euthanized animals, but NPPC is continuing to push for a national-level program.
Besides depopulation costs, the bill also includes $300 million for animal health and surveillance laboratories, many of which have been forced to shift their existing resources to bolster private and public COVID-19 testing capacity amid the pandemic.
Without prompt relief, already challenging conditions could deteriorate further. “I've not heard much about bankruptcy so far, but I know they're coming based on what I know about production and the kind of economic losses we're facing,” Meyer remarked.
NPPC officials declined to speculate on the total price tag for relief required by the sector. NPPC supports “open-ended” aid like that provided under the RELIEF Act, given the uncertainty about market conditions in the months ahead. “We really don't know what the what the final damage is going to be, and we understand having said that, nobody's going to be made whole,” NPPC Vice President and Counsel for Global Government Affairs Nick Giordano explained. “We're just trying to keep as many producers as possible in business.”
CFAP direct payments have been helpful, officials said, but the practical effect has been limited both due to the limited amount of funding available and payment limitations on those funds, said NPPC CEO Neil Dierks. “We still think there's more need out there and there are limitations that have basically capped the ability of some producers to get full advantage” from the program, he explained.
Even with an aid package addressing depopulation and market loss, “we’re going to lose hog farmers,” Giordano acknowledged, saying the only question is how many. He stressed NPPC’s priority at this point “is to keep as many [producers] in business as possible.”
- Rural electric cooperatives want Congress to include a provision in the coronavirus relief package eliminating a prepayment penalty on their Rural Utility Service loans. National Rural Electric Cooperatives CEO Jim Matheson said in a call to reporters that members are urging Congress to include a bill that would allow co-ops that have borrowed money from the Treasury Department to get a reduced interest rate without paying a prepayment penalty. Matheson said the Flexible Financing for Rural America Act has been introduced in the House by Reps. Tom O’Halleran (D-Ariz.) and Vicky Hartzler (R-Mo.) and in the Senate by Senate Agriculture Appropriations Subcommittee Chairman John Hoeven (R-N.D.) and Sens. John Boozman (R-Ark.), Tina Smith (D-Minn.) and Kyrsten Sinema (D-Ariz.). Co-ops have experienced a loss of income due to businesses closing or operating at a lower level during the pandemic and the lower interest rates would make it easier for them to continue to provide service and also rebuild infrastructure.
— Food and beverage industry update:
- Complaints against JBS plant in Greeley. UFCW Local 7 filed a complaint with OSHA, charging social distancing and other coronavirus guidelines are not being followed at the JBS packing plant in Greeley, Colorado, and another with the NLRB, saying the company violated labor law by contacting workers individually about ongoing contract negotiations. Link for more details from CBS Denver.
— Update on reopening America... and around the world:
- Florida’s largest teachers union has filed a lawsuit challenging an order to reopen schools next month, as the state reported more than 10,000 new coronavirus cases for the sixth consecutive day. Florida reported 10,347 new cases of coronavirus and 92 deaths, over the past 24 hours. More than 360,000 people have tested positive for, and 5,183 people have died from, the disease in the state since the pandemic began.
— Coronavirus update:
— 14,727,753: Confirmed cases world-wide, and 584,556 deaths
— 56,750: New U.S. cases recorded yesterday
— 3,831,405: Total confirmed cases in the U.S.
— 372: Deaths in the U.S. recorded yesterday
— 140,909: Total U.S. deaths
— 46,469,524: Tests conducted in the U.S.
Brazil (2,118,646) and India (1,155,338) are the only other countries reporting 1 million cases or more.
California’s hospitalization growth is reducing and daily case growth in other hot spots like Florida and Arizona are slowing too.
Hong Kong, considered an exemplar of coronavirus containment, is seeing a surge in infections — a warning for the rest of the world.
A new study in South Korea suggests that children older than 10 can spread the virus as readily as adults, which could complicate school reopenings. A study of 65,000 young people in South Korea found that students aged 10 to 19 may spread the disease as efficiently as adults, a finding that is expected to complicate the debate over how and when to reopen schools.
Link to Covid Case Tracker
Link to Our World in Data
- A potential coronavirus vaccine developed by Oxford University in the U.K. has produced a strong immune response in a large, early-stage human trial, according to newly released data published Monday in the medical journal The Lancet. Oxford researchers, in partnership with pharmaceutical giant AstraZeneca, are calling their experimental vaccine ChAdOx1 nCoV-19. It combines genetic material from the coronavirus with a modified adenovirus that is known to cause infections in chimpanzees. The Phase 1 trial had more than 1,000 participants. Professor Adrian Hill, director of Oxford University’s Jenner Institute, told CNBC on Monday that the strong immune response means the vaccine is more likely to provide protection against the virus, though nothing is guaranteed. He said scientists hope to begin human trials in the U.S. in the next few weeks. “We are using single-dose and two-dose of the vaccine,” he told “Worldwide Exchange.” “It looks like both give useful immune responses even though after two doses we see stronger immune responses. And to keep following these individuals and start trials elsewhere. Hopefully in the U.S. in the next few weeks.”
One question among scientists is whether antibodies produced in response to Covid-19 offer protection against getting infected again.
The Lancet also published a report about a promising candidate vaccine from China, which like the Oxford vaccine appears both safe and effective at stimulating an immune response.
- President Trump will resume regular participation in coronavirus briefings beginning today. Trump is quoted as saying, “I think it’s a great way to get information out to the public. ... I’ll do it at 5:00 like we were doing. We had a good slot, and a lot of people were watching, and that’s a good thing.” The New York Times says Trump's decision is “a tacit acknowledgment that the public health crisis that he has sought to put behind him is still ravaging much of the country.”
POLITICS & ELECTIONS
— 2020 Presidential Election Interactive Map
— The Green Papers
- Biden’s $775 billion plan funded by real estate taxes, including like-kind exchanges. Joe Biden unveiled a $775 billion plan to bolster child care and care for the elderly that would be financed by taxes on real estate investors with incomes of more than $400,000 as well as increased tax compliance by high-income earners. Officials highlighted some tax breaks they would seek to eliminate to raise revenue. A senior campaign official said a Biden administration would take aim at so-called like-kind exchanges, which allow investors to defer paying taxes on the sale of commercial real estate if the capital gains are reinvested in another property. The official also said they would prevent investors from using real estate losses to lower their income tax bills. Biden is scheduled to deliver a speech on the policies this afternoon in New Castle, Del.
- If Joe Biden wins in November, his running mate could be the most consequential vice president in history. Link to article in The Atlantic.
- Rep. Ilhan Omar (D-Minn.) recently married a political consultant who has taken in more than $1 million from her campaign. Link to Minneapolis Star-Tribune article.
- A sign of political enthusiasm on the left: Total primary turnout among Democratic voters has surpassed 2016 levels, despite the pandemic. Link to NYT article.
- John Kasich, the Republican former governor of Ohio, is expected to speak in support of Biden at the Democratic National Convention next month, the Associated Press reports (link).
OTHER ITEMS OF NOTE
- OMB director confirmed. The Senate on Monday confirmed former conservative activist Russell Vought to be director of the White House Office of Management and Budget, a role he has held in an acting capacity since former OMB chief Mick Mulvaney was elevated to the role of White House chief of staff. Vought had been OMB deputy director prior to Mulvaney’s departure. The nomination was not in doubt after a procedural vote prior to the July 4 break cleared the Senate 47-44.
- Judy Shelton, President Trump's controversial pick to join the Fed's Board of Governors, is poised to clear a key confirmation hurdle today after Louisiana GOP Senator John Kennedy said he'd vote in her favor. The Senate Banking Committee will also decide on the nomination of Christopher Waller, director of research at the St. Louis Fed, which is expected to easily pass muster. Shelton has a long history of unorthodox economic commentary, like questioning the basic role of the Fed, calling for near-zero interest rates and advocating a return to the gold standard. If Shelton and Waller are cleared, the nominations advance to a full Senate vote.
- Seven-part spending minibus set for next week. The House Appropriations Committee unveiled a summary (link) of its second package (HR 7617) of spending bills, which will be considered on the chamber floor next week. The minibus includes the Defense, Commerce-Justice-Science, Energy and Water, Financial Services, Homeland Security, Labor-HHS-Education, and Transportation-HUD funding bills, according to a statement (link).
- WTO decision expected this week on temporary leader. The WTO is expected this week to decide who will temporarily lead the trade body once Director General Roberto Azevêdo exits August 31. Four current deputy directors general are under consideration — Alan Wolff of the U.S., Yonov Frederick Agah of Nigeria, Karl Brauner of Germany and Yi Xiaozhun of China. The WTO General Council meeting for July 22-23 has the selection of the temporary leader on the agenda along with an update on the process of selecting the next permanent leader of the trade body, a process that is expected to take until potentially November to resolve.