China tensions with U.S., others rise | China continues buys of farm products
In Today’s Updates
* Lighthizer, China's Liu to meet on Phase 1 accord in mid-August
* U.S. business groups call on China to step up purchases
* China official calls Navarro 'a habitual liar and rumor-monger'
* OECD: unemployment rates to end year higher than any time since Great Depression
* Atlanta Fed president Bostic warns of a 'bumpier' road ahead
* European Commission cut its growth projections for the euro area further
* German production rebounds in May, but misses expectations
* Some freight forwarders are tightening payment terms for shippers over Covid
* Reports from Brazil have China buying some September beans there
* Over 130,000 MT of Argentine sorghum shipped to China in June
* CFAP payments top $5.3 billion
* U.S. agriculture trade deficit hits new monthly record
* McConnell expects new virus relief bill by end of month
* Did the Paycheck Protection Program (PPP) hit the target?
* U.S. food supply update
* Consolidation in the food-delivery sector is accelerating
* Update on reopening America... and around the world
* Parts of the U.S. continued reopening tentatively, as others struggled*
* Coronavirus update
* Brazil's President undergoes further tests after showing symptoms of the virus
* Dr. Fauci warns any vaccine would likely be limited in how long it could give protection
* Ag spending, other measures advance
* ICE announcement worries international students in U.S. universities
* House to block more wall funds
* N.J. primaries today focus on Rep. Jeff Van Drew, who switched parties
* Canada PM Trudeau will be no-show at Wednesday's White House USMCA event
* Canada gets a sugar boost from USMCA
* Dakota Access pipeline ordered to shut down
* DOE approves LNG exports from Oregon Jordan Cove terminal
* Supreme Court rulings
* Just 2% of Democrats support Trump
Equities today: Global stock markets were mostly lower on beliefs Monday's rallies were overdone. U.S. equity futures signal a pullback when markets open this morning.
U.S. equities yesterday: The Dow gained 459.67 points, 1.78%, at 26,287.03. The Nasdaq rose 226.02 points, 2.21%, at 10,433.65 to set a new closing record. The S&P 500 advanced 49.71 points, 1.59%, at 3,179.72.
Investors are starting to reckon with what a Joe Biden presidency might mean for stocks. Link to NYT article.
Warren Buffett's $90 billion Apple stake is now 43% of Berkshire Hathaway's entire stock portfolio. Warren Buffett's stake in Apple is easily the largest single stock holding by Berkshire, more than four times larger than its second-biggest holding, around $22 billion in Bank of America.
On tap today:
• U.S. job openings and labor turnover survey for May is out at 10 a.m. ET.
• Atlanta Fed President Raphael Bostic speaks to the Tennessee Business Roundtable at 9 a.m., Fed Vice Chair Randal Quarles speaks on financial stability at 1 p.m., and Richmond Fed President Thomas Barkin and San Francisco Fed President Mary Daly participate in a National Association for Business Economics webinar at 2 p.m.
Federal Reserve official warns U.S. recovery may be ‘leveling off.' Atlanta bank chief Raphael Bostic told the Financial Times he is troubled by data on business openings as a result of the recent spike in coronavirus infections across several large US southern and western states. Bostic, whose district covers some of the regions hardest hit by the current outbreaks, including Florida, said high-frequency data had shown a “leveling off” of economic activity both in terms of business openings and mobility. “There are a couple of things that we are seeing and some of them are troubling and might suggest that the trajectory of this recovery is going to be a bit bumpier than it might otherwise,” Bostic said. “And so we’re watching this very closely, trying to understand exactly what’s happening.” Bostic said the Atlanta Fed was “trying to figure out whether this leveling off is something that is a more sustained pattern, or just a pause.” His “biggest concern in this whole period,” he said, “is to what extent are business losses permanent, are job losses permanent?”
Bostic's concerns are similar to those expressed by Fed Chairman Jerome Powell who has repeatedly expressed concern about lasting damage to businesses and workers.
The OECD said this morning that unemployment rates in the world’s advanced economies will end the year higher than at any time since the Great Depression, and not return to their pre-pandemic levels until 2022 at the earliest. The Paris-based research institute that serves the U.S. and 36 other countries said jobless rates could be even higher if a second wave of outbreaks leads to fresh lockdowns.
The eurozone’s economic contraction will be larger than initially expected this year as lockdowns are eased more gradually than anticipated, the European Commission said today. The Commission said the combined economic output of the 19 countries that share the euro will fall by 8.7% in 2020, a deeper decline than the 7.7% forecast three months ago. The European Union’s executive arm highlighted widening divergences between the eurozone’s members, and said shared action is needed to limit the fallout for the currency area as a whole.
German production rebounds in May, but misses expectations. German industrial production picked up in May after dropping sharply in the two previous months, but the rebound fell short of expectations. Production was up 7.8% compared with the previous month, the Economy Ministry said today.
• Crude oil futures have lifted off their lows registered during overnight action but are still weaker ahead of the U.S. trading start. U.S. crude is trading around $40.40 per barrel, down 0.6% from Monday's finish, while Brent crude is trading around $42.90, down 0.4%.
• Natural-gas prices have bounced back from the 25-year low reached last month, but the glut continues. Natural-gas futures for August delivery ended Monday at $1.83 per million British thermal units. That is up 23% since June 25, when futures for July delivery closed at $1.482 — their lowest level since August 1995. Yet it is still 24% below the price this time last year and 36% less than the price two years ago.
• The rally in iron ore has resumed, with Singapore futures topping $100/MT.
• Copper has recovered most of the year-to-date losses. Meanwhile, the copper curve is now in backwardation, signaling improving supply/demand fundamentals.
• Some freight forwarders are tightening payment terms for shippers over growing cash-flow concerns, according to the Journal of Commerce.
• Reports from Brazil have China buying some September beans there. If true, says one analyst, Brazil’s crop has to be larger or borrowing from the crush.
• Over 130,000 MT of Argentine sorghum shipped to China in June. According to the information collected by JCI, around 130,000 MT of sorghum was shipped from Argentina to China in June. The soaring corn price in China pushed end users to seek sorghum from other countries. Customs data shows China imported 1.09 million MT of sorghum during the first five months of this year, among which 1.05 million MT was from the U.S. and 32,716 MT from Argentina.
• Foreigners sold more than $500 billion of U.S. gov't bonds during the second quarter, and perhaps one-third of that was unloaded by Chinese entities, according to some analysts. A Financial Times article (link) notes, “Even a partial switch away from the U.S. dollar should help the euro, the number-two world currency. Bear in mind that a newly assertive European Central Bank is prepared to match the U.S. Federal Reserve in balance sheet expansion through its pandemic relief program. In that context, a clear catalyst to pull these disillusioned Chinese assets toward Europe could be the EU’s plans to issue €750bn of so-called eurobonds.”
— CFAP payments top $5.3 billion. USDA said that $5.36 billion dollars in Coronavirus Food Assistance Program (CFAP) payments have been disbursed or were being reviewed for disbursement as of July 6 on a total of 365,262 approved applications.
The total includes $2.7 billion for livestock producers, $1.41 billion for non-specialty crops, $1.11 billion for dairy and $134.7 million for specialty crops.
USDA also provided further breakdowns by commodity, including $2.33 billion for cattle, $970.3 million for corn, $343.2 million for hogs, $268.7 million for soybeans, $133.1 million for upland cotton, $27.9 million for almonds, $24.4 million for sheep, and $19.1 million for strawberries. The report also showed $15.0 million for HRS wheat, $12.94 million for pecans, $11.45 million for broccoli, and $11.03 million for sorghum. Less than $10 million per commodity has been paid out for other commodities covered by the program.
Iowa, Nebraska and Wisconsin have collected one-fourth of USDA's coronavirus relief payments. Iowa farmers received nearly $568 million, or slightly more than 10% of payments nationwide. Iowa led in payments for row crops and livestock. Nebraska was second with $389 million, followed by Wisconsin with $344 million. Wisconsin was the leading state for dairy payments, with $236 million.
— U.S. agriculture trade deficit hits new monthly record. The value of U.S. ag exports fell 3% to $10.34 billion in May while imports were just 0.3% lower at $11.38 billion, leading to a record monthly trade deficit for the sector of $1.03 billion. The prior record was a trade gap of $842 million registered in April 2019. Link to report.
The trade balance sheet: Cumulative U.S. ag exports are valued at $92.27 billion after eight months of Fiscal Year (FY) 2020 against imports of $89.4 billion for a trade surplus of $2.86 billion. USDA is forecasting the value of U.S. ag exports at $136.5 billion in FY 2020 against imports of $130.2 billion which would leave a trade surplus of $6.3 billion. To meet those targets, U.S. ag exports would have to average $11.06 billion for the remaining four months of FY 2020 while imports would have to be just $10.2 billion. Exports have averaged $11.53 billion so far in FY 2020 with imports at $11.18 billion and if they were to match those levels the final four months of FY 2020, that would put exports at $138.4 billion against imports of $134.1 billion. The figures suggest USDA’s forecast for ag exports is not likely to be met while the import outlook appears headed for a new record.
— Update on China:
- U.S. and Chinese negotiators led by U.S. Trade Representative Bob Lighthizer and Chinese Vice Premier Liu He plan to have a phone conversation in mid-August to assess the deal’s implementation. As of May, China’s purchases of all covered products under Phase 1 were $26.9 billion, only at around 45% of their year-to-date targets, according to Chad Bown, a senior fellow and trade expert at the Peterson Institute for International Economics. Of the Chinese purchases, manufactured goods were at 56% of the year-to-date target; farm products — even with recent increased buying — were at 39% of the year-to-date target, while energy was at only 18%, Bown’s calculations show.
- More than 40 American business groups called on China to step up purchases of U.S. manufactured goods as well as energy and other products as part of a Phase 1 trade agreement. The business associations, led by the U.S. Chamber of Commerce, voiced strong support for the Phase 1 pact but pressed both sides — especially China — to “redouble efforts to implement all aspects of the Agreement.” The groups expressed their concerns that China is falling short of the overall purchase targets laid out in the trade deal.
The groups outlined a series of gains that have already been realized under the trade deal, including several of the changes enacted under the ag provisions of the deal that removed market access barriers for some U.S. products, and an annex to the letter sent to U.S. and Chinese officials calling the ag actions “among the most substantial ‘early harvest’ achievements to date since the Agreement’s implementation.”
But they urge more Chinese purchases of all ag products covered under the agreement and to “advance reforms to the agricultural biotechnology process to improve transparency, reduce approval timelines to 24 months on average, and limit scope of data requirements to only information needed to assess the safety of a product for its intended use.”
The groups sent the letter to Treasury Secretary Steve Mnuchin, U.S. Trade Representative Bob Lighthizer and Chinese Vice Premier Liu He. Link to letter.
- U.S./China Phase 1 tracker: China’s purchases of U.S. goods. Link. Chinese importers have bought less than $1 billion of energy products, compared with $25 billion promised over the year. Only $8 billion of a pledged $36.5 billion of agricultural purchases have materialized.
- On Monday, Chinese Foreign Ministry spokesperson Zhao Lijian called White House trade adviser Peter Navarro “a habitual liar and rumor-monger who has been spreading a ‘political virus’ to stigmatize China under the pretext of the pandemic.”
- New warning for Australians going to China. The Morrison government has updated its travel advice for China, warning Australians may be at risk of “arbitrary detention.”
- TikTok, the short-video platform owned by Chinese technology giant Bytedance, said it would pull out of Hong Kong within a week in light of “recent developments” in the city. Last week, Beijing imposed a national-security law for Hong Kong that includes provisions empowering police to order internet companies to take down content deemed threatening to national security. Meanwhile, U.S. Secretary of State Mike Pompeo said late Monday that the U.S. is "certainly looking at" banning Chinese social media apps, including TikTok, amid concerns that data could be accessed by Beijing.
- Google, Facebook and Twitter said that they would temporarily stop processing requests from Hong Kong’s government for user data, citing its new law which penalizes electronic messages if police suspect they endanger national security. Executives at firms that refuse to comply could face jail. Facebook said its users had a right to express themselves freely.
- Overseas representatives of China’s Uighur ethnic group said they filed evidence to the International Criminal Court, seeking a formal investigation of China for alleged human-rights violations.
- Tensions with China impacting U.S. campuses. Deteriorating U.S./China relations are threatening what has been by far the biggest pipeline of foreign students to U.S. campuses.
— Update on next aid package:
- McConnell expects new virus relief bill by end of month. Senate Majority Leader Mitch McConnell (R-Ky.) predicted Congress will pass one final coronavirus rescue package later this month and appealed to everyone in public life to urge people to wear masks to control the spread. “This is not over. We are seeing a resurgence in a lot of states,” McConnell said at one of three press conferences he held yesterday in Kentucky. “I think the country needs one last boost.”
McConnell said he’s “pretty sure” that a bill will come together in the next couple of weeks. He said it will be crafted in his office with consultation from the Trump administration and then negotiated with Democrats, who backed a $3.5 trillion package (HR 6800) approved by the House in May. Senate Republicans have dismissed the plan and are discussing a package of up to $1 trillion in total spending.
McConnell appeared to open the door to including some direct payments to Americans in a future coronavirus relief bill. Asked if funding for individuals like the stimulus checks included in a March package would be in the next piece of legislation, McConnell said they "could well" be. “I think the people that have been hit the hardest are people who make about $40,000 or less. Many of them work in the hospitality industry. .... That could well be a part of it," McConnell said.
— Update on implementation of CARES 1:
- Did the Paycheck Protection Program (PPP) hit the target? "We do not find evidence that the PPP had a substantial effect on local economic outcomes — including declines in hours worked, business shutdowns, initial unemployment insurance claims, and small business revenues—during the first round of the program. Firms appear to use first round funds to build up savings and meet loan and other commitments, which points to possible medium-run impacts," economists João Granja, Christos Makridis, Constantine Yannelis and Eric Zwick write in a new working paper (link).
- The Small Business Administration has made public for the first time a large number of businesses and nonprofits that have received forgivable PPP loans (link). $521 billion in loans were granted to almost 4.9 million small businesses as of June 30 — with an average loan size of $106,744 — though more than 80% of the transactions were below the "$150,000 transparency threshold."
The loans helped support more than 50 million jobs, according to the SBA. Not included in the data is the roughly $30 billion in loans that were returned by companies that realized they weren’t eligible, worried about meeting the conditions to make the loans forgivable or frightened by the public outcry about big firms getting funds. Only the names of borrowers who took out more than $150,000 were released. Link to NYT article, which includes specifics on some individuals and firms getting the PPP loans.
— Food and beverage supply/industry update:
- Consolidation in the food-delivery sector is accelerating as the competition turns into a nationwide fight for customers. The Uber Technologies Inc. $2.65 billion acquisition of rival Postmates Inc. sets up Uber Eats as one of the top players in the market, the Wall Street Journal reports in two articles (link and link), and signals that the big operators believe home delivery of food and groceries will remain a big factor in consumer shopping. The all-stock deal would create the second-largest restaurant delivery service in the U.S., following DoorDash Inc. and ahead of Grubhub Inc. Uber is also betting it will expand the company’s identity and bring new customers to its ride-sharing. “That provides a compelling financial case while food-delivery operations still face big logistics and profit challenges as standalone businesses. The more immediate benefit may be a diverse revenue stream since Postmates has both grocery and restaurant delivery services in its national network,” the article notes.
— Update on reopening America... and around the world:
- Parts of the U.S. continued reopening tentatively, as others struggled to contain the pandemic. Nearly 45% of the more than 49,000 cases reported Sunday were in California and Florida. Meanwhile, New York City began Phase 3 of reopening, which covers such businesses as nail salons and tattoo parlors, while parts of the state, including Westchester County, will enter Phase 4 today.
- President Trump and first lady Melania Trump participate in a national dialogue at the White House on safely reopening schools.
— Coronavirus update:
- Summary: Global Covid-19 cases are at 11,645,109 with 538,780 deaths, according to data from the Center for Systems Science and Engineering (CSSE) at Johns Hopkins University (JHU). U.S. cases are at 2,938,625 with 130,306 deaths.
Link to Covid Case Tracker
Link to nine charts
- Brazil President Jair Bolsonaro says he will be tested for Covid-19 after having an X-ray of his lungs. He didn’t say whether he was showing symptoms. Bolsonaro, a far-right leader who has repeatedly downplayed the risks of the disease, told supporters that he is feeling well. Today, Brazil has the second highest number of coronavirus cases in the world with over 1.5 million and over 65,000 deaths. If Bolsonaro does test positive, the U.S. ambassador to Brazil, Todd Chapman, has cause for concern. The two were photographed together, without masks, at a Fourth of July celebration at the ambassador’s residence on Saturday.
- Regeneron Pharmaceuticals is starting later-stage studies of its experimental Covid-19 drug, a quick move into testing that could establish whether the drug can be used for treatment and prevention. Shares of Regeneron were up about 3% in premarket trading after the drugmaker received a $450 million grant from the U.S. government to make and supply its double-antibody cocktail being tested against Covid-19.
- Top U.S. infectious disease expert Dr. Anthony Fauci warned that any new vaccine against the virus would only protect people for a finite amount of time and could require a booster to prolong protection. Meanwhile, Fauci compared the U.S.’ response unfavorably to that of European countries. “We went up, never came down to baseline, and now it’s surging back up,” he said, whereas European countries are seeing only “blips” as they move to reopen. Fauci today participates in a live stream on the Facebook page for Sen. Doug Jones (D-Ala.).
Fauci also said the average age of new patients has dropped by roughly 15 years compared with only a few months ago as the virus reignites in America's Sun Belt. For example, Republican Florida Gov. Ron DeSantis said Monday the median age of new Covid-19 patients in his state reached a low of 33.
- EPA approves Lysol as surface coronavirus disinfectant. The EPA announced Monday that it has approved the first two surface disinfectant products, both made by Lysol, against the novel coronavirus. The products — Lysol Disinfectant Spray and Lysol Disinfectant Max Cover Mist — were approved by the agency based on laboratory testing that showed they were "effective against" Covid-19, according to a statement by the EPA. Under no circumstance should the disinfectant products be administered into the human body.
OTHER ITEMS OF NOTE
- Ag spending, other measures advance. House Appropriations subcommittees Monday quickly handled several Fiscal Year (FY) 2021 spending plans, including for USDA/FDA. The ag measure advanced on a voice vote with mostly bipartisan support. However, Republicans noted that there were some provisions in the package that could become “poison pills” for the legislation down the road. The full House Appropriations Committee is set to markup several spending bills Thursday as the panel seeks to complete work this week on the 12 annual spending measures. However, the Senate is not seen acting on their versions of the spending plans yet this summer, so a continuing budget resolution is expected to keep the government funded into December.
- One deterrent for colleges going online-only: Immigration and Customs Enforcement announced yesterday that international students enrolled at universities without in-person classes would have to leave the country or transfer to another college. It’s part of the Trump administration’s continuing crackdown on immigration.
- House to block more wall funds. House Democrats’ homeland security spending measure would prohibit funding for President Donald Trump’s southern border wall and bar any increase in money for barriers or Border Patrol agents.
- N.J. primaries today. Rep. Jeff Van Drew, who switched parties after voting against impeaching Trump, is seeking re-election as a Republican with the president’s backing. Van Drew was one of three Republicans who voted last week for a $1.5 trillion highway and infrastructure package. His lone primary opponent is Robert Patterson, who was acting associate commissioner at the Social Security Administration earlier in Trump’s presidency.
- Trump and Mexican President Andrés Manuel López Obrador are set to meet in Washington tomorrow to commemorate the USMCA, but Canadian Prime Minister Justin Trudeau declined a White House invitation to join them.
- Canada will be able to export an additional 36,287 metric tonnes of refined sugar to the United States this year because of the terms of the new U.S.-Mexico-Canada Agreement, USTR said in a July 1 Federal Register notice (link). The USMCA entitles Canada to 20% of any increase in the quota for refined sugar, USTR said in the Federal Register item. USDA raised that quota by 181,437 metric tonnes back in April, subject to country-by-country allocations by USTR. A second Federal Register notice published last week (link) explains how the U.S. will administer a new tariff-rate quota for imports of sugar-containing products from Canada.
- Dakota Access pipeline ordered to shut down. The U.S. District Court for the District of Columbia has vacated an easement granted by the U.S. Army Corps of Engineers that allowed building of the Dakota Access pipeline beneath Lake Oahe in North Dakota and South Dakota. The pipeline must shutdown by Aug. 5 during an in-depth environmental review of the project the court ruled Monday (July 6), saying it has to be emptied while the environmental impact report is prepared. "Fearing severe environmental consequences, American Indian Tribes on nearby reservations have sought for several years to invalidate federal permits allowing the Dakota Access Pipeline to carry oil under the lake," Judge James Boasberg said in the ruling. "Today they finally achieve that goal — at least for the time being." The Corps estimates it will take around 13 months to complete the study. The decision, subject to appeal, is a victory for environmental groups. It follows the cancellation of the Atlantic Coast Pipeline on Sunday, amid legal and logistical challenges deemed too costly by its backers.
- DOE approves LNG exports from Oregon Jordan Cove terminal. A final long-term order has been issued by the U.S. Department of Energy (DOE) to authorize the export of liquefied natural gas (LNG) from the proposed Jordan Cove LNG Terminal in Coos Bay, Oregon. “Today’s export authorization for Jordan Cove, the first US West Coast LNG project, will ease access to further position the U.S. as a top supplier of LNG around the world,” Energy Secretary Dan Brouillette in signing the measure. Jordan Cove Energy Project L.P., owned by Canada’s Pembina Pipeline Corporation, will have the authority to export up to 1.08 billion cubic feet per day of natural gas as LNG, relying on natural gas supplies sourced from both the U.S. and Canada that will be liquefied at Jordan Cove.
- Supreme Court rulings: Reducing Electoral College uncertainty, justices ruled that presidential electors can be required to cast ballots for the winner of their state’s popular vote. Thirty-two states require the people chosen on Election Day to cast ballots for the winner of their states' popular vote. Eighteen states have no such requirement. Separately, the Supreme Court blocked the use of robocalls to collect government-backed debt.
- Just 2% of Democrats support Trump. A new poll shows President Trump producing the largest partisan gap Gallup has ever measured when members of the two parties were asked about presidential approval. On Monday, Gallup released June polling numbers that showed 91% of Republicans supportive of Trump, but just 2% of Democrats — as Trump's lower approval rating overall stayed steady at 38%.