China trade data: exports rose; imports fell by biggest amount in nearly three years
— While another near-deadline trade agreement was announced with Mexico (link for details), it did not take long for controversy about the accord to surface.
President Trump hailed his new deal with Mexico to avoid tariffs, at least for 90 days. But the New York Times, citing officials in both nations, reported terms were actually agreed on months ago during secret negotiations. Meanwhile, the Trump administration believed the deal would "fix the immigration issue," Treasury Secretary Steven Mnuchin said on Saturday in a Reuters interview on the sidelines of a G20 finance meeting in Fukuoka, Japan. Mnuchin warned, however, that Trump retained the authority to impose tariffs if Mexico failed to enforce the new agreement. (The usually negative Washington Post when it comes to anything Trump was again in form with an analysis article titled “The dubious art of Trump’s deal with Mexico” (link).
The Mexican official who spoke to the Financial Times also denied that parts of Friday’s deal, such as deployment of the National Guard or an extension to the so-called Remain in Mexico program, had been agreed previously.
Meanwhile, the American Civil Liberties Union and other rights groups are pursuing a legal challenge to the program, which has returned to Mexico more than 10,390 people, mostly Central Americans.
Quick summary. Mexico agreed to deploy its newly formed national guard throughout the country, diverting it from domestic priorities, and to expand a program that makes some migrants wait in Mexico while their asylum claims are heard in the U.S.
President Trump on Sunday called the New York Times “The Enemy of the People!” for reporting that a deal Mexico worked out with the administration that allowed him to pull back on a new round of tariffs on Mexican imports had been negotiated months ago. “Another false report in the Failing @nytimes. We have been trying to get some of these Border Actions for a long time, as have other administrations, but were not able to get them, or get them in full, until our signed agreement with Mexico,” the president wrote on Twitter. Trump said Mexico for years had not been cooperative in talks about the border, but he said he spoke to President Andrés Manuel López Obrador and believes he wants to “get the job properly done.”
At a mass rally in Tijuana, across the border from San Diego, Calif., Mexican President Andrés Manuel López Obrador vowed to comply with the terms of the agreement assumed by his government to contain a surge of Central American migrants seeking to enter the U.S.
As for “immediate” and “very high levels” of Mexican buys of U.S. farm commodities, predicted by Trump in a pre-agreement tweet, the communique issued late Friday by the State Department — the U.S.-Mexico Joint Declaration — made no mention of agricultural trade as part of the agreement. Mexico is already a large buyer of U.S. farm goods, including corn, soybeans, pork and dairy products. It had given no indication of attempting to find alternative suppliers during the one-week standoff over Trump’s proposed steep tariffs on Mexican goods. Increasing Mexico’s purchases from the U.S. was not discussed during the three days of talks in Washington that led up to Friday’s agreement. Mexico has no state-owned agricultural conglomerate to buy food products or handle distribution, or a government program that could buy farm equipment for delivery to producers.
Trump this weekend in a tweet again said Mexico had agreed to “immediately begin buying large quantities of agricultural product from our great patriot farmers.” He repeated the tweet shortly after midnight Sunday in Washington.
Mexico's ambassador to the U.S., Martha Bárcena Coqui, was asked on CBS’ Face the Nation as to whether Mexico had agreed to increase imports as part of the deal. She never answered the question, but said trade was going to increase as a result of the U.S.-Mexico-Canada trade pact. She added she was “absolutely certain that the trade in agricultural goods could increase dramatically in the next few months.”
President Trump also signaled that there will be more announcements “at the appropriate time.” “Some things not mentioned in yesterday’s press release, one in particular, were agreed on. That will be announced at the appropriate time,” Trump said Sunday in a series of four tweets about Mexico, the media and other matters.
He also cautioned that if Mexico doesn’t carry through on its promises, “we can always go back to our previous, very profitable, position of Tariffs.” ”But I don’t believe that will be necessary. The Failing @nytimes, & ratings challenged @CNN, will do anything possible to see our Country fail! They are truly The Enemy of the People!,” the president wrote in the last of four postings on the matter.
Perspective: This would not be the first time Trump and in the case of China, USDA Sec. Sonny Perdue, promised substantial and “immediate” purchases of U.S. farm commodities, only to see such purchases not made or not nearly at the level mentioned. Meanwhile, a provision in the U.S./Mexico deal allows the U.S. to review the effectiveness of Mexico’s policies after 90 days, which former diplomats and analysts said reinforces the idea that the U.S. will continue to use tariffs as leverage.
— Lagarde: U.S./China trade war looms large over global growth. IMF Managing Director Christine Lagarde reiterated her call for the U.S. and China to de-escalate their trade war, which she warned is the biggest risk to global economic growth. The global economy remains "precarious" despite projections for continued growth and early signs of stabilization since the slowdown, Lagarde said in a statement at the end of two days of talks between finance ministers of the Group of 20 countries.
"The first priority should be to resolve the current trade tensions — including eliminating existing tariffs and avoiding new ones — while we need to continue to work toward the modernization of the international trade system," Lagarde said, according to the statement. "This would be the best way for policy makers to give more certainty and confidence to their economies and to help, not hinder, global growth."
— Trump, Xi to meet. Treasury Secretary Steven Mnuchin said Saturday that President Trump and Chinese President Xi Jinping would meet at the end of this month. Mnuchin met with China central bank chief Yi Gang, the first high-level meeting to discuss trade issues since the breakdown in talks.
Meanwhile, public comments and requests to testify on Trump’s plan to hit another $300 billion worth of Chinese goods with a 25% tariff are due by the end of the day. More than 280 comments had been posted on regulations.gov as of Sunday night.
— Other items of note:
Former USDA officials: At Trump’s Agriculture Department, science is being plowed under. The op-ed in the Washington Post (link) was written by Gale A. Buchanan and Catherine E. Woteki, former chief scientists at USDA, where they served (2006-2009 and 2010-2017, respectively) as undersecretary for research, education and economics.
USDA disclosed late Friday that some Roundup-resistant wheat plants have been discovered growing in an unplanted field in Washington state. There is no genetically engineered wheat approved for the market. The Animal and Plant Health Inspection Service tightened its oversight of GE wheat trials after earlier detections of biotech wheat plants. The wheat never entered the food supply, the agency says. Link to USDA statement.
Hundreds of thousands of people filled the streets of Hong Kong on Sunday to protest a government plan to allow extraditions to mainland China. The territory’s leader, Chief Executive Carrie Lam, said today that she had no intention of withdrawing the legislation.
Top Democrats tell Axios on HBO they expect Rep. Alexandria Ocasio-Cortez may eventually primary one of the two New York senators — Senate Majority Leader Chuck Schumer in 2022, or Sen. Kirsten Gillibrand in 2024.
Farm-state lawmakers want USDA to expedite cover crop rules for acres that farmers were unable to plant because of the wet weather. A group of senators wrote a letter (link) to USDA Undersecretary Bill Northey asking him to speed up new rules under 2018 Farm Bill that would “provide important flexibility and greater certainty for farmers to harvest, graze and terminate cover crops” and remain eligible for crop insurance on their primary cash crop.
Minnesota will regulate nitrogen fertilizer on row crops to protect the state’s drinking water supply from farm chemicals that have long caused problems for public works regulators. The Groundwater Protection Rule is set to take effect soon. Link to article in the Star Tribune.
— Markets. The Dow on Friday gained 263.28 points, 1.02%, at 25,983.94. The Nasdaq rose 126.55 points, 1.66%, at 7,742.10. The S&P 500 added 29.85 points, 1.05%, at 2,873,34.
For the week, the Dow gained 1,168.90 points, 4.7%, while the S&P 500 rose 4.4%, and the Nasdaq Composite advanced 3.9%. It was the best week for all three indexes since November 2018.
Treasury yields tumbled, with 10-year yields hitting their lowest since September 2017 as domestic employers hired far fewer workers than expected in May, raising bets the Federal Reserve would lower interest rates. The 10-year notes rose 13/32 to a yield of 2.07%. The 30-year bonds were up 1-3/32, yielding 2.57% and the 2-year notes were up 2/32 to yield 1.84%
Federal-funds futures markets are pricing in a half-point cut this year, and another 40 basis points in 2020; a basis point is equal to one-hundredth of a percentage point. If the markets are right, rates could fall by three-quarters of a point over the next year, taking federal funds to a range of 1.5% to 1.75% from their current 2.25 to 2.5%. According to Bankrate.com, the highest rates on five-year CDs are about 3.1%, scarcely above the 2.8% rate on a one-year CD. Meanwhile, the yield curve has flattened and inverted: Short-term Treasuries are yielding more than 10-year bonds, and there is not much difference between the yield of a one-year T-bill (2.04%) and a 10-year note (2.12%). Historically, that has often indicated a recession is coming, implying that a rescue plan from the Federal Reserve may be on the horizon.
The dollar index on Friday fell after the Employment report showed that job growth slowed sharply in May and wages rose less than expected. Rising expectations of a cut have pulled the dollar lower. Against the Japanese yen, the dollar weakened by 0.22%, at 108.16 yen. The euro rose 0.51% against the dollar to $1.1332. The dollar index was down 0.47% at 96.59.
Oil prices rose Friday after Saudi Arabia said OPEC was close to agreeing to extend an output production cut beyond June and as equities rallied. Brent crude futures gained 2.71% at $63.34 a barrel. U.S. West Texas Intermediate crude were at $54.08 a barrel, up 2.83%.
The federal budget deficit was $738 billion for the first eight months of fiscal year 2019, $206 billion more than for the same period last year, according to a new Congressional Budget Office estimate. The biggest increases were interest on the public debt, up 15.6%, and Medicare, up 8.6%.
Fed’s Williams says the yield curve isn’t a magic ‘oracle’ for predicting a recession. New York Federal Reserve President John Williams, addressing a key market concern, said Thursday the move of near-term bond yields above their longer-duration counterparts is only one consideration when determining what the economy will look like in the future.