Fed Chair Powell: U.S. Economy at ‘Inflection Point’

Posted on 04/12/2021 7:43 AM

Sen. Thune updates on WHIP+, other issues | WSJ survey: U.S. economy to grow 6.4%

 


In Today’s Digital Newspaper


 

Market Focus:
• Fed’s Powell: Growth and job creation could start coming in much more quickly
• 40 mutual funds reported total returns of at least 100% over the prior 12 months
WSJ survey: U.S. economy is poised to grow by 6.4% this year
• Powell says collapse of Archegos Capital Management raised concerns

• Powell: Fed involved in large-scale research project on a digital dollar
• Economists expect price pressures as economy reopens, with inflation accelerating to 3%
• What Larry Summers thinks about Biden administration fiscal policy
• Wheat futures reverse recent rally on better crop prospects
• Ag demand update

Soybeans slide, corn holding onto modest
• Concerns about dryness linger on the Plains, with Iowa also a concern
• Brazil’s safrinha corn crop needs a drink
• Brazilian producers taking advantage of high prices with aggressive forward sales
• IKAR also raises Russian wheat crop forecast
• Boxed beef values continue to soar
• Pork and cash hog prices still climbing

Policy Focus:
• Sen. Thune updates on WHIP+, other issues

 

Biden Administration Personnel

• Cindy McCain set to land Biden ambassadorship
• Senate to resume consideration of Polly Trottenberg to be deputy sec. of Transportation
• Biden to select former NSA officials for top cybersecurity roles

 

China Update:
• China’s antitrust regulator imposed a fine equivalent to $2.8 billion against Alibaba
• State Dept. new guidelines to "liberalize" U.S. gov’t interactions with Taiwan
• China’s March exports (released Tuesday) expected to rebound sharply
• China’s GDP for first quarter of 2021 (released Friday) expected to grow 19.5%
• China new yuan loans up in first
• U.S. climate envoy John Kerry expected to travel to China this week
• China raises price floor for wheat auctions, restricts participation

 

Trade Policy:
• U.S. cat, dog food exports at $1.7 billion in 2020
• U.S./Mexico potato trade situation still percolating

 

Energy & Climate Change:

• Dakota Access pipeline to remain open during environmental review
• Joe Biden considers ordering climate confessions
• Two electric vehicle battery makers settle their feud


Coronavirus Update:
• Rise in U.S. Covid-19 cases driven by younger people
• India is new Covid epicenter

 

Politics & Elections:
• Trump again bashes McConnell in speech to GOP donors
• Herschel Walker considering U.S. Senate bid in Georgia


Other Items of Note:
• Iran accuses Israel of sabotaging nuclear facility, calling it ‘crimes against humanity’
• Biden’s refugee cap
• An effort to unionize Amazon workers fails
• Malaysia’s FELDA still seeking to take over FGV Holdings.

 


MARKET FOCUS


 

Equities today: U.S. equity futures signal lower openings. Investors said they were positioning for the start of earnings season and data that will help to gauge whether a coming burst of inflation will prove transitory. Inflation data due on Tuesday are expected to show consumer prices picked up in March (see related item below). European equities have turned mixed after a lower start on Covid concerns. The Stoxx 600 was down 0.2% while other regional markets were from 0.3% lower to 0.5% higher. European markets are showing little enthusiasm for the reopening moves in England, which includes shops, gyms and pub gardens. Stocks pulled back in major Asian markets. China’s Shanghai Composite fell 1.1% by the close and Japan’s Nikkei 225 lost 0.8%.

 

     U.S. equities Friday: The Dow rose 297.03 points, 0.89%, at 33,800.60. The Nasdaq gained 70.88 points, 0.51%, at 13,900.19. The S&P 500 moved up 31.63 points, 0.77%, at 4,128.80.

 

     At the end of February, 40 mutual funds reported total returns of at least 100% over the prior 12 months, according to Morningstar. Among exchange-traded funds, 59 had one-year returns greater than 100% at the end of February; one month later, according to FactSet, 218 did.

 

On tap today:

 

     • Bank of Canada is set to release its business outlook and consumer expectation surveys at 10:30 a.m. ET.
     • USDA Grain Export Inspections, 11 a.m. ET.
     • Boston Fed President Eric Rosengren will speak on the economic outlook at 12 p.m.
     • U.S. federal budget figures for March are out at 2 p.m.
     • USDA Crop Progress report, 4 p.m. ET.
     • President Biden discusses infrastructure with lawmakers; White House meets with automakers, chip makers.

 

The U.S. economy is poised to grow by 6.4% this year, according to economists surveyed by the Wall Street Journal, who boosted their average forecast this month from 3.7% in December.

 

     WSJ survey

 

Powell sees pickup in economic growth ahead; says job gains, economic output are about to start increasing ‘much more quickly’. Federal Reserve Chairman Jerome Powell said the U.S. economy appears to be at an inflection point, with output and job growth poised to accelerate in the months ahead as long as the Covid-19 pandemic retreats. “We feel like we’re at a place where the economy’s about to start growing much more quickly and job creation coming much more quickly,” Powell said in an interview broadcast Sunday evening on CBS’s 60 Minutes. He said the Fed’s forecast is that the economy could produce close to one million jobs a month for “a string of months.” The central-bank chief urged Americans to continue socially distancing and wearing masks, saying a resurgence of Covid-19 remains the primary risk to the economic outlook.

 

     Powell reiterated that the Fed plans to wait until the economy’s recovery is complete before it raises interest rates. “It’ll be a while until we get to that place,” Powell said in an interview that took place Wednesday. Asked whether a rate increase might happen this year, Powell said it is “highly unlikely.” "It's going to take some time" for the part of the economy hurt most by the pandemic — such as restaurants, hotels, and travel — to recover completely and for all of those jobs to return, he said. Powell and other Fed officials have indicated in recent weeks that they expect to hold U.S. short-term interest rates near zero through 2023. They also plan to continue the Fed’s $120 billion of monthly bond purchases until the economy makes “substantial further progress” toward its goals of maximum employment and sustained 2% inflation.

 

     Powell also said the collapse of Archegos Capital Management raised concerns about one firm causing so much damage, but he didn’t think it raised questions about overall financial stability. “We’re determined to understand what happened and make sure that whatever happened doesn’t happen again,” he said.

 

Powell said the Fed was involved in a large-scale research project on a digital dollar, but that any decision to introduce one was for Congress and the public. Digital currencies are on the mind of U.S. policy makers, with officials at the Treasury, State Department, Pentagon and National Security Council upping efforts to understand the implications of a digital yuan, according to reports. Meanwhile, bitcoin traded close to record highs above $60,000.

 

Economists expect price pressures as the economy reopens, with inflation accelerating to 3% in June, which would be the highest since 2012, before slowing to 2.6% by December. U.S. consumer prices are expected to pick up in March, a potential signal of building inflation pressures amid a big dose of fiscal stimulus, rising consumer spending and supply-chain bottlenecks. Most policy makers and many economists, however, are forecasting that relatively strong consumer-price gains will be short-lived. The report is released Tuesday morning.

 

    Inflation survey

 

What Larry Summers thinks about Biden administration fiscal policy. "I see substantial risk that the amount of water being poured in vastly exceeds the size of the bathtub. That could manifest itself, as a much smaller period of excess did during the Vietnam war, in rising inflation and a ratcheting-up of inflation expectations. It could, as has often happened, manifest itself in the Federal Reserve feeling a need for a sharp and surprising increase in interest rates, and the subsequent deceleration of the economy into recession. It could manifest itself in a period of euphoric boom and optimism that leads to unsustainable bubbles, or it could all work out well. But, it doesn’t seem to me that the preponderant probability is that it will work out well," the former Treasury secretary says in the Financial Times (link).

 

Market perspectives:

 

     • Outside markets: The U.S. dollar index is slightly lower as the euro and British pound are firmer against the greenback. In bond markets, the yield on 10-year Treasury notes ticked down to 1.659%, from 1.664% Friday. Yields, which move in the opposite direction to bond prices, have fallen back from their closing high of 1.749% in late March, but are still up from a low of 0.915% in early January. Brent-crude futures, the benchmark in international energy markets, rose 0.5% to $63.27 a barrel. OPEC is due to release a regular forecast of global supply and demand of oil Tuesday. Gold and silver futures are nearly steady ahead of US trade action. Gold is trading around $1,743 per troy ounce and silver around $25.75 per troy ounce.


     • Crude oil futures have risen ahead of U.S. trading despite Covid worries that are weighing on other markets. U.S. crude is trading around $60.05 per barrel and Brent around $63.80 per barrel. Prices were slightly higher in Asian action, with U.S. crude up four cents at $59.36 per barrel and Brent up four cents at $62.99 per barrel.

 

     • Wheat futures reverse recent rally on better crop prospects. Wheat futures dropped from a three-week high in Chicago as crop prospects improve in some major producers. The most-active contract rallied almost 5% last week, the most since January, as drought in areas of the U.S. and Canada sparked worries for spring-wheat sowing. However, conditions are improving in other key suppliers like Russia, where consultants including SovEcon and IKAR raised estimates for the 2021 harvest.

 

        Wheat futures

 

     • Ag demand: Egypt’s state grains buyer issued an international tender to buy at least 30,000 MT of soyoil and 10,000 MT of sunflower oil.

 

Items in Pro Farmer's First Thing Today include (Link to subscribe to FTT):

     • Soybeans slide, corn holding onto modest
     • Concerns about dryness linger on the Plains, with Iowa also a concern
     • Brazil’s safrinha corn crop needs a drink
     • Brazilian producers taking advantage of high prices with aggressive forward sales
     • IKAR also raises Russian wheat crop forecast
     • Boxed beef values continue to soar
     • Pork and cash hog prices still climbing

 


POLICY FOCUS


 

—  Sen. Thune updates on WHIP+, other issues. AgriTalk last Thursday interviewed Sen. John Thune (R-S.D.). Here are some highlights (link) of what Thune said:

  • He didn’t predict a specific date on the next round of CFAP payments (those that were stalled by Sen. Debbie Stabenow (D-Mich.) for USDA Sec. Tom Vilsack to review), but Thune did say it’s a high priority for him.
  • WHIP+ signup deadline was Friday. Now, payments should start to flow. Once the total cost is known, that will determine if more money will be added. He also said that when 2019-crop payments are finished, that’s when they’ll figure out if there will be a WHIP+ for 2020-crop.
  • Regarding the southern U.S. border issues, Thune basically said it’s a disaster and it’s President Joe Biden’s problem and he and VP Kamala Harris have got to shut this down.
  • STEP Act... proposed cap gains tax increases, step-up in basis, etc... Thune said, is a real threat to family businesses.
     

BIDEN ADMINISTRATION PERSONNEL


 

— John McCain's widow, Cindy McCain, set to land Biden ambassadorship. President Joe Biden is preparing to name Republican Cindy McCain to an ambassador post in Western Europe in what would be his administration’s first Republican appointee to a Senate-confirmed position, Politico reports. McCain, 66, is undergoing vetting to be nominated for U.S. ambassador to the U.N. World Food Program, a mission based in Rome, Politico said, citing two sources with knowledge of the matter. This comes after the administration declined to install at least one member from the opposing party in a Cabinet position — a practice of three consecutive presidents (Bill Clinton, George W. Bush and Barack Obama) before Donald Trump broke the streak. Cindy McCain, the wife of the late Sen. John McCain, gave Biden a critical boost in Arizona with her endorsement of the Democrat over Trump. Biden was the first Democratic presidential nominee to carry the state since Clinton in 1996. As chair of the McCain Institute board of trustees, McCain has worked on curbing world hunger and human trafficking. During the 2008 campaign, she traveled to Georgia with the U.N.’s World Food Program to visit wounded soldiers after a Russian invasion and also monitored the program’s work in Southeast Asia and Africa.

 

— Senate today will resume consideration of Polly Trottenberg to be deputy secretary of transportation. At 5:30 p.m. ET, the chamber will vote on the motion to invoke cloture, or limit debate, on the Trottenberg nomination.

 

     President Biden Friday announced his intent to nominate Nuria Fernandez to be administrator of the Federal Transit Administration at the Department of Transportation, according to a press release.

 

— Biden to select former NSA officials for top cybersecurity roles. The president plans to name former National Security Agency deputy director Chris Inglis as the first national cybersecurity director, according to the Washington Post, filling a post Congress created in December. Biden is also expected to announce he’s selected Jen Easterly, a former NSA intelligence officer, to head the Cybersecurity and Infrastructure Security Agency.

 


CHINA UPDATE


 

— China’s antitrust regulator imposed a fine equivalent to $2.8 billion against Alibaba for abusing its dominant position over rivals and merchants on its e-commerce platforms. Alibaba said Monday that it would invest in measures to support merchants on its platform. Shares listed in Hong Kong rallied 6.5%.

     Alibaba

— 
The State Department announced it had issued new guidelines to "liberalize" U.S. government interactions with Taiwan. The action follows a move by then-Secretary Pompeo as he was leaving office to lift long-standing self-imposed restrictions on government-to-government engagement with Taiwan and the introduction Thursday of bipartisan Senate legislation that would codify those actions by Pompeo.


— China’s March exports (released Tuesday) are expected to rebound sharply from a year earlier when Covid-19 depressed economic activity at home and abroad. Economists surveyed by the Wall Street Journal are forecasting a 40% annual increase, a sharp reversal from the 6.6% contraction in the year-earlier period. Similar to the exports, the country’s import sector is expected to see 25% growth in March, reversing a year-earlier decline of 0.9%.

 

— China’s gross domestic product for the first quarter of 2021 (released Friday) is expected to grow 19.5% from a year earlier, a figure that reflects last year’s short but sharp pandemic-induced downturn — GDP contracted 6.8% in the first quarter of 2020 — as much as it does a return to economic growth. Looking through distortions caused by Covid-19, China’s economy is on track for a year of strong gains.

 

— China new yuan loans up in first quarter. China new yuan loans totaled 2.73 trillion yuan ($416.62 billion) in March, up from 1.36 trillion in February and above expectations. That took new yuan lending in the first quarter to 7.67 trillion yuan, according to Reuters calculations, which would beat the prior peak of 7.1 trillion seen in the first quarter of 2020. However, outstanding yuan loan growth was at 12.6% in March, down from a rate of 12.9% in February. China has pledged to stabilize debt levels after a pandemic-induced rise in 2020 via stimulus efforts. However, the People’s Bank of China has said it will not make dramatic changes in monetary policy and aims to keep up support for small businesses.

 

— U.S. climate envoy John Kerry is expected to travel to China this week to meet with his Chinese counterpart Xie Zhenhua, although the exact dates are not yet known.

 

— China raises price floor for wheat auctions, restricts participation. The new price floor for an absolute majority of wheat put up for weekly sale from China’s state reserves is 2,350 yuan ($359) per metric ton, a 60-yuan increase from where it was set in 2019, according to a notice from the National Grain Trade Center (NGTC). NGTC reported just 515,209 MT of wheat sold at last week’s auction of state reserves, representing just 12.8% of the total offered, at an average price of 2,349 yuan per metric ton. But the government only allowed flour processors and feed and livestock firms to participate in last Wednesday’s sale. Sales prices and volumes had been higher in previous weeks when the government did not restrict participation. During March, weekly sales ranged from 1.03 MMT to 2.26 MMT, with sales prices ranging from 2,354 yuan to 2,376 yuan. The higher floor price and auction participation restrictions signal mounting Chinese efforts to curb demand for reserve wheat, leading to questions about its supply. So far this calendar year, China has sold 26.05 MMT of wheat at these auctions.

 


TRADE POLICY


 

— U.S. cat, dog food exports at $1.7 billion in 2020. Cat and dog food was the third most valuable category of United States animal food industry exports in 2020.

 

     Pet food exports

 

— U.S./Mexico potato trade situation still percolating with postponement of action by Mexican Supreme Court. The National Potato Council (NPC) said the Mexican Supreme Court’s decision last week to postpone action on cases that would allow full importation of fresh U.S. potatoes appears rooted in political interference by the Mexico potato industry. NPC said the Mexican news outlet Reforma reported that CONPAPA, a group representing Mexico’s potato producers, asked the president to direct the head of the Ministry of Agriculture to withdraw its appeal in the lawsuits, which would end the legal process. “Given that the cartel Wednesday morning requested that the government drop these cases, and immediately after the court again delayed their decision, it is reasonable to assume that the legal process in Mexico is impaired by politics,” NPC CEO Kam Quarles said. “Therefore, in order to enforce our rights, it appears the USMCA [United States-Mexico-Canada Agreement] is the best option. Once we successfully prove our case there, it will allow the U.S. to attach retaliatory tariffs to Mexican agricultural products such as avocados until they provide the access we are due.” The matter is one of the early friction points between the U.S. and Mexico under the U.S.-Mexico-Canada Agreement (USMCA), with NPC and lawmakers pushing for action on the situation from the Biden administration.

 


ENERGY & CLIMATE CHANGE


 

— Dakota Access pipeline to remain open during environmental review. The U.S. Army Corps of Engineers said in court Friday that it will let the Dakota Access pipeline (DAPL) continue operating while a new environmental review is being conducted. Opponents to the pipeline sought to have it shut down as the review takes place. Judge James Boasberg of the U.S. District Court of the District of Columbia Friday gave DAPL owner Energy Transfer until April 19 to make its case to keep the pipeline open until he issues a ruling in the case which could come yet this month. The Corps plans to produce the updated environmental impact statement by March 2022, according to court filings. The pipeline transports up to 570,000 barrels of North Dakota crude to locations in the Midwest and elsewhere and closing the pipeline would divert the supplies into smaller pipelines, truck and rail.

 

— Joe Biden considers ordering climate confessions. President Joe Biden is readying an executive order that would require companies to disclose the risks they face from climate change, special climate envoy John Kerry says. Kerry didn’t elaborate on the details of the order or the timing, but the move would fulfill a promise Biden made on the campaign trail to require all public companies to report their emissions and climate-related risks. Kerry, during remarks last week at a virtual event hosted by the International Monetary Fund, said climate disclosure requirements will shift the allocation of capital. “Suddenly, people are going to be making evaluations considering long-term risks to their investment based on the climate crisis,” Kerry said. “And that will encourage new investment, as well as laws in countries,” such as tax incentives to support clean energy technologies, he added.

 

— Two electric vehicle battery makers settle their feud. LG Energy Solution and SK Innovation reached an agreement to end their intellectual property dispute, with SK paying LG $1.8 billion in lump-sum and royalty payments. The settlement ends a fight that threatened the Biden administration’s climate agenda, as well as a big battery factory SK is building in Georgia.

 


CORONAVIRUS UPDATE


 

 Summary: Global cases of Covid-19 are at 136,101,009 with 2,917,730 deaths, according to data compiled by the Center for Systems Science and Engineering at Johns Hopkins University. The U.S. case count is at 31,197,872 with 562,066 deaths. The Johns Hopkins University Coronavirus Resource Center said that there have been 187,047,181 doses administered, 66,216,691 have been fully vaccinated, or 20.2% of the U.S. population (others note nearly 22%), and an average of 3.2 million doses were administered each day over the past week.

 

— Rise in U.S. Covid-19 cases driven by younger people. Epidemiologists and public-health authorities have pointed to school sports as a major source of Covid-19 transmission as younger people who haven’t been vaccinated are helping drive a rise in new Covid-19 cases.

 

— India is new Covid epicenter. India has overtaken Brazil as the country with the second-highest number of coronavirus infections worldwide, after a record daily count of 168,912 new cases was reported on Monday. The jump in cases comes as huge crowds are expected to gather in India’s northern city of Haridwar this month for the Kumbh Mela religious festival.

 


POLITICS & ELECTIONS


 

— Trump again bashes McConnell in speech to GOP donors. The remarks indicate the former president’s anger toward Mitch McConnell (R-Ky.) hasn’t abated since losing the election and highlight the challenges the Republican Party faces in trying to move on, the WSJ notes.

 

— Herschel Walker considering U.S. Senate bid in Georgia, potentially challenging Sen. Raphael Warnock's re-election bid. Walker as the backing of former President Donald Trump if he decides to enter the race. When asked what his policy platform would be, Walker said he hopes to reunite people amid a fractious political climate. "My priority most of all would be America. ... I want to bring people back together," he said. Warnock, who ousted incumbent Sen. Kelly Loeffler in the 2020 special election, will have to defend his seat in 2022 in pursuit of a full six-year term. Loeffler was appointed to the seat by Gov. Brian Kemp in January 2020 after then-incumbent Sen. Johnny Isakson resigned in December 2019 due to deteriorating health. Walker is considered a top prospect to challenge Warnock. A poll released last month showed the Trump favorite narrowly defeating the incumbent Democrat in a head-to-head contest.
 


OTHER ITEMS OF NOTE     


 

— Intelligence officials said an explosion at a key nuclear site could prevent Iran from enriching uranium for months and confirmed an Israeli role. The incident injected new uncertainty into diplomatic efforts that began last week to salvage the 2015 nuclear deal repudiated by the Trump administration.

 

— Biden’s refugee cap. The United States is on track to accept the lowest number of refugees in decades, despite an announcement by President Joe Biden that he would lift the Trump-era cap on admissions from 15,000 to 125,000. If trends continue, the U.S. will accept 4,510, or less than half the number of refugees during the last year of the Trump presidency. The International Rescue Committee has urged Biden to sign a presidential determination that would lift the current cap and allow 62,500 refugees to enter the United States in the second half of this fiscal year. In February, Biden announced he was raising the annual cap on refugee admissions to 125,000 for the fiscal year that starts Oct. 1, up from Trump’s historically low limit of 15,000.

 

— An effort to unionize Amazon workers fails. Workers at a warehouse in Alabama overwhelmingly voted against the proposal, crushing one of the biggest drives to form a union in Amazon’s history. The lopsided result may prompt organized labor to try different tactics in the future. Details via a NYT article.

 

— Malaysia’s FELDA still seeking to take over FGV Holdings. Malaysia’s Federal Land Development Authority (FELDA) will continue its efforts to buy privately held FGV Holdings, according to Edge Weekly, even as their prior takeover attempt failed last month. In March, FELDA said it had taken an 81% equity interest in FGV Holdings. FELDA remains “firm” in its plan to takeover and privatize the palm oil producer, the report said, citing Economy Minister Mustapa Mohamed. "The takeover of FGV and its privatization will guarantee a more sustainable business model and income stream for FELDA, which is currently discussing with FGV plans to strategize FGV businesses and reorganize FGV's group structure to optimize returns for FELDA, especially for the settlers," Mustapa said, referring to the farmers. The US has blocked imports from FGV Holdings on allegations of forced labor abuses. It is not clear if the FELDA takeover would impact that situation.

 


 

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