FOMC Meeting Statement, Presser Waited for Next Central Bank Moves

Posted on 07/29/2020 7:05 AM

Updates on Phase 1 China purchases of U.S. products


In Today’s Updates


Top Topics:
* GOP senators remain split on aid issues as votes in Senate not enough
* Aid negotiations linger on tough-to-settle differences
* Ag aid funding in latest aid packages
* Five questions re: today's FOMC statement, presser
* Fed is not expected to adjust monetary policy
* Hong Kong’s coronavirus-ravaged economy shrinks 9% in second quarter

* Thursday's weekly jobless claims report will be closely watched
* Net long speculative futures positioning in gold remains well off its highs
* Euro traded near a two-year high against the dollar
* Goldman Sachs warned on the dollar's reserve currency status
* Sen. Ernst presses EPA on E15 actions
* Ethanol aid supporters do not like discretionary language in Senate aid package
* U.S./China: Phase 1 purchases update

U.S. food & beverage industry update:
* Smithfield Foods CEO Kenneth Sullivan, other meatpackers, answer critics in Senate
* United Food and Commercial Workers and five of its local unions sue USDA’s APHIS
* JBS hit for buying cattle from farm in Amazon sanctioned for illegal deforestation
* Starbucks reports steepest earnings-per-share losses in more than a decade
* McDonald’s reports worst quarterly earnings figures in 13 years

Update on reopening America... and around the world:
* Slow timeline for return of global air passengers

Coronavirus update:
* China, Europe reports rise in new coronavirus cases
* Fauci: 'Reasonable' to say that by December we’re going to have effective vaccine
* How face masks work and which ones best protect against Covid-19


Politics & Elections:
* Biden to name running mate next week
* Biden calls for amendment to the Federal Reserve Act
* Trump to make 16th trip to Texas as fear grows the state is turning blue

Other Items of Note:
* Trump administration to halt new DACA applicants pending review
* U.S./EU airline negotiations
* Senate Finance hearing today on WTO reform
* Big day for Big Tech execs to appear before Congress in video hearing
* Eastman Kodak gets loan under Defense Production Act
* USDA’s Perdue to speak at Farm Journal Field Days
* China seeds may not be so seedy after all




Equities today: Stocks saw modest gains in Hong Kong and outperformed in China, while Japan's shares fell as Fitch Ratings cut the outlook on the country’s sovereign debt rating to negative from stable. China’s Shanghai Composite Index advanced 2.1% by the close of trading, and Japan’s Nikkei 225 fell 1.2%. In Europe, Germany's DAX fell 0.2%, Britain's FTSE 100 rose 0.2% and the Euro Stoxx 50 was flat. U.S. futures are pointing to a slightly higher open as investors awaited cues on the Federal Reserve’s next steps to bolster the economy, with an FOMC statement due today and a presser by Fed Chairman Jerome “Jay” Powell.


     U.S. equities yesterday: The Dow fell 205.49 points, 0.77%, at 26,379.28. The Nasdaq declined 134.18 points, 1.27%, at 10,402.09. The S&P 500 lost 20.97 points, 0.65%, at 3,218.44.


On tap today:


     • U.S. advance economic indicators report for June is out at 8:30 a.m. ET.
     • U.S. pending-home sales for June, due at 10 a.m. ET, are expected to jump 12.5% from the prior month.
     • Federal Reserve issues a policy statement at 2 p.m. ET and Chairman Jerome Powell holds a news conference at 2:30 p.m. ET.


Key issues observers are watching from today's FOMC announcement and Fed head presser, according to the Financial Times:


     1. How much has Covid-19 hurt the U.S. economy?
     2. How and when is the Fed preparing to reinforce its monetary support?
     3. Can the Fed nudge Congress towards a fiscal deal?
     4. Will the Fed adjust the terms of its bond-buying binge?
     5. Will the Fed signal any changes to its lending facilities?


The Fed is not expected to adjust monetary policy when its two-day meeting concludes at 2 pm ET today, putting attention on several areas relative to their future policy actions. The Fed Tuesday announced it will extend seven lending facilities that were scheduled to end on or around Sept. 30, extending them through Dec. 31, stating the action will “facilitate planning by potential facility participants and provide certainty that the facilities will continue to be available to help the economy recover from the Covid-19 pandemic.”


     The post-meeting statement will be watched for any shifts the Fed signals for its policy down the road and what their views are relative to the impact that the Covid-19 situation has had on the U.S. economy. Much of the attention will be on Fed Chairman Jerome Powell’s post-meeting presser where he will likely be asked about the Fed’s timeline for adjusting policy. His remarks at the prior Fed meeting noted hat the central bank was “not thinking about thinking about raising rates.” If he shifts that view, that would be a key shift.


     The rise in Covid-19 cases is prompting some pullback on reopening efforts and Powell’s comments there could be key since he has previously warned that a resurgence of Covid-19 could negatively affect the recovery. While Powell will not advocate for specific actions on the part of Congress, he will no doubt reiterate his prior call for additional fiscal stimulus as he has argued the Fed cannot do it all relative to bolstering the U.S. economy.

     Fed Funds

Hong Kong’s coronavirus-ravaged economy shrinks 9% in second quarter. Another major slump in gross domestic product recorded in a city stricken by the Covid-19 crisis. The highest ever year-on-year decline of 9.1% was posted earlier this year. A government spokesman said overall economic conditions in the city were very weak in the second quarter of 2020, as the Covid-19 crisis continued to severely hit global and local activities. “The Covid-19 pandemic will remain a key threat to the global economic outlook,” the spokesman said. “Locally, the recent surge in Covid-19 cases has clouded the near-term outlook for domestic economic activity.


Thursday's weekly jobless claims report will be closely watched to see if layoffs are accelerating. Economists are forecasting 1.45 million applications for unemployment insurance, which would be the second straight increase.


     Weekly jobless claims


Market perspectives:


     • Net long speculative futures positioning in gold remains well off its highs.

     • Euro traded near a two-year high against the dollar on signs that Europe has largely slowed down coronavirus infections and taken steps toward bolstering its weakest economies. The currency this morning gained about 0.4% against the dollar, trading at $1.1763 a euro, putting it near a level last seen in September 2018 and on course for its best monthly performance in four years.


     • Goldman Sachs warned on the dollar's reserve currency status as Congress closes in on another round of fiscal stimulus. The Goldman analysts say they don't believe it will necessarily happen, but it highlights a worry that money-printing will trigger inflation in years to come. Putting it in perspective: The dollar is down 10% since mid-March, but it's 30% higher than at its financial crisis lows, and 15% higher than it was in 2005 when Ben Bernanke and team were in the middle of a years-long rate hike cycle.


     • Crude oil prices were little changed in Asian action with U.S. crude trading around $40.95 per barrel and Brent around $43.64 per barrel. But futures are moving higher ahead of the U.S. trading start, with U.S. crude advancing nearly 1% to trade around $41.40 per barrel and Brent crude posting a similar advance to trade around $44.05 per barrel. Key market focus will be on the coming U.S. government inventory data due later this morning from the Energy Information Administration (EIA).




Sen. Ernst presses EPA on E15 actions. Sen. Joni Ernst (R-Iowa), in a close re-election race with Democrat Theresa Greenfield, is keeping up pressure on EPA over biofuels, this time shifting her attention to the issue of E15 and expanding the availability of the fuel after EPA changed its rules to allow for year-round sales of the higher ethanol blend.


     In a letter to EPA Administrator Andrew Wheeler (link), Ernst said the infrastructure issues for E15 are not necessarily valid, noting that all steel fuel tanks and fiberglass tanks put in service since 1990 are approved for up to 100% ethanol. “Given the lifespan of underground tanks, almost every underground fuel tank should be able to handle E15 and higher blends of ethanol,” Ernst stated.


     As for fuel dispensers, Ernst noted that those manufactured by Wayne and Gilbarco account for more than 90% of the U.S. market for gasoline dispensers, pointing out those from Wayne have a warranty and are compatible with ethanol blends up to 15% while any of those from Gilbarco installed since 2008 are also warranted for 15% ethanol. “The approximate life of a dispenser is 10-15 years, so similarly to the tanks there are very few pumps out there that are not warrantied for E15,” she stated.


     She also raised the issue of the black and orange warning labels on E15 dispensers, noting that issue should be addressed “immediately.”


     Given the Covid-19 situation, Ernst is seeking answers from Wheeler to the following questions:


     • Will you commit to begin the rulemaking by October 4, 2020, one year after the RFS agreement was announced, to move forward with expediting the sale of E15 through existing infrastructure?


     • You have said this is a complicated issue, please provide detailed clarification as to what you view as the remaining hurdles in this process.


     • The EPA already approves E15 for all 2001 and newer light-duty vehicles which account for 95% of the vehicle miles driven today. Will you move forward with rulemaking to remove the unnecessary labeling before October 4? If not, when do you plan to address this pressing issue that you committed to last fall?


The prescriptive Senate GOP aid package doesn't suit Sen. Ernst and others when it comes to ethanol aid. The Senate GOP's around $1 trillion Covid-19 aid package gives USDA Sec. Sonny Perdue the authority to provide aid to ethanol plants, but the administration has not committed to provide it. Sen. Joni Ernst (R-Iowa) wants a commitment from the Trump administration, Sen. Chuck Grassley (R-Iowa) said Tuesday. Grassley said he had talked to Vice President Mike Pence and Perdue about the ethanol issue, but added, “I know that Sen. Ernst is working very hard on this. It is my understanding she is going to get to the president on this.”


     Grassley said he made “very clear from my position that we are talking about equity” with the oil industry, which has gotten help through government purchases for the Strategic Petroleum Reserve. Grassley revealed he had tried to get an ethanol provision in previous coronavirus aid packages but failed.


     This aid package, Grassley said he and other supporters want $3 billion for ethanol plants whose revenues have gone down because Americans have been driving less and that they “haven’t gotten a no from anybody.” Grassley acknowledged he is uncertain how far the additional $20 billion in new funding in the Senate package will go since it is also supposed to take care of making payments to livestock producers who have had to euthanize animals.


     In April, USDA Secretary Sonny Perdue said there wasn’t enough money in the first round of aid payments to include ethanol producers.


     House Democrats included a detailed aid program specifically for ethanol in their competing stimulus package, which the House passed in May. The bill would pay 45 cents for each gallon that an affected biofuel plant produced this year through May 1. For facilities that didn’t produce any fuel in a given month, USDA could pay them 45 cents per gallon for half the amount of fuel they produced in the corresponding month in 2019.


Update on China:

  • China is behind the pace of commitments it made to buy U.S. energy products under the countries’ Phase 1 trade accord. China imported $487 million of energy from the U.S. in June, including ethanol, according to a review of China customs data by research firm ClearView Energy. That’s a decline from China importing $588 million of U.S. energy in May. “Phase 1 seems likely to continue limping along for now,” ClearView wrote in a research note, predicting the agreement “could potentially collapse” in the coming months due to U.S./China tensions. As part of the January trade deal, China agreed to purchase $52.4 billion of energy products from the U.S. over two years, including oil and LNG.
  • Phase 1 purchases update. "Through the first six months of 2020, China’s purchases of all covered products were only at 47% (U.S. exports) or 47% (Chinese imports) of their year-to-date targets," Chad Bown writes at the Peterson Institute for International Economics. Link for details.

    Phase 1

    Phase 1 details

  • U.S./China Phase 1 tracker: China’s purchases of U.S. goods. Link.

Update on next aid package:

  • Stimulus talks between President Donald Trump’s representatives and Democrats slowed over demands by Senate Majority Leader Mitch McConnell (R-Ky.) that his proposed changes to liability law be included wholesale in the aid package. House Speaker Nancy Pelosi (D-Calif.) said McConnell’s position suggests that he’s not serious about reaching a deal.

    Negotiations between the two parties are key because Senate GOP leaders do not have the necessary votes to clear their legislation. Also, Sen. Lindsey Graham (R-S.C.) said “close to half” of the GOP caucus could end up opposing a package of around $1 trillion.

    The divided Senate caucus could strengthen the hands of Democrats as bipartisan talks get underway on a compromise package.

    But Senate Majority Leader Mitch McConnell (R-Ky.) said Democrats would have to give ground on the $3.4 trillion plan (HR 6800) the House passed in May. Refusing to accept Republican initiatives, he said, could result in nothing getting passed, as when Democrats blocked a GOP bill (S 3873) in June aimed at reducing police brutality. “Democrats face a simple choice,” McConnell said on the Senate floor. “They can come to the table, work with Republicans, and engage seriously to make law for the American people. Or they can stay on the sidelines, point fingers, and let another rescue package go the same way as the police reform bill they killed in June.

    McConnell acknowledged the divisions within his own party on a package whose release had been delayed last week to allow for intensive negotiations with the Trump administration. "It’s a statement of the obvious that I have members who are all over the lot on this," McConnell said at his weekly news conference. "We’ve done the best we can to develop a consensus among the broadest number of Republican senators, and that’s just the starting place."

    Hoeven and Cornyn disagree with approach. "The important thing is that we end up with a good package that we can support that addresses the need. And if we need to do it in a couple of steps, that's OK," said Sen. John Hoeven, (R-N.D.). But Sen. John Cornyn (R-Texas) threw cold water on that idea. "I don't hear any support for that,” he said. “I mean, I've heard people float it, but I haven’t heard any support for that."

  • Ag aid funding in latest aid packages. While the Senate's HEALS Act does not increase the borrowing authority of USDA's Commodity Credit Corporation (CCC), the American Farm Bureau Federation says (link) that when combined with the $14 billion CCC replenishment provided in the CARES Act, the HEALS Act and CARES Act combined provide USDA with $34 billion in remaining funds to design additional Covid-19 relief packages for agriculture. Including the $16 billion in CFAP support, USDA would have annual appropriations totaling $50 billion to provide much-needed financial relief to agricultural producers, growers and processors impacted by coronavirus — in line with Farm Bureau’s recent requests to Capitol Hill.”

    Ag Aid Funding

Food and beverage industry update:

  • Smithfield Foods CEO Kenneth Sullivan, other meatpackers, answer critics in the Senate. Last month Sens. Elizabeth Warren (D-Mass.) and Cory Booker (D-N.J.) denounced America’s four largest meat processors for allegedly putting profits over workers. Sullivan notes in a letter to the Senators co-signed by more than 3,500 employees who express support for the company and its response, that “processing plants were no more designed to operate in a pandemic than hospitals were designed to produce pork.”

    The senators made letters public that were submitted to them by several companies in late June including Tyson Foods Inc., JBS USA, Cargill Inc. and Smithfield Foods Inc.

    The senators released information from their investigation on July 24 (link) and also called for the passage of an Essential Workers Bill of Right and Farm System Reform Act.

    The major meat companies explained in their responses how they adopted several new measures to combat Covid-19 including staggering shifts, adding physical barriers, providing personal protective equipment (PPE) and social distancing where possible.

    Smithfield's Sullivan stated that the senators’ initial letter was “fraught with misinformation about our company and industry that appears to be strictly gleaned from media outlets that have made statements and inferences that grossly mischaracterize us, our values and response to Covid-19.” He added that the senators’ letter revealed Warren and Booker had a “fundamental misunderstanding of our food supply chain, the agricultural sector and the role exports play in a healthy farm economy.” Sullivan said the inquiry applies a “partisan lens” to Smithfield and the company did not have any interest in being a political pawn for either party in its efforts to produce food to feed consumers.

    Smithfield said it has adjusted its production lines and improved worker protections against the virus at considerable cost. The company has bought millions of masks and face shields to equip each employee, as well as tens of thousands of sanitizer stations. It has installed plexiglass on production floors and break rooms and implemented thermal temperature checks for employees entering plants. “An oft-repeated demand is that the industry ‘slow line speeds for more social distancing,’” Sullivan writes. But “slowing line speeds by 50%, for example, means euthanizing half of our nation’s livestock, the collapse of farm prices (law of supply and demand), burying food in the ground, food insecurity and higher food prices for everyone including, most importantly, those that can least afford it.”

    Smithfield revealed it has also hired private health-care providers for every processing facility to provide free on-demand testing. Workers over age 60 or with underlying conditions have been offered paid leave. Also, 11,000 who were quarantined but did not test positive were guaranteed pay. Workers have also received hazard pay averaging $4 per hour.

    “Do these sound like the actions of a company that does not care about employee health and safety or is putting profits ahead of its team members?” Sullivan writes. “We have no desire to stand alone in the breach between the American people and food shortages, particularly with Monday morning quarterbacks everywhere.”

  • United Food and Commercial Workers and five of its local unions sued USDA’s Food Safety and Inspection Service for allegedly violating administrative procedures in setting up a program and issuing waivers to poultry plants to allow faster line speeds. The lawsuit aims to halt the program and wipe out 10 waivers that are already active, on the grounds that USDA didn’t follow procedural requirements when creating the program. The case was filed in the U.S. District Court in D.C.

    Meanwhile, Sen. Cory Booker (D-N.J.) filed a bill on Tuesday that would suspend all current and future line-speed waivers for meatpacking plants during the pandemic, in line with a companion House bill from Rep. Marcia Fudge (D-Ohio) and others. The legislation would cover both meat and poultry processing.

  • Brazilian meatpacker JBS is under fire for buying cattle from a farm in the Amazon sanctioned for illegal deforestation. A coalition of investigative reporters found photographs taken by a JBS truck driver allegedly transporting cattle from the sanctioned farm to a “clean” farm where the cattle were “laundered” and sold to the meatpacker. Link to article in the Guardian.
  • Starbucks reported its steepest earnings-per-share losses in more than a decade as a result of lower sales and higher costs stemming from the pandemic.
  • McDonald’s saw the fast-food chain’s worst quarterly earnings figures in 13 years. Lockdowns outside the core American market were largely to blame. Chris Kempczinski, the fast-food giant’s chief executive, said that drive-through and delivery sales had cushioned the blow. The chain plans to close around 200 American outlets this year.

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

  • Slow timeline for return of global air passengers. The International Air Transport Association released a forecast predicting global air passengers won't return to pre-Covid-19 levels until 2024 — one year later than they had previously projected. The group predicts global passenger numbers will decline by 55% this year compared to 2019 — worse than the April forecast of 46%.

Coronavirus update:

  • Summary: Source: Johns Hopkins University as of 6:30 a.m. ET.

    — 16,756,275: Confirmed cases world-wide, and 584,556 deaths
    — 61,660: New U.S. cases recorded yesterday
    — 4,352,083: Total confirmed cases in the U.S.
    — 1,244: Deaths in the U.S. recorded yesterday
    — 149,258: Total U.S. deaths
    — 52,985,577: Tests conducted in the U.S.

    Several states are facing increased coronavirus-related hospitalizations and deaths, but new cases in some areas show signs of leveling off.

    Link to Covid Case Tracker

    Link to Our World in Data

  • China reported a rise in new coronavirus cases, mainly coming from local infections. China announced 101 daily cases, the most since March, with the majority in Xinjiang. Meanwhile Carrie Lam, Hong Kong’s chief executive, says a return of the virus threatens the collapse of the territory’s hospital system. Germany recorded 3,611 new infections in the past week; the head of the country’s public health agency criticized Germans for being “negligent” in social distancing.


  • Dr. Anthony Fauci said it's "reasonable" to say that by December we’re going to have an effective vaccine. The comments came as Moderna Inc.’s drug candidate was shown to protect against the virus in a trial that inoculated 16 monkeys.
  • Reports suggested that Moderna will price its fledgling Covid-19 vaccine, currently undergoing stage-three testing, at $50-60 a course for rich-country governments — significantly more than its rivals.
  • How face masks work and which ones best protect against Covid-19. Face coverings are a simple way to help prevent the spread of the coronavirus, public-health officials say. A Wall Street Journal article (link) takes a look at how different types of masks stack up, and how they’re meant to be used.



  • Links
    2020 Presidential Election Interactive Map
    The Green Papers

  • Biden to name running mate next week. Former Vice President Joe Biden, the Democratic candidate for president, said he will name his running mate next week. Biden's team has been vetting several candidates, including Sen. Kamala Harris (D-Calif.).; former national security adviser Susan Rice; Mayor of Atlanta Keisha Lance Bottoms; and Reps. Val Demings (D-Fla.) and Karen Bass (D-Calif) as potential running mates. The VP debate will be on Oct. 7 in Salt Lake City, Utah.
  • Biden called for an amendment to the Federal Reserve Act that would require the Fed to report on racial economic gaps and what policies the Fed is implementing to close these gaps, The Democratic presidential candidate proposed $150 billion in financial support for minority-owned small businesses, a requirement that the Fed report regularly on racial economic gaps and other measures to address systemic racism in the nation’s economy.
  • Trump to make 16th trip to Texas as fear grows the state is turning blue. President Trump arrives in Texas on Wednesday for his 16th visit as fresh polls warn he faces a battle to hold on to the state in November.




  • Trump administration to halt new DACA applicants pending review. The Trump administration said Tuesday it will reject any new applications for the Obama-era program that shields immigrants unlawfully brought to the U.S. as children as it conducts a "comprehensive review" of the program and how to end it. During a call with reporters, a White House official said current beneficiaries of the Deferred Action for Childhood Arrivals (DACA) program will receive year-long renewals that will protect them against deportation and allow them to work in the U.S. “The administration's next acts on DACA will be on the basis of the comprehensive review of the substantive, legal and legal policy justifications offered for winding down the program. Obviously, to do this correctly and thoughtfully, the review will have to take time," according to a senior administration official, who spoke on condition of anonymity in a call arranged by the White House. The official did not say how long the review might take. The announcement comes after the Supreme Court ruled on June 18 that the White House violated procedural law in how it originally rescinded DACA. The 5-4 decision, however, left the door open for a reboot. The ruling came as a relief to roughly 700,000 young people — undocumented immigrants who came to the country as children — who are able to live and work in the United States because of DACA. The senior administration official told reporters that the Supreme Court did not rule on the lawfulness of DACA.
  • U.S./EU airline negotiations. Senate Finance Committee Chairman Chuck Grassley (R-Iowa) said he expects the U.S. "to sit down and do good faith negotiations" with the European Union over retaliatory tariffs it imposed on EU products due subsidies to Airbus after France and Spain agreed to convert loans to the aerospace company to market rates.
  • Senate Finance hearing today on WTO reform. The hearing comes less than a month after the Senate parliamentarian nixed an effort by Sen. Josh Hawley (R-Mo.) to force a vote on the country’s WTO membership. The 1994 Uruguay Round Agreements Act, by which the U.S. became a WTO member allows countries to vote on membership every five years. Sen. Chuck Grassley (R-Iowa) said on the Senate floor Tuesday that although he opposed a withdrawal from the WTO, the U.S. should commit to “significant reform.” That includes efforts to reshape the organization’s Appellate Body, the world’s highest ranking trade tribunal, which the Trump administration has effectively shut down by blocking new appointees. “The WTO can and should play an important role in the global economic recovery from the pandemic,” Grassley said. “I urge the Administration and my colleagues to advocate for our interests, confront trade distortions and encourage all WTO members to unite in the effort to lift us out of this nearly unprecedented downturn.”
  • Big Tech execs to appear before Congress in video hearing. The chief executives of Facebook, Amazon, Apple and Google today face questions from lawmakers on the House Antitrust Subcommittee who are aiming to rein in what they believe is excessive power in the hands of a few giant companies. Jeff Bezos of Amazon, Tim Cook of Apple, Mark Zuckerberg of Facebook, and Sundar Pichai of Google’s parent company, Alphabet, will testify. The hearing will help lawmakers make potential recommendations like new competition laws or company breakups. All of the companies are facing antitrust investigations. A New York Times article (link) explains the thinking behind the strategy each executive is likely to employ under questioning. Link to the opening statements.
  • Eastman Kodak is up another 60% in premarket trade, after skyrocketing 203% on Tuesday, following the receipt of a $765 million gov't loan under the Defense Production Act, the first of its kind. The company, once a giant in photography, will help speed the domestic production of drugs that can treat a range of medical conditions and reduce U.S. reliance on foreign sources. "We will bring back our jobs and we will make America the world’s premier medical manufacturer and supplier," President Trump told a press conference. The company expects pharmaceutical ingredients to make up 30% to 40% of its business over time.
  • USDA’s Perdue to speak at Farm Journal Field Days. USDA Secretary Sonny Perdue will be a speaker at Farm Journal's groundbreaking Field Days event that is set for Aug. 25-27. Perdue will speak at 3:30 p.m. CDT on Aug. 27. You can register for the modern farm show and FarmON benefit concert here.
  • China seeds may not be so seedy after all. USDA said Tuesday (link) that the mysterious seed packets arriving in the mail to unexpecting recipients might be nothing more than a “brushing scam” by vendors to boost their online ratings with fake customer reviews. The department is still collecting and testing seed packages, which appeared to be delivered from China.


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