Fears of Second Wave of Virus in China and Concerns in U.S. Hammer Equities

Posted on 06/15/2020 7:02 AM

Price rise for some U.S. commodities signal another look at type of future aid


In Today’s Updates


* Beijing reinstates virus controls amid a growing outbreak
* World and U.S. equities (futures) plunge on fears of second wave of Covid-19
* BP to write off up to $17.5 billion of assets
* NEC Director Kudlow more upbeat than Fed Chairman Powell re: U.S. economy
* First stage of the U.S. recovery looks V-shaped
* IMF to further lower 2020 global economic forecast: Georgieva
* U.S. crude oil futures are back below $35/bbl as risk aversion returns

* Dollar gives back just about all of its rally since mid-March
* China Phase I questions will surface during hearings this week with USTR Lighthizer
* China is a rare bright spot for U.S. exporters
* Pompeo plans meeting with Chinese Officials in Hawaii: Politico
* Go slower approach for next ag aid package

* Update on reopening America... and around the world
* CDC releases new safety guidance as states lift restrictions
* Gov. Cuomo threatens to reverse reopening in parts of New York

* Dr. Fauci to U.K: Don’t plan on summer holidays in U.S.
* Coronavirus update
* Beijing reports 36 new local coronavirus cases, all linked to Xinfadi food market
* More than 20 U.S. states are seeing a pickup in Covid-19 cases
* Despite acting early, Peru is one of the world’s worst hot spots

* S. Korea holds emergency meeting after Kim Jong Un’s sister threatens military action
* Joe Biden’s search for a running mate has advanced to the next phase
* Census Bureau will increase efforts to count people in person and in rural areas
* Former U.S. Marine found guilty of espionage by Russian court
* Sen. Cruz talks about RINs and small refineries
* Super Pac group upbeat on Peterson's re-election
* Julie Callahan named assistant USTR for agricultural affairs and commodity policy
* NYT notes Trump’s 'halting walk down a ramp' after a speech at West Point




Equities today: Global stocks sank after a jump in China and U.S. coronavirus cases, with U.S. equity futures signaling a big decline on the open. Risk-off sentiment has returned. In Europe, the pan-continental Stoxx Europe 600 dropped 1%. Stocks in Asia closed lower, with the Japanese Nikkei Stock Average down nearly 3.5%.


     U.S. equities Friday: The Dow rose 477.37 points, 1.90%, at 25,605.54. The Nasdaq rose 96.08 points, 1.01%, at 9,588.81. The S&P 500 moved up 39.21 points, 1.31%, at 3,041.31.


     For the week, the Dow fell 5.5%, the S&P slipped 4.8% and the Nasdaq Composite dropped 2.3%. For the week, the Dow fell 5.5%, the S&P slipped 4.8% and the Nasdaq Composite dropped 2.3%.


BP to write off up to $17.5 billion of assets after revising long-term energy price forecasts. BP said coronavirus would have a lasting impact on the global economy and energy demand and sees the pandemic only accelerating a global shift towards cleaner fuels. The company sees oil and gas being about 20% to 30% cheaper than before in the coming decades, and expects the cost of carbon emissions to be more than twice as high —both threats to its longstanding dividend.


White House economic director Larry Kudlow offered a more upbeat outlook than Federal Reserve Chairman Jerome Powell did last week, saying the U.S. is recovering from the “act of nature” that coronavirus shutdowns created. “There’s a very good chance you are going to get the V-shaped recovery,” Kudlow said on CNN’s State of the Union on Sunday. “The unemployment rate will fall, and 2021 is going to be another solid, solid year.” Powell, meanwhile, is expected to reiterate his downbeat assessment in testimony to congress this week.


     Kudlow said the $600-a-week bonus payments made to some Americans laid off during the coronavirus pandemic will end as planned on July 31 to prevent a “disincentive” for workers to return the jobs market.




The first stage of the U.S. recovery looks V-shaped. After bottoming out in April, economic activity has continued to rise into early June, according to a range of private data written about by the Wall Street Journal (link). Whether the recovery can continue at this pace “remains clouded by uncertainty over future fiscal stimulus, resurgent infections and the drag of unprecedented job loss on consumer finances. Nonetheless, an L-shaped recovery, in which activity stays depressed, now looks remote. And while the overall recovery may not end up a V, it may also be less feeble than many had feared.”


Market perspectives:


Data on U.S. dairy and beef cattle this week will update on how the industries are adjusting to virus-related economic hits in May. While U.S. milk production in April increased 1.6% from a year earlier, some dairy farmers previously were dumping supplies amid lost business due to school and restaurant closures. Meanwhile, beef-processing plants were starting to shut in mid-April, causing steep downturns in cattle prices but prices have recovered some of the declines as beef processing has picked up (chart source: Bloomberg).


     Cattle recovery

U.S. crude posted its first weekly loss in seven periods on fears that a second wave of coronavirus infections in some states could derail a fragile recovery. West Texas Intermediate futures settled down 8.3% through Friday. Crude oil futures remain under pressure but have lifted from their lows registered in Asian action to open the week, but remain focused on the Covid-19 situation. U.S. crude is trading around $35.50 per barrel and Brent crude around $38.25 per barrel. The Baker Hughes active U.S. rig count fell to its lowest since 2009 on Friday and the latest data out of New York shows little change in the speculative positioning around WTI.


     WTI prices


IMF to further lower 2020 global economic forecast: Georgieva. The IMF will probably lower its 2020 economic growth estimate from its April forecast of a 3% contraction, said Managing Director Kristalina Georgieva. A new outlook will be released on June 24 and is expected to reflect extremely challenging conditions, Georgieva said in a speech on June 13 and posted on IMF’s website. “We are likely to revise downward further on the basis of incoming data, which tells us that most countries are doing worse than we had projected,” she said, noting that only a small number of states are doing better, but not enough to prop up growth. “The real economy is hit hard.”

• The cheese market has soared lately. Both blocks and barrels rallied to all-time highs early in last week, but they finished lower. Sarina Sharp of the Daily Dairy Report writes, “The invisible hand of the markets and the passage of time are starting to ease the physical shortage that propelled the cheese markets to such unprecedented heights. USDA’s Dairy Market News reports that some end users who were rushing to restock after Covid-19 closures have filled their refrigerators, and buyers are more hesitant at these values. Cheesemakers are still running hard. A high price is the best fertilizer. The markets may have to contend with a bumper crop of cheese later this year.”


     Cheese markets


     WSJ article (link): Why Milk’s Best Sales in a Decade Won’t Save Struggling Dairy Farmers says consumer stockpiling amid coronavirus won’t offset declines in demand from restaurants and foreign buyers; “I’m ready to be done,” says a farmer.


     got milk

     Dairy prices III

U.S. Energy Department said it has bought 126,000 barrels of crude oil from Shell Trading Company for the country's Strategic Petroleum Reserve, as part of its plan to buy up to 1 million barrels of sweet crude to help small and midsize producers. To help oil companies hurting from the lack of demand during the coronavirus pandemic, President Donald Trump had initially ordered his administration to fill the reserve completely, which would require a purchase of about 77 million barrels, but the DOE canceled its plan to buy an initial 30 million barrels after Congress declined to provide the necessary funding.


Dollar has handed back just about all of its rally since mid-March. ING Economics, looking ahead, expects “broad-based pressure on the dollar to continue as investors put their money back to work. The run-in to the November Presidential election should also be characterized by a weaker dollar. Uncertainty over the election and a potential change in policies on trade, taxation and regulation should keep the dollar on the back foot.”

     The dollar continued to strengthen today. The WSJ Dollar Index rose 0.38% to 91.69, putting it on pace for its third straight session of gains. The index last Wednesday hit 90.41, its lowest end-of-day level since March 9, but it has since rebounded.


Number of publicly accessible charging points for electric vehicles jumped 60% in 2019 to reach 862,118, according to the IEA's annual Global EV Outlook. Fast chargers accounted for 31% of the total, reflecting efforts to build critical infrastructure ahead of an expected boom for EVs, which accounted for just 1% of all vehicle sales last year.




Update on China:

  • China Phase I questions will likely surface when U.S. Trade Representative Bob Lighthizer appears before two congressional hearings. Some possibilities that traders hope he is asked:

    • Odds that China will fulfill its $36.5 billion purchases of U.S. farm products this year.
    • What is the timeline for China's purchases? Jan.-Dec. this year, or another timeframe?
    • Extension: Has China asked for or will the country be given a purchase timeline extension?
    • Are Chinese purchases based on CIF or FOB?

  • China is a rare bright spot for U.S. exporters. The country has retaken its mantle as America’s largest trading partner after the sides signed a trade pact in which China agreed to sharply step up purchases of U.S. farm products and other goods. Despite the rise, China is so far not on pace to meet purchase terms under the trade pact, the Wall Street Journal reports (link).

    Not on pace

  • China has canceled an economic briefing scheduled for Monday in Beijing as Covid-19 cases spiked in the capital city (see related item below). The National Bureau of Statistics said the press conference scheduled won’t be held, but data and explanatory statements will still be released. May readings on industrial output, retail sales and fixed asset investment are due.
  • Pompeo plans meeting with Chinese Officials in Hawaii: Politico reports, citing two people familiar with the matter. Plans for the trip haven’t been finalized. State Dept. spokesperson declined to comment to Politico, while the Chinese embassy didn’t respond to Politico’s request for comment.
  • China’s central bank gave American Express the green light to start operating a card-clearing network that will process transactions in yuan, giving the U.S. card company greater access to the country’s spenders. On Saturday, Amex said it is the first foreign payment network to be licensed to clear domestic transactions in mainland China. The New York-based company has a Chinese joint venture called Express Co. that will run the network and process local-currency payments made with Amex-branded cards. The network is expected to go live later this year.
  • An Australian man convicted of drug smuggling was sentenced to death in southern China, potentially escalating diplomatic tensions.

Update on next aid package:

  • Go slower approach for next ag aid package. With the significant run-up in dairy/cheese prices, and the price rise for some other U.S. commodities, congressional and Trump administration sources say a more thorough look should be made at what is needed for the next ag sector relief package.

Update on reopening America... and around the world:

  • President Vladimir Putin said Russia is emerging “confidently” from the coronavirus crisis, drawing a contrast with the U.S., where he suggested Donald Trump’s efforts to tackle the pandemic have been hamstrung by political bickering. In an interview with state TV, Putin said Russia has suffered “minimal losses” from the virus and praised the government for working in a coordinated fashion “as a single team.” Russia has more than 528,000 cases, the third highest after the U.S. and Brazil.
  • CDC releases new safety guidance as states lift restrictions. The Centers for Disease Control and Prevention (CDC) on Friday released new guidelines for people who are considering venturing out in their communities and warned that attending large gatherings remains a high risk.
  • In New York City, subway ridership was up 25% in a week as people returned to work, Mayor Bill de Blasio (D) said. Bus ridership was 23% higher on June 10 than on June 3, according to de Blasio. There were 31% more Staten Island ferry riders, while traffic into Manhattan was up 17% on East River bridges, and up 14% on Harlem River bridges, he detailed.
  • Gov. Andrew Cuomo threatened to reverse reopening in parts of New York that aren’t following coronavirus safety rules. He said the state had received 25,000 reports of reopening violations.
  • European Union nations to reopen borders in time for summer. Member states should lift border controls within the bloc starting today, the EU's executive body said, though not all of them will follow that recommendation, which was intended as a lifeline to the tourism industry.
  • Dr. Fauci to U.K: Don’t plan on summer holidays in United States. A lifting of the ban on travel to the U.S. from Great Britain could still be months away, and in a worst-case scenario may not come until a coronavirus vaccine is available, Dr. Anthony Fauci said in a wide-ranging interview with The Telegraph that published yesterday. “It’s going to be really wait and see. I don’t think there’s going to be an immediate pullback for those kinds of [travel] restrictions,” Fauci said. “Looking at what’s going on with the infection rate, I think it’s more likely measured in months rather than weeks.”

    “We were successful in suppressing the virus in cities where there were major outbreaks — New York, Chicago, Detroit, New Orleans,” Fauci said. “But we're seeing several states, as they try to reopen and get back to normal, starting to see early indications [that] infections are higher than previously. “The question is will they have the capability to do the appropriate and effective isolation, and contact tracing, to prevent this increase from becoming a full-blown outbreak? I'm concerned it's happening. I hope the individual states can blunt that. It [the virus] could go on for a couple of cycles, coming back and forth. I would hope to get to some degree of real normality within a year or so. But I don't think it's this winter or fall, we'll be seeing it for a bit more.”

  • French President Emmanuel Macron said he would accelerate the timetable for lifting the remaining lockdown restrictions in a bid to get France’s economy back on its feet. Today, the government will reclassify the Paris region as a so-called green zone, which means all bars and restaurants will be able to fully reopen in the capital. With the French economy expected to shrink by 11% this year, Macron said he would now shift his priority to reviving growth.

Coronavirus update:

  • Summary: Global cases of Covid-19 are closing in on 8 million, with the total at 7,930,277 and deaths at 433,919, according to data from the Center for Systems Science and Engineering (CSSE) at Johns Hopkins University (JHU). The U.S. case total is at 2,094,069 with 115,732 deaths.
  • Beijing reports 36 new local coronavirus cases, all linked to Xinfadi food market. The patients included 27 people who worked at the Xinfadi food market, which has been closed down, and nine who had been exposed to it, the municipal government said. For the country as whole, there were 57 new confirmed coronavirus cases in the 24 hours to midnight Saturday, the National Health Commission reported, the biggest one-day total in two months. Some 38 of the new cases were locally transmitted, including the 36 in Beijing, with the other 19 were travelers arriving from abroad. Other media report 71 people in Beijing tested positive for covid-19. Nearby residents have been banned from leaving their homes and sports events were cancelled.
  • "The second wave has begun," said William Schaffner, a professor at the Vanderbilt University School of Medicine, outlining the need for social distancing and mask-wearing, though he "cannot imagine" a second shutdown due to the impact of the first one.

    Meanwhile, Dallas Fed President Robert Kaplan said Sunday that the U.S. economic recovery hinged on effective public health measures, and "right now, it's relatively uneven."

    More than 20 U.S. states are seeing a pickup in Covid-19 cases, Tokyo reported a jump over the weekend and a fresh outbreak in Beijing led officials to close the Xinfadi market.

  • Despite acting early, Peru is one of the world’s worst hot spots. “They asked us to wash our hands, but one in three poor households has access to running water,” one expert said. Link to New York Times article.

    Covid Peru



  • South Korea holds emergency meeting after Kim Jong Un’s sister threatens military action. Top officials met Sunday, a day after Kim Yo Jong, a top aide to her older brother, said that it was “high time to break with the South Korean authorities,” according to Korean Central News Agency, a state news agency.
  • Joe Biden’s search for a running mate has advanced to the next phase as his campaign conducts more extensive reviews of some prospects, including at least several African American women, the Washington Post reported (link), citing people with knowledge of the situation. Candidates who have progressed to the point of more comprehensive vetting or have the potential to do so are Sen. Kamala Harris (D-Calif.), Rep. Val Demings (D-Fla.), former national security adviser Susan Rice and Atlanta Mayor Keisha Lance Bottoms, all of whom are black. Sen. Elizabeth Warren (D-Mass.), who is white, is also in that group, as is New Mexico Gov. Michelle Lujan Grisham, who is Latina. Biden said at a May 27 virtual fundraiser that he hoped to name his vice-presidential pick around Aug. 1.
  • The Census Bureau will increase efforts to count people in person and in rural areas in the coming weeks, the agency announced. The coronavirus pandemic caused the agency to suspend most operations starting in April to prevent the spread of the virus.
  • Julie Callahan moves from acting assistant trade representative to assistant trade representative for agricultural affairs and commodity policy at the U.S. Trade Representative's office. Callahan has served in senior positions at the Food and Drug Administration, USDA's Foreign Agricultural Service and the American Chemical Society.
  • Former U.S. Marine found guilty of espionage. Paul Whelan was sentenced to 16 years in prison by a Russian court for espionage, in a case that has drawn condemnation from the U.S. and threatens to further erode relations between Moscow and Washington.
  • Sen. Ted Cruz (R-Teaxs) to Politico: EPA Administrator Andrew Wheeler "fully understands" the damage that expensive compliance credits, called Renewable Identification Numbers, have on small refineries. "I expect the administrator, based on his past commitments, not to sit idly by while RIN prices continue to increase and to provide relief to small refiners that is authorized by Congress.”

    The decision that Cruz is referring to is a flurry of small refinery exemptions (SREs) that have been submitted to EPA for prior compliance years. They are not being shown on the EPA website as being received, but the situation has been confirmed in recent weeks with Department of Energy Undersecretary Mark Menezes commenting on them during his confirmation hearing to take the number two post at the Department of Energy. The requests are seen as a way for refiners to qualify to file for SREs based on the 10th Circuit Court of Appeals ruling earlier this year that invalidated three SREs granted for the 2016 compliance year.

  • Super Pac group upbeat on Peterson's re-election. A sugar beet-backed super PAC investing in House Ag Chairman Collin Peterson's (D-Minn.) re-election, the Committee for Stronger Rural Communities, believes that “certain elements of the race are firming up and moving in the right direction” for Peterson. Link to a memo circulated among the PAC's donors.
  • NYT says Trump’s “halting walk down a ramp after a speech at West Point on Saturday raised questions about his health.” The New York Times notes “President Trump’s descent down a ramp after speaking at the U.S. Military Academy at West Point in New York reopened questions about his health.” Link to article. Link to video. After the NYT and Bloomberg noted the ramp walk, Trump tweeted that the ramp “was very long & steep, had no handrail, and most importantly, was very slippery.”


Add new comment