Jobs report | China | USMCA | U.S. tariffs on EU
In today's updates:
* Trump promised China he would stay quiet on Hong Kong if trade talks progressed
Markets: The U.S. Labor Department is expected this morning to report that nonfarm payrolls increased by 145,000 jobs in September from 130,000 jobs in August. The unemployment rate is expected to remain at 3.7% in September, the same as August's reading. More details below on what the trade expects and implications.
— U.S./China trade policy update:
- President Trump reportedly promised China's president that he'd stay quiet on Hong Kong protests as long as trade war talks progressed, CNN reported. This could be why Trump has offered a muted response to the protests, despite global backlash over China's encroachment in the semi-autonomous city.
- As expected, Hong Kong leader Carrie Lam today invoked emergency powers and banned face masks, saying the order goes into effect tomorrow. Tensions in the city hit new highs after police shot a protester on Tuesday, amid mass demonstrations on China's National Day.
— More questions than answers on coming RFS package to be released this morning. We issued a special report on the topic earlier this morning (link), but it appears a coming Federal Register notice and/or more information from EPA and/or USDA will be needed to fill in the blanks on what is expected to be a vague announcement at 9 a.m. CT.
One reader responded: “The fact that they are not announcing this at an ethanol plant in Iowa, as they had previously planned, says everything about it. I guess I understand the need to have a public comment period, but I do not understand why they would not have included the details of the plan in the press release. It seems to me there are only two reasons not to include the details. The first is that they plan to announce them at a press conference today, which would be what everyone expected. The second reason is that the plan is still undefined, and they released this in reaction to the Reuters story from Tuesday.”
Meanwhile, President Trump has a rally scheduled in Minnesota next week. That may be the time and place additional information becomes available regarding the RFS package.
— Pelosi keeps talking about USMCA, and goads Trump. House Speaker Nancy Pelosi (D-Calif.) continues to comment on efforts to get the U.S.-Mexico-Canada Agreement (USMCA) passed in Congress. She said the impeachment process in the House and USMCA have nothing to do with each other. "The president has said he wants this U.S.-Mexico-Canada trade agreement to go forward, and we are awaiting the language on enforceability. So does it mean that he can’t do that? That’s really up to him.”
President Trump earlier this week accused Pelosi of using her constructive approach to the agreement as political cover. “She is incapable of working on either,” Trump wrote on Twitter, referring to Pelosi’s mentions of USMCA and efforts to address high drug prices. “It is just camouflage for trying to win an election through impeachment. The Do Nothing Democrats are stuck in mud!”
The Trump administration is pushing for major progress to take place when lawmakers return on Oct. 14, with the goal of introducing implementing legislation by the end of the month.
— WTO DSB meeting set for Oct. 14 re: U.S. action against EU. The WTO has confirmed that a special meeting of the Dispute Settlement Body (DSB) will be held Oct. 14 to consider the U.S. request to take retaliatory action against the European Union (EU) over subsidies the bloc has provided to Airbus — subsidies the WTO ruled were counter to EU trade commitments.
The WTO authorized the US to take up to $7.5 billion in retaliatory actions against the WTO over the situation, the largest in WTO history. The U.S. announced Tuesday it would put tariffs in place on a host of EU goods starting Oct. 18, prompting the special meeting request of the DSB. The action will be approved under what is called the "negative consensus" rule — the U.S. request can only be blocked if all members in attendance reject the request.
Meanwhile, the EU signaled it won't retaliate. The EU says negotiation is a "preferred approach," the Wall Street Journal reported (link).
— Other items of note:
Rick Perry is expected to step down as energy secretary by the end of the year. Perry probably will return to the private sector. Politico first reported Thursday night that Perry planned to leave by the end of November.
Warren promises to pay federal employees during shutdowns if she becomes president. The Democratic candidate's plan also calls for reversing President Trump's executive orders "attacking" the federal workforce. Link for details.
Cotton AWP edges higher. The Adjusted World Price (AWP) for cotton moved up to 53.36 cents per pound, effective Oct. 4, compared with 53.19 cents per pound the prior week. Since the week ended August 9, the AWP has been between 51.45 cents and 54.62 cents per pound, having only been below the national average loan rate of 52 cents per pound two weeks.
— Markets. The Dow on Thursday rose 122.42 points, 0.47%, at 26,201.04. The rise came as traders interpreted a downbeat reading on the services sector as supporting another rate cut by the Fed. The Nasdaq gained 87.02 points, 1.12%, at 7,872.26. The S&P 500 added 23.02, 0.80%, at 2,910.63.
CME lowers soybean futures margins. The CME has lowered soybean futures margins to $1,690 per contract, down 15% from the current $1,990 per contract for November 2019. Initial margin rates are at 110% of these levels. The new rate will be effective at the close of business Oct. 4.
U.S. jobs update eyed as economic worries mount. The U.S. Employment report for September is expected to show a modest rise in nonfarm payrolls, with attention on the usual areas. The headline number of jobs created is always an attention point, with the averages this year running behind those seen in 2018. If the September level fails to best the August mark, that could spark additional economic concerns. Wages and hours will be another attention point. Wages have shown growth over the past 12 months but have struggled to get much beyond a three-percent increase. The hours worked portion of the report could be another signal of economic struggles that could indicate further headwinds, especially for consumers. Fewer hours worked will temper earnings and that could translate back through to a more-subdued consumer. Odds have already risen for another rate reduction at the Oct. 29-30 Federal Open Market Committee meeting — now over 87% whereas one week ago they were under 50%, based on the CME FedWatch tool —and a disappointing jobs update will build those expectations even further.
U.S. holiday sales to rise up to 4.2% amid trade uncertainty, the National Retail Federation said, even as the retail sector deals with fears of slowing global growth due to an ongoing U.S./China trade war.
State Department makes draft supplemental EIS on Keystone XL pipeline available. The State Department has announced the draft supplemental environmental impact statement (EIS) for the Proposed Keystone XL Pipeline is now available for review and public comment. The draft supplemental EIS (SEIS) updates the 2014 final supplemental EIS and analyzes “impacts related to changes in the project since 2014, and incorporates current information and new studies,” the agency said in a notice in the Federal Register. The State Department will also hold a public meeting on the draft SEIS on Oct. 29. There is a 45-day comment period on the draft SEIS which has been distributed to state and federal government agencies, tribal governments and other interested parties. It can also be viewed at several public libraries in Montana, Nebraska and South Dakota.