Hong Kong protests escalate | U.S./China talks could take 'years': Kudlow | Meat substitutes
In today's updates:
* Trump finding it hard to get to a final biofuel boost package that ag industry likes
Markets: The spread between front-month West Texas Intermediate crude and Brent crude narrowed to as little as $3.53 a barrel on Aug. 19 — the narrowest since July 20, 2018.
— Back to the drawing board for biofuel boost package. Everyone knows President Trump is impatient. So it is obvious he is being tested relative to coming up with some type of package that will satisfy a very aggressive and hard-to-please biofuel audience that in essence wants no give if they do not get reallocations for the 4 billion ethanol-equivalent gallons of waivers granted during the Trump administration. A Friday meeting between Trump and some of his top officials could not agree on a final plan, especially after farm and biofuel groups, and some farm-state lawmakers, made it clear the pending package would be branded “a disaster for ethanol and corn growers,” according to Senate Finance Chairman Chuck Grassley (R-Iowa). Sen. Joni Ernst (R-Iowa) via Twitter said, “the only good deal for Iowa farmers is one that upholds the intent of the RFS,” or the Renewable Fuel Standard (RFS).
Can EPA consider and announce waivers before RVOs are announced for the year ahead? “That would be about impossible to fully accomplish,” one contact said. “The Department of Energy scoring system is based on actual data, and includes things like unexpected events that may affect your score like a fire, etc.”
President Trump is clearly sensitive to accelerated Democratic presidential candidates taking barbs at the recent 31 RFS waivers by his administration. Sen. Amy Klobuchar (D-Minn.) accused Trump of treating farmers and rural America like a “bunch of poker chips in one of his bankrupt casinos,” and promised she’ll stand up for the industry if she’s elected president. “This means standing up to the big oil companies when it comes to climate change and it also means standing up to the big oil companies, so you don’t grant them a bunch of waivers from the Renewable Fuel Standard behind closed doors,” Klobuchar said in Iowa last month.
EPA on Aug. 9 granted 31 refineries exemptions from complying with the mandate. The biofuel industry says the exemptions would lower demand for biofuels by 1.43 billion gallons, although the EPA disputes arguments that the waivers would impact the bottom lines of farmers, an assessment not chaired by USDA Secretary Sonny Perdue.
The 31 exemptions for their 2018 obligations follow another 35 granted for 2017. The agency issued 19 waivers for 2016 and seven the year before. The exemptions are retroactive as refiners continue to account for their 2018 blending obligations.
— Doud, top U.S. ag negotiator, talks about trade market access frustrations. Greg Doud is the Chief Agricultural Negotiator in the Office of the U.S. Trade Representative (USTR). On Saturday, Doud joined Rep. Roger Marshall (R-Kan.) and Kansas Secretary of Agriculture Mike Beam on a panel at the Kansas State Fair for a forum on agricultural trade sponsored by WIBW Radio and the Kansas Agriculture Network.
Doud noted the inability of exporting U.S. meat products into China because the U.S. doesn’t have the access. “They won’t even buy any of our pet food,” Doud said. The conversations, he said, “have been very frustrating.”
Doud said the U.S. must be focused on exporting more meat products, noting the “robustness” of this country’s regulatory system in monitoring meat processing is “unrivaled” and “one of our advantages.”
Japan trade talks a positive development. One encouraging sign Doud cited, according to the Hutchinson News (link), was the recent announcement that the U.S. and Japan had reached an agreement in principle on a trade deal. Canada and Mexico are major purchasers of U.S. products, but Japan also is a leading trade partner.
Marshall noted the pending USMCA accord has not yet been brought to the House floor for a vote and blamed Speaker of the House Nancy Pelosi (D-Calif.) for that situation.
— U.S./China trade policy update:
- Top of the agenda for the working-level discussions expected to begin in Washington in 10 days or so is where negotiations should resume. U.S. officials want to go back to the draft document they left on the table in May. The Chinese do not. If that standoff remains when U.S. Trade Representative Robert Lighthizer meets with Vice Premier Liu He a few weeks later, you can finally set aside the already fragile idea that any deal with China is possible in 2019.
- China’s imports fall for fourth consecutive month as plunge in exports to the U.S. steepens. Chinese imports dropped 5.6% in August compared with a year earlier, the same decline as July, Chinese customs data showed. Sunday’s customs data showed a 1% decrease in exports in August from a year earlier, reversing a 3.3% gain in July. Economists had expected exports to rise 3% in August. While China’s exports to the European Union held up, exports to the U.S. tumbled by nearly 16% last month after falling 6.5% in July from a year earlier, customs data show. China’s August trade surplus against the U.S. was $26.95 billion. China August exports to the U.S. tallied $37.3 billion and imports from U.S. totaled $10.35 billion. China's Jan.-Aug. trade surplus against the U.S. was $195.45 billion, according to a Bloomberg calculation.
- To temper a shortage of pork due to an outbreak of African swine fever, China has boosted pork imports. Customs data Sunday showed that the country’s pork imports had surged 66% over the first eight months of the year compared with the year-ago period.
- China soybean imports in August were highest in 15 months. China bought 9.48 million tons of soybeans last month, the most since May 2018, according to official customs data. It was up from 8.64 million tons in July and 9.15 million tons in August 2018. Imports from Jan.-Aug. fell 9.2% from a year earlier to 56.32 million tons. Meanwhile, edible vegetable oil imports in August were 907,000 tons, versus 920,000 tons in July, the highest since December 2012. It brings the total in the first eight months to 5.82 million tons, 50.2% higher than a year earlier, customs data show.
- Turmoil continued in Hong Kong, China's traditional bridge to global markets. Police fired tear gas to disperse crowds in Causeway Bay, while MTR Corp., operator of the city’s rail network, announced that the Wan Chai station was closed temporarily. Thousands of protesters marched to the U.S. consulate in the city, calling on Washington to pass an act in support of Hong Kong’s democratic development and human rights.
- Kudlow: U.S./China trade issues may take a long time to resolve. Top White House economic adviser Larry Kudlow said the trade war with China may take a long time to resolve, warning of a prolonged dispute with Beijing that he compared to the Cold War. “The stakes are so high. We have to get it right. And if that takes a decade, so be it,” Kudlow told reporters at the White House on Friday. He also said that he didn’t want to make a prediction about the timeline for a deal. Kudlow said the dispute is broad based, encompassing issues including trade, human rights and national security. “It took decades, decades to get where we wanted to be with the old Soviet Union,” Kudlow said, adding that the U.S. wants "near term" results from U.S./China trade talks in September and October.
- Kudlow would not speculate on whether the September or October talks could delay a planned tariff increase on Oct. 1 to 30% from 25% on $250 billion worth of Chinese goods. "We would like to go back to where we were last May, but I don't know if that's possible, and I don't want to predict any outcomes. This is a difficult matter," told reporters at the White House. He also said that it was important that Chinese reforms be reflected in changes to its laws and that any deal must have enforcement provisions to ensure that China lives up to its commitments.
- WSJ on trade uncertainty. An editorial in the Wall Street Journal (link) notes that new evidence shows that tariff shocks have put economic gains at risk. The commentary takes on President Trump's tweet on the matter. Trump tweeted Friday that “The Economy is great. The only thing adding to ‘uncertainty’ is the Fake News!” The WSJ item responded: “Sorry, sir. The economy is fair to good, but it’s no longer as great as it was last year, and a major reason is the uncertainty caused by Mr. Trump’s trade policy.” The editorial concludes: “Trump and Republicans should be especially worried about the Fed’s estimate that the trade damage will continue through early 2020. He may not want to believe anything from the Fed. Then again, we predicted this result two years ago. Bad policies have negative consequences, whether they come from the right or left.”
— Consumer Reports looks into meat substitutes. Are the new plant-based patties and eventual lab-grown meats safe, healthy, or tasty? And will they save the environment? Those are the topics Consumer Reports addresses in an October magazine article (link), which includes an in-depth take on Beyond Burger, Impossible Burger, and lab-grown meat. Another article as a professional take from CR’s taste testers, as well as a nutritional analysis. CR said it talked with nutritionists, agriculture experts, and company scientists.
— Friday was the expiration date for the 90-day deal between the U.S. and Mexico, which agreed to reduce migration flows across the border to avoid U.S. tariffs on its goods. Mexico provided an update on the status of the agreement ahead of a key meeting between U.S. and Mexican officials Tuesday. Mexico maintains that it has met U.S. demands and continues to resist pressure from the Trump administration that it become a “safe third country,” which would force asylum seekers to settle there.
As part of the deal, Mexico expanded its National Guard’s reach at its own southern border as the United States dramatically increased the “Remain in Mexico” program forcing asylum seekers to await their cases in Mexico. The policy appears to be effective: In August, the number of people crossing the border declined, with the U.S. Border Patrol arresting 51,000 migrants — a 30% decrease.
— Other items of note:
Trump cancels peace talks with Taliban, Afghan president. President Trump said he called off a planned Camp David summit with Taliban leaders and Afghan President Ashraf Ghani after a Taliban bomb attack in Kabul killed an American soldier. Secretary of State Mike Pompeo on Sunday defended President Trump's secretly planned meeting with Taliban officials as a necessary attempt to put an end to a decades-old war in Afghanistan but said canceling the talks was necessary. Democrats attacked the president over inviting the group's leaders to Camp David, characterizing the plan as "erratic" and "bizarre."
North Carolina elections update. After Hurricane Dorian halted early voting in North Carolina's two special elections, voters now will have an extra day to cast their ballots before Tuesday's Election Day. "The North Carolina Board of Elections on Friday announced that it has added early voting hours for the 3rd and 9th Congressional District races. The move comes after the board closed poll sites in more than a dozen counties in preparation for the storm.
Minn. Gov. Tim Walz (D-Minn.) trade mission to Japan, South Korea. The Democratic governor this weekend made his first international trip as governor to boost ties with key economic partners in Asia as the U.S. trade war with China continues to stir fears of a global economic slowdown. "'I want to reassure them that their trading partners in the States, and certainly in our private sector businesses here in Minnesota, we're prepared to do what we've always done. ... There will be a day when these trade wars will end and we'll come out on the other side,' Walz said. Link to StarTribune for details.
Senior demographics: a global aging boom is coming. One out of 11 people around the world are 65 or older in 2019, but by 2050, that figure will jump to one out of every six people — or 1.6 billion, according to the United Nations. There are more adults over 65 than there are children under 5, globally. Japan: 28% of its population is already 65 or older. China is aging faster than any other nation. Life expectancies lengthened by 30 years within a half-century, roughly half the time in which Western industrialized countries saw that happen.
— Markets. The Dow on Friday was up 69.31 points, 0.3%, to 26,797.46. The S&P 500 rose 2.71 points, 0.1%, to 2,978.71. Weakness among technology companies dragged the tech-heavy Nasdaq Composite down 13.75 points, 0.2%, to 8,103.07.
For the week, the Dow advanced 394.18 points, 1.5%, while the S&P 500 rose 1.8%, and the Nasdaq Composite climbed 1.8%. Those gains followed the prior week’s 2.8% rise in the S&P 500 and marked the first two-week winning streak since July.
The Labor Department said Friday that the U.S. added 130,000 jobs in August, short of the 150,000 projected by economists. The unemployment rate, as expected, remained at 3.7%. Federal-funds futures point to the market pricing in a 92% chance of the Fed lowering its benchmark rate by 25 basis points at its meeting later this month, according to CME Group. Market expectations for a 50-basis point cut remain at zero.
Fed is not expecting a recession. During a speech in Zurich Friday, Fed Chairman Jerome “jay” Powell boosted expectations that the Fed is gearing up to cut interest rates again. He also said the Fed is “not forecasting or expecting a recession.” The Fed chief noted that the central bank is monitoring "significant risks," including global trade tensions, that could threaten this scenario. “We’re going to continue to watch all of these factors, and all the geopolitical things that are happening,” he said. “We’re going to continue to act as appropriate to sustain this expansion.” He added that the U.S. economy “has continued to perform well. The most likely outlook for our economy remains a favorable one, with moderate growth, a strong labor market, and inflation moving back up close to our 2% goal.” Powell was asked about a Bloomberg Opinion column published recently by former New York Fed chief Bill Dudley, which suggested that the Fed reject interest-rate cuts that would shield the economy from Trump’s trade policies and help his prospects for re-election in 2020. “We serve all Americans regardless of their political party,” Powell said. “The idea that we would deviate from that is just simply wrong.”
U.S. crude oil is gaining on Brent crude. The spread between front-month West Texas Intermediate crude and Brent crude narrowed to as little as $3.53 a barrel on Aug. 19 — the narrowest since July 20, 2018. On Sept. 4, WTI futures settled at $56.26 a barrel while Brent futures finished at $60.70, a difference of $4.44. On the first trading day of this year, that spread was closer to $7. A narrow spread indicates a tighter balance of supply and demand.
King Salman appoints fourth son as Saudi energy minister. The son, Abdulaziz, replaces the veteran Khalid al-Falih at the helm of one of Saudi Arabia’s most important government departments. The decision was announced in a royal decree published by the official state news agency shortly after midnight on Saturday. Falih has been the face of Saudi Arabia’s energy policy since he was appointed minister in 2016. Prince Abdulaziz joined the oil ministry in the 1980s and served in several positions including deputy minister and most recently as minister of state for energy affairs, a position he held since 2017. He is the king’s fourth son and a half-brother of Crown Prince Mohammed bin Salman.