Jobs report | Fed mulls rate cut | Waiting on Perdue for more info | Mnuchin and China
— U.S./Mexico update:
- Ongoing talks include significant changes in asylum rules and border enforcement that could keep President Trump from imposing tariffs on all Mexican imports. Mexico is hoping to avert tariffs that Trump says he would impose if it does not do more to stop migration to America. The tariffs, due on Monday, start at 5% and could rise as high as 25%. Reports have surfaced he could delay implementing tariffs if enough progress has been made, or say that tariffs will not take effect until a later date, allowing for more discussion.
- Details. Changes being discussed would give the U.S. a greater ability to reject requests for entry from families fleeing violence in Central America. Mexico has also pledged to send thousands of troops to its border with Guatemala, the entry point for a recent surge of migrants. Mexico has also discussed actions for additional drug interdiction.
- Talks continue today in Washington. Marcelo Ebrard, Mexico's foreign minister, said the two sides were “advancing in order to reach an agreement” and said new talks today could be “one of the last sessions” in the effort.
- “At this point the tariffs are going to be imposed on Monday,” VP Mike Pence said Thursday. “I’m encouraged they came today with more but it will be a matter for the president to consider,” Pence said. Sarah Huckabee Sanders, the White House press secretary, said, “Our position has not changed, and we are still moving forward with tariffs at this time.”
- President Trump is considering a new national emergency declaration in order to impose the tariffs. It did not take long for a response to that expected move from House Ways and Means Chairman Richard Neal (D-Mass.), who said he is going to introduce a resolution of disapproval that could kill the tariffs on Mexico if Trump goes ahead and imposes them. Congressional contacts say there would not be enough votes in Congress, especially the House, to overcome a presidential veto even if the resolution would clear both chambers, an unlikely development.
- Sen. Chuck Grassley (R-Iowa) urged Democrats to approve more money for border security in a series of tweets, saying he understood Trump was “trying to do everything he can considering the limited $ he has for the border problem." But, he added: “Tariffs not the answer.”
— U.S./China trade policy update:
- Treasury Secretary Steven Mnuchin is expected to meet with China’s central bank governor this weekend at a Group of 20 meeting in Japan, the first meeting between senior officials from the U.S. and China since trade talks between the two countries hit an impasse last month.
- People’s Bank of China Governor Yi Gang said his country has “tremendous” monetary and fiscal policy space to make adjustments to the economy should the trade war worsen. He also said that his meeting this weekend with Mnuchin would probably be a “productive talk, as always.” China’s markets are closed for a holiday today, but the offshore yuan fell the most in three weeks to trade at the weakest level since November.
- Trump said he will decide about levying new tariffs on an additional $300-325 billion worth of Chinese goods after he attends a G20 summit in Osaka, Japan June 28-29. Trump is expected to meet with Chinese President Xi Jinping on the sidelines of the summit.
- China/U.S. trade has been mutually beneficial, and the U.S. has reaped substantial benefits from the bilateral economic and trade cooperation, China's Ministry of Commerce said Thursday in a research report. "Strict control of the United States over exports to China is one of the important reasons for the trade deficit," the report read, adding that U.S. export control measures involve around 3,100 items in 10 categories, including mostly high-tech products. If the U.S. liberalizes its export barriers against China to the same level as those applicable to France, the U.S. trade deficit with China would narrow by a third, the report cited the analysis by U.S. Carnegie Endowment for International Peace. According to the joint study of Chinese and U.S. commerce authorities, the U.S. goods trade deficit data has long been overestimated.
- Russia ready to fill China’s food gap left by U.S. in trade war fallout. Russia’s leading meat producer said it is ready to fill the supply gap left by the U.S. as China struggles with the double blow of a devastating swine fever epidemic and a protracted trade war. Cherkizovo Group, the largest meat producer in Russia, began shipping poultry products to China last month, and is now looking forward to selling pork and soybeans there, according to CEO Sergey Mikhailov, in an interview with the South China Morning Post on Thursday. Link for details.
- A date was set for Meng Wanzhou’s extradition hearing. A Canadian court will open proceedings in January 2020 on whether the Huawei CFO, currently out on bail in Vancouver, should be sent over the border to face charges related to violating U.S. sanctions on Iran. A ruling may not come before 2021.
— U.S. Trade Representative Robert Lighthizer will not represent the U.S. at weekend meeting of G20 trade ministers in Japan. Deputy U.S. Trade Representative Dennis Shea will do so instead, the U.S. trade office announced. Shea's attendance at the June 8-9 gathering in Tsukuba, Japan, means Lighthizer will likely remain in Washington amid an escalating tariff standoff with Mexico. Shea, who also serves as the U.S. ambassador to the World Trade Organization, “will advance the Trump Administration’s commitment to trade policies that reward innovation and ensure fair market access,” the Office of the U.S. Trade Representative said in a media release, adding that Shea will also hold several bilateral meetings with key trading partners.
— Xi and Putin lovefest continues. A Xinhua report quotes Putin as saying that Russia and China “jointly…promote the formation of a new international order based on the principles of equality, mutual benefit and win-win cooperation.” Acknowledging the world is undergoing profound changes unseen in a century, Xi said China and Russia shoulder an even greater expectation from the peoples of the two countries and the international community. He added that the Chinese side is ready to join Russia in amplifying the positive effect of the two countries' high level of political relationship, bringing more benefits of bilateral cooperation to the two peoples, and presenting more China-Russia options for global affairs. Noting that the world today is becoming increasingly uncertain and unstable, Xi said enhancing the China-Russia relationship is the call of history, and a firm strategic choice by both sides.
— Congress' consideration of the USMCA tied to fate of U.S./Mexico talks. Vice President Mike Pence recently made another pitch for USMCA, and House Speaker Nancy Pelosi (D-Calif.) said she hasn’t given up on a process to improve the deal.
President Trump is not concerned about the impact of potential tariffs on USMCA. “I'm not worried about it because they [Mexico] need us. We don't need them. They need us. They stole 32% of our car business with NAFTA. The stupidest deal, one of the truly stupid deals of our time,” he said in an interview Thursday with Fox News in France taped shortly before the D-Day ceremony.
— The wettest 12 months on record continues to wreak havoc on spring plantings. U.S. farmers are deciding whether to risk a potentially diminished crop or collect insurance on their fallow fields. Food prices could eventually rise if little grain gets planted this year. Link to WSJ article on the topic.
Perspective. Heavier rainfall between April and June has been the “most impactful climate trend” in Midwest agriculture over the past three decades, according to the U.S. government’s most recent national climate assessment. The trend will increase until at least mid-century, leading farmers to “further reduce planting-season workdays due to waterlogged soil.”
In Iowa, average precipitation from April to June was 24% above the 20th Century average in the past decade, said Eugene Takle, professor emeritus at Iowa State university. Higher water temperatures in the Gulf of Mexico have accelerated evaporation, pushing a “river of moisture” northwards into the Midwest, said Prof. Takle, a contributing author to the national climate assessment.
— Traders are asking whether USDA will alter its forecasts (not based on surveys) for corn and soybean plantings and yields for the 2019 marketing season. For corn, most say the answer is yes. For soybeans, industry analysts have varied opinions.
The next WASDE comes June 11 — in the midst of USDA's major data gathering effort to prepare for the key June Acreage report, a report that will likely be questioned almost immediately after being released. Plus, the focus in that report will be one something USDA does not differentiate — acres planted vs those that as of the survey date they were still intending to plant. That means acreage updates are possible in August.
— Other items of note:
Theresa May steps down. The Conservative party now faces a Monday deadline for nominations for Britain’s next prime minister. After multiple rounds of voting among MPs and party members, her replacement — with many predicting Boris Johnson — will be announced the week of July 22. Eleven Tory MPs have already put themselves forward. Whoever wins will have little time to resolve Brexit, as the latest deadline for it is October 31.
The United Arab Emirates presented evidence to a closed session of the United Nations Security Council that, it says, shows a “state actor” was behind attacks on tankers in its waters. The UAE said the attacks required divers and skill with fast boats; America has said it has evidence Iran was behind the explosions but has not presented it yet.
You can now search the full text of 3 million nonprofit tax records for free. Search the full text of nearly 3 million nonprofit IRS filings, including investments and grants given to other nonprofits (link). Source: ProPublica. For example, link to 2015 tax form for the Environmental Working Group.
FDA turns to emerging tech to secure the food system. The agency wants to implement new digital resources like blockchain to disrupt America's old way of tracking food to its source. Link to Nextgov article.
Farmers are not the only ones impacted by failing levees. The rising waters of the Illinois River forced the closure of the main route into Hardin from the south. Now the only other way out for the village’s 1,000-plus residents is via tens of miles of winding, poorly paved roads that are barely wide enough to allow a vehicle in each direction. Details in the WSJ.
Who says Europe doesn't innovate? Heathrow Airport said it will soon introduce new scanners that will allow passengers to keep their liquids and laptops in their bags as they pass through security. Europe’s busiest airport has been testing “computed tomography” machines, similar to those used in hospitals, which produce better three-dimensional images. The technology is already being used in a handful of other airports.
Cotton AWP edges higher. The Adjusted World Price (AWP) for cotton moved up to 61.51 cents per pound, effective today. That compares with 61.31 cents per pound the prior week and marked the second weekly increase in a row.
— Markets. The Dow on Thursday rose 181.09 points, 0.71%, at 25,720.66. The Nasdaq moved up 40.08 points, 0.53%, at 7,615.55. The S&P 500 was up 17.34 points, 0.61%, at 2,843.49.
Jobs update ahead for May. The May Employment report is expected to show nonfarm payrolls expanded by around 180,000 and the unemployment rate edged up to 3.7%. The ADP private-sector update Wednesday has not yet led to many expectations that the result released later this morning could be disappointing as the ADP data was well below expectations. That is prompting a closer watch on the private-sector result in the broader data this morning. The hiring of Census workers could be a factor that will keep the overall number higher. Wages continue to be a focus and attention will be on whether wage growth continues to run around 3%. That could be key with the Fed's attention on inflation increasing. Trade is also on the Fed's radar and some caution that the manufacturing sector could continue to see subdued hiring as manufacturers are becoming increasingly uneasy about trade tensions mounting between the U.S. and China in particular.
Fed focus said to be shifting to rate cut ahead. The Fed appears to be moving from being "patient" on its next monetary policy move to being more focused on the potential for a rate reduction. The CME FedWatch tool indicates odds of a rate cut in June are at around 20%, but those odds rise to over 50% for the July meeting. Fed officials at the Chicago Fed conference this week did not push back on expectations for a rate reduction as some had done coming out of the April 30-May 1 Federal Open Market Committee (FOMC) meeting. New York Fed President John Williams told the Council on Foreign Relations he understands the market thinking of a rate reduction even as he indicated he did not agree or disagree with that view. "It is just a perspective that I can understand," he said. "Of course, we will get together in a couple weeks, we will discuss and debate and make our own decisions." The June 18-19 Federal Open Market Committee (FOMC) meeting will arrive with a uncertainty as a clear undercurrent, and that uncertainty requires central bankers to keep an "open mind," Williams stated.
Germany reported a 3.7% plunge in April exports — the most in nearly four years — alongside a 1.9% contraction in industrial output. The figures were severe enough for the country's central bank, the Bundesbank, to slash its 2019 GDP forecast in half to just 0.6%. "For economic growth and, to a lesser extent, for the rate of inflation, it is the downside risks that predominate as things stand today," the central bank said in a biannual update of its projections.
U.S. April exports falter with imports hitting a new record. The value of U.S. ag exports in April fell to $11.237 billion, the lowest of Fiscal Year (FY) 2019 and the smallest since September when they were just $10.315 billion. Imports of ag products rose to $12.102 billion, a new monthly record and the first time that the value of imports cleared $12 billion. This resulted in a trade deficit of $865 million which would be the first monthly trade deficit for agriculture since May 2017 when it was $46 million. The April figure would also be the biggest monthly trade red ink on record. This also marked the fifth consecutive month with the surplus being less than $1 billion with that mark being exceeded only four times since January 2018. This fits with historical patterns where the biggest readings on imports typically has come in the March-May timeframe. The April data puts FY 2019 ag exports at $81.188 billion against imports of $77.252 billion for a cumulative surplus of just $3.936 billion. USDA May 30 lowered its expectation for FY 2019 ag exports to $137 billion against imports forecast at a record $129 billion for a trade surplus of $8 billion. To meet those forecasts, exports would need to average $11.16 billion over the next five months and imports would need to average $10.35 billion.
Gas-export commitments may force Australia to import supplies from abroad just to keep the lights on. An energy crisis besetting one of the world’s biggest exporters of liquefied natural gas is threatening Australian factory output as domestic consumption surges amid rolling blackouts and extreme temperatures, the Wall Street Journal reports (link). High energy costs, and unreliable supply due to overseas LNG contracts and the closing of older coal-fired plants, have some Australian manufacturers threatening to move production abroad. “The dilemma has turned supply and demand on its head in a country on pace this year to overtake Qatar as the world’s top LNG exporter. Australia is weighing whether to stabilize domestic fuel supplies by shipping gas from the U.S. to import terminals that have yet to be built, as some worry about a swing from excess LNG export capacity to a glut of import capacity,” according to the WSJ account.