Markets Brace for Trump’s Response on China’s Tighter Security Controls on Hong Kong

Posted on 05/29/2020 7:54 AM

White House hasn’t announced time of Trump news conference

 


In Today’s Updates


 

* Waiting on another Trump presser
* Most do not see U.S. putting sanctions on Chinese officials or pulling out of Phase 1
* China purchases of U.S. ag products continue.
* China comments on Hong Kong... Premier Li Keqiang strikes conciliatory tone
* USTR has exempted additional products from Trump’s tariffs on China
* Fed Chairman Powell takes part in a moderated virtual discussion
* U.S. dollar has gained about 7% this year against basket of major currencies
* Volatile numbers have the White House shying away from forecasts

* Impact of U.S./China trade war
* U.S. consumed more renewable energy than coal last year for first time since 1885
* Not if, but when and what ag-related topics are included in next Covid relief package
* More CFAP clarifications and examples
* Sen. Grassley signals push to include eggs, turkeys in CFAP payments

* NPPC gives wish list for next Covid-19 ag aid package
* U.S. food supply update
* Official: 58 active investigations into meatpacking plants
* House Dems question OSHA's response to pandemic
* Updated OSHA guidance in focus for meat plants
* Update on reopening America... and around the world
* Coronavirus update
* Fresh outbreaks of Covid-19 in and around Seoul called a 'crisis situation'

* Brazil’s prosecutor general and charges against President Jair Bolsonaro
* Pandemic and U.S. elections
* Governor of Minnesota orders National Guard
* EU may impose retaliatory tariffs against the U.S. over its illegal aid to Boeing
* Justice Dept. preventing struggling cannabis businesses from accessing bankruptcy
* Sen. Graham (urged federal judges in their mid-60s or older to step aside
* Cotton AWP edges lower; import quota announced

 

 


MARKET FOCUS


 

Equities today: Global stock markets were mostly lower and U.S. futures signal a lower opening amid increased risk aversion ias the U.S. and China appear on a collision course that could set off the next “cold war” between the two largest economies in the world.

 

     U.S. equities yesterday: The Dow fell 147.63 points, 0.58%in at 25,400.64 in a late sell-off. The Nasdaq declined 43.37 points, 0.46%, at 9,368.99. The S&P 500 lost 6.40 points, 0.21%, at 3,029.73.

 

Federal Reserve Chairman Jerome Powell takes part in a moderated virtual discussion with former Fed Vice Chairman Alan Blinder from 11:00 a.m. Eastern Time.

 

Crude oil futures remain under pressure, with losses in US crude of around 2.6%, with futures trading around $32.80 per barrel, while Brent crude is around $35.35 per barrel, down around 2%.

 

China purchases of U.S. ag products continue. USDA’s Weekly Export Sales report for the week ended May 21 noted the following sales of U.S. ag products to China for 2019-20: Net purchases of 1,414 tonnes of wheat, 9,880 tonnes of corn, 180,107 tonnes of sorghum, 192,372 tonnes of soybeans, 58,556 running bales of upland cotton, 1,561 tonnes of beef (2019) and 6,075 tonnes of U.S. pork (2019).

 

     For the 2020-21 marketing year, USDA reported sales to China of 200,000 tonnes of soybeans and 113,168 running bales of upland cotton.

 

Iron ore prices are surging, driven in part by Brazil's coronavirus crisis (limiting production) and improved demand from China.

 

The Baltic Dry Shipping Index appears to be stabilizing.

 

Net-short speculative positioning in U.S. corn futures is at an extreme, and corn futures are recovering from oversold levels.

 

The U.S. dollar has gained about 7% this year against a basket of major currencies. A research note from Oxford Economics found that since 1973, the dollar has appreciated an average of 6% in the past six recessions. It expects this to remain true during the coronavirus downturn, but not for the usual reasons. Foreign investors dumped Treasury bonds at a record rate in March, which would normally push the dollar down. But since the Fed introduced its huge stimulus programs, the stock market has become a “safe refuge,” propelled by tech stocks.

 

     Dollar

 

U.S. savings rate hits record 33% as coronavirus causes Americans to stockpile cash, curb spending.

 

     Savings

 

Volatile numbers have the White House shying away from forecasts. A senior administration official said the coronavirus has resulted in “fluctuating” economic data, and that White House projections wouldn’t provide a “meaningful snapshot” of the economy. The Congressional Budget Office expects a significant rebound in the second half of the year — though not nearly enough to make up for the damage in the first half. The Federal Reserve in March did not publish updated economic projections by Fed members as scheduled and it is not clear yet whether the Fed will release projections at the conclusion of the June 9-10 Federal Open Market Committee (FOMC) meeting as scheduled.

 

     CBO forecasts

 

Impact of U.S./China trade war. "We find that the U.S./China trade war lowered the market capitalization of U.S. listed firms by $1.7 trillion and will lower their investment growth rate by 1.9 percentage points by the end of 2020," the New York Fed's Mary Amiti, and Columbia University's Sang Hoon Kong and David Weinstein write at Liberty Street Economics (link).    

 

     Liberty

 

Not a lump of coal... The U.S. consumed more renewable energy than coal last year for the first time since 1885, the Wall Street Journal points out (link), an inflection point that highlights dramatic changes in American energy markets driven by economic as well as environmental factors. The Energy Information Administration says coal consumption fell 15% in 2019 compared with the year before, extending a years-long trend, while renewable-energy consumption grew 1%. The shift from coal is widely expected to continue for the foreseeable future as utilities accelerate the closures of coal-fired power plants. The shift is resetting the finances of railroads, which still count about a quarter of their carload volume from coal, according to Association of American Railroad figures. But coal loads have fallen 25% this year, and April marked the worst month for coal loads in records dating to 1988.

 

     Coal

 

Bat crazy... It’s a tough time to be a fan of bats, according to the Wall Street Journal (link). Some scientists have named bats as the origin of the coronavirus pandemic and the mammal is under suspicion across the world, forcing bat devotees to step up defense of their favorite creature.

 


POLICY FOCUS


 

Update on China:

  • President Trump will hold a press conference to address China’s actions to tighten its grip on Hong Kong. Trump on Thursday said that “we are not happy with China. We are not happy with what’s happened.” He didn’t specify what he was unhappy about. He’s set to sign a measure that would punish Chinese officials for imprisoning more than one million Muslims in internment camps. China’s foreign ministry called U.S. actions so far “pure nonsense” and said Hong Kong is an internal matter. A revocation of Hong Kong's favored status is considered a worst-case outcome of the press conference for investors.

    The U.S., Australia, U.K. and Canada released a joint statement Thursday criticizing China for breaking its international obligations regarding Hong Kong.

    President Trump is expected to announce today that the U.S. will cancel the visas of some Chinese graduate students and researchers, according to administration officials and others familiar with the matter, the WSJ reports. The move would target scholars associated with Chinese universities with ties to the People’s Liberation Army, or PLA. It wasn’t known how many people would be affected by the decision. The New York Times earlier reported the administration’s plans. About 360,000 Chinese students are studying or working in the U.S., roughly a third of the total international student population. Of these, many are enrolled in graduate programs or working as researchers in the science and engineering fields.

     
  • Most observers do not see the U.S. putting sanctions on Chinese officials or pulling out of the Phase 1 trade deal that went into force earlier this year. "Any sanctions are a double-edged sword that will not only harm the interests of Hong Kong but also significantly those of the U.S.," Hong Kong's government said.
     
  • China and Hong Kong. The National People’s Congress on Thursday adopted the government’s proposals to impose new laws on Hong Kong to suppress subversion, secession, terrorism and other acts that might threaten China’s national security — as the authorities in Beijing define it. The vote was nearly unanimous, with only one delegate voting against and six abstaining.
     
  • Chinese Premier Li Keqiang struck a conciliatory tone. While offering no concessions to American demands, he called for close trade relations between the two countries. This came after Chinese officials taunted the U.S. as an imperious meddler.
     
  • China comments. The Chinese Embassy put out a statement on Thursday evening saying that “hostile forces” have made Hong Kong a risk to China’s national security and that the central government “cannot just sit by and do nothing.” Beijing’s legislation “has no impact on Hong Kong's high degree of autonomy, the rights and freedoms of Hong Kong residents or the legitimate rights and interests of foreign investors in Hong Kong. It will provide a fundamental guarantee for the effective implementation of ‘One Country Two Systems,’” the statement said. “As for foreign meddling in Hong Kong affairs, we will take necessary countermeasures in response.”
     
  • China has its hawks and doves, too. The Chinese leadership does not want to incinerate the relationship with the U.S., given the enormous economic benefits. Nor is it willing to back down, reflecting divisions in Beijing between hawks and more moderating forces. The New York Times writes that “The American president views blaming China for the coronavirus crisis in the United States as a path to re-election. The Chinese leader faces enormous economic and diplomatic challenges that could stir domestic opposition to his grip on power.”

    Hu Xijin, the outspoken editor of Global Times, a nationalistic tabloid controlled by the Communist Party, all but dared the Trump administration to carry out its threat to end Hong Kong’s favored trade status. He noted that there were 85,000 Americans there and scores of companies that would reap “the bitter fruits” of the American decision.

     
  • Taiwan’s president, Tsai Ing-wen, promised to help resettle Hong Kongers fleeing China’s increasing control of their territory. China responded that Taiwan was seeking to “loot a burning house”. Britain, meanwhile, said it could extend visa rights for the 300,000 Hong Kong residents born before the 1997 handover who hold British National (Overseas) passports, offering them a path to citizenship.
     
  • Beijing’s actions on Hong Kong have outraged many in the European Union, but the bloc’s foreign ministers meet today, and chief foreign envoy Josep Borrell has already said sanctions against China aren’t the solution.
     
  • The U.K. has proposed an alliance with nine countries aimed at reducing reliance on China for 5G wireless technology.
     
  • China and India face off in Ladakh. In recent weeks, China has picked fights with America, Australia, Britain and Hong Kong. Now, thousands of Chinese troops have been dispatched to the vast border with India, some crossing several miles into territory claimed by its neighbor in the Ladakh region, where Tibet touches Kashmir. Because the mountainous border is largely undefined, patrols often rub against one another. Two brawls took place earlier this month. China’s muscle-flexing may have been prompted by India’s build-up of roads and other infrastructure in Ladakh, which make it easier to send patrols to remote areas.

    China and India

    President Trump said he spoke with Indian Prime Minister Narendra Modi over the phone and discussed the South Asian nation’s latest border tensions with China. Trump reiterated his offer to mediate between New Delhi and Beijing and told a reporter he spoke to Modi and “he’s not in a good mood about what’s going on with China.” The Indian government, however, says no such conversation took place. In fact, its foreign ministry says Modi hasn’t spoken to Trump since April 4.

     
  • Huawei has built up a 2-year supply of its most important U.S.-made chips, Nikkei Asian Review reports (link).
     
  • USTR has exempted additional products from Trump’s tariffs on China, according to two Federal Register items published Thursday. Link 1 | Link 2

Update on next aid package — Phase 4/CARES 2:

  • The U.S. House of Representatives approved a bipartisan bill that would loosen requirements on hundreds of billions of dollars in small-business loans, responding to concerns from employers struggling to stay open during the coronavirus pandemic. The House bill reduces the level of Paycheck Protection Program funds that must be used for payroll to 60% from 75%. It also gives borrowers up to 24 weeks to use the funds, up from the eight set in the initial bill passed in March and extends the deadline to rehire workers to Dec. 31. The bill now goes to the Senate.
     
  • Not a question of if, but when and what ag-related topics are included in next Covid relief package. Most expect additional payments to producers impacting 2020 crops, a boost in the CCC borrowing authority and authority for livestock indemnity payments via the Commodity Credit Corporation (CCC). Additional funding for food/crop purchases and more for the SNAP/food stamp program are also likely additions.
     
  • The National Pork Producers Council is asking the Senate to adopt House provisions in its next coronavirus aid bill to help hog farmers such as by covering the cost of euthanizing animals, expanding direct payments and providing more mental health services. NPPC President Howard AV Roth called the House HEROES provisions “a lifeline” for farmers. He also spoke favorably about animal health laboratory funding and mental health provisions included in the bill. Without further aid “we will see thousands of hog farmers liquidate their family farms, resulting in a contracted and more consolidated industry,” he added, saying that result would be bad for both farmers and consumers.

Update on implementation of CARES 1, including CFAP:

  • USDA clarifies eligibility for CFAP. USDA released the following clarification of contracts/risk management strategies that are eligible/ineligible for Coronavirus Food Assistance Program (CFAP) payments. Link to a USDA/FSA CFAP Notice.
    Contracts
     
  • Link to FarmDocDaily report on CFAP application.
     
  • Link to Farm Bureau item on CFAP payment formula.

    Payment cap

     
  • Sen. Grassley signals push to include eggs, turkeys in CFAP payments. While welcoming the Coronavirus Food Assistance Program (CFAP) where signup started Tuesday (May 26), Sen. Chuck Grassley (R-Iowa) said Thursday there are “necessary changes” that need to be made to the program. He said he will work “closely” with USDA to make sure that egg and turkey producers are included as “both have been forced to euthanize animals” and they have seen contracts cancelled by companies citing force majeure clauses. “I will also be conducting oversight on USDA payments” under the program, Grassley said, reiterating his long-held view that government farm payments — even during a global pandemic — need to go to farmers “with dirt under their fingernails.”

U.S. food supply/industry update:

  • A top official said that there are 58 active investigations into meatpacking plants, but it may take months for any of them to conclude. Loren Sweatt, principal deputy assistant secretary of labor for occupational safety and health, said that the agency has focused on the meatpacking industry and that the agency has “daily phone calls” with the USDA’s Food Safety Inspection Service, which has employees on-site at every plant. But Politico reports that Sweatt declined to answer questions about why the agency hasn’t issued emergency protections specific to the virus. She also added that the agency has six months to complete the inspections.
     
  • House Dems question OSHA's response to pandemic. House Democrats on Thursday attacked OSHA for failing to protect workers from the coronavirus. Rep. Alma Adams (D-N.C.), chairwoman of the House Education and Labor subcommittee on workforce protections, said the Occupational Safety and Health Administration (OSHA) has been “invisible” during the pandemic, reports the Washington Post (link). During the hearing, a top OSHA official dodged questions about the coronavirus risk posed to meatpacking workers and employees in other essential sectors.
     
  • The Food and Drug Administration is asking farms and food facilities to report any shutdowns due to coronavirus outbreaks so it can keep track of what’s happening in the food supply chain.
     
  • Updated OSHA guidance in focus for meat plants. The Occupational Safety and Health Administration (OSHA) earlier this week issued an updated guidance memo (link) relative to reporting of Covid-19 cases. The agency said Covid-19 can be a “recordable illness” if the worker infection was “as a result of performing their work-related duties,” if the following apply: The case is a confirmed case of Covid-19, as defined by the Centers for Disease Control and Prevention (CDC); the case is work-related as defined by law; and the case involves one or more of the general recording criteria set forth by law. The agency also noted that it is exercising “enforcement discretion” relative to the situation, a reference made more than once in the updated guidance. “Recording a Covid-19 illness does not, of itself, mean that the employer has violated any OSHA standard,” the agency stated. The updated guidance is sparking concern within the meat industry about the impact it could have, but it is not clear what specific impacts to things like insurance.

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

  • American Airlines and Delta Air Lines are offering buyouts to employees, in a sign that they expect airline travel to be depressed for years.
     
  • America’s vacation towns start to reopen. Some tourism hot spots, like North Carolina's Outer Banks, are becoming magnets for quarantine-weary visitors. But locals are worried about a coronavirus surge. Link to WSJ article.
     
  • For the first time in its 124-year history, the Boston Marathon has been canceled. Organizers plan to hold a virtual race instead, with people running the 26.2 miles remotely.

Coronavirus update:

  • Summary: Global cases of Covid-19 stand at 5,825,636 with the death count at 360,679, according to data from the Center for Systems Science and Engineering (CSSE) at Johns Hopkins University (JHU). The US case count is at 1,721,926 with 101,621 deaths.
     
  • Fresh outbreaks of Covid-19 in and around Seoul have been called a “crisis situation” by South Korean health officials. The country had done well in reducing the spread of the coronavirus but has seen a spike in the number of infections over the last few days, mostly linked to a logistics facility. Hundreds of schools were forced to close again only days after reopening.

 


OTHER ITEMS OF NOTE


 

  • Brazil’s prosecutor general may decide as soon as today whether to press charges against President Jair Bolsonaro after former Justice Minister Sergio Moro accused him of trying to interfere with police investigations.
     
  • North Korea. U.S. authorities unsealed a sweeping indictment charging more than 30 people with helping Pyongyang illegally transfer $2.5 billion since 2013.
     
  • Pandemic and U.S. elections. Since March 16, when the first coronavirus-related campaign ad aired, about half of all television ads for U.S. House, Senate and presidential contests have mentioned the pandemic, according to a Bloomberg Government analysis. The Nov. 3 election is likely to hinge largely on how voters judge Trump’s response to the coronavirus pandemic.
     
  • Governor of Minnesota orders National Guard. Gov. Tim Waltz sent in the National Guard as demonstrators clashed with police for a third straight day while protesting the death of George Floyd, a black man who died after a white officer pinned him to the ground with a knee on his neck in an incident captured on video. After a third night of protests in Minneapolis, President Trump called on the city’s mayor to bring it under control, adding in tweet that military stands with Minn. gov and “when the looting starts, the shooting starts.”
     
  • The EU may have no option but to impose retaliatory tariffs against the U.S. over its illegal aid to Boeing in order to settle the longstanding transatlantic dispute over aircraft subsidies, according to a senior official.
     
  • The Justice Department is preventing struggling cannabis businesses and their workers from accessing bankruptcy to weather the coronavirus-related downturn, even in states that determine medical marijuana is an essential industry during the pandemic. The department’s policy means the financial safety net that bankruptcy provides consumers who fall behind on mortgages or car payments is likely out of reach for those who work in the marijuana industry or businesses supporting state-regulated dispensaries or growers. Link to WSJ article for details.
     
  • GOP Sen. Lindsey Graham (R-S.C.) urged federal judges in their mid-60s or older to step aside so Republicans can fill their vacancies.
     
  • Cotton AWP edges lower; import quota announced. The Adjusted World Price (AWP) for cotton moved down to 47.48 cents per pound, effective today (May 29), down from 48.01 cents per pound. This ended a string of seven weeks in a row the AWP had increased. The level still leaves an LDP rate of 4.52 cents per pound on upland cotton. Meanwhile, USDA announced that Special Import Quota #6 for upland cotton will be established June 5 for 50,547 bales of upland cotton, applying to supplies purchased not later than Sept. 1 and entered into the U.S. not later than Nov. 30.

 

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