Trump Backtracks, Ends Talks, but Wants Targeted Aid Package

Posted on 10/07/2020 7:40 AM

Lighthizer blames Covid, gold for trade deficit | Update on U.S. ag exports to China


In Today’s Updates


Market Focus:
* Equity traders, analysts still think a chance of aid/stimulus package
* Fed Chairman Powell again urges more Covid/stimulus aid
* U.S. trade deficits hits 14-year high, but deficit with China narrows
* Lighthizer blames Covid, gold on trade deficit situation
* Agriculture regains trade surplus as exports rise
* Global economy won’t contract this year as much as the IMF projected in June

* Goldman Sachs: winter weather will reduce total restaurant spending, consumption
* Hurricane Delta is rushing toward landfall in Mexico's Yucatan Peninsula today
* Oil, gas production in Gulf being shut-in ahead of hurricane


Policy Focus:
* Trump appears to backtrack on ending aid negotiations
* Trump officials tighten requirements for H-1B visas


U.S./China update:
* China forex reserves fell in September
* Graphical look at U.S. ag exports to China

Coronavirus update:
* White House approves stricter Covid-19 vaccine guidelines


Politics & Elections:
* Pence and Harris hold debate tonight in Salt Lake City, Utah
* McConnell expects to confirm Barrett before election
* Cook Political Report moves South Carolina Senate race to toss up
* Trump campaign beating Democrats at voter registration in key states

Other Items of Note:
* NYT: Trump’s $70,000 in tax deductions for hair care may have broken the law
* House panel releases findings investigation into Big Tech
* Nasdaq is in talks about potentially relocating electronic trading systems to Texas
* Labor Department questions Microsoft, Wells Fargo plans to hire Black employees




Equities today: U.S. futures are up, suggesting investors and analysts still believe a Covid-aid/stimulus deal is in the offing. Germany's DAX fell 0.3%, while Britain's FTSE 100 and the Euro Stoxx 50 were about flat. In Asia, markets in China were closed for a holiday, Hong Kong's Hang Seng rose 1%, and Japan's Nikkei fell 0.1% at the close.


     U.S. equities yesterday: The Dow closed down 375.88 points, 1.34%, at 27,772.76. The Nasdaq dropped 177.88 points, 1.57%, at 11,154.60. The S&P 500 fell 47.68 points, 1.40%, at 3,360.95.


On tap today:


     • European Central Bank President Christine Lagarde gives a prerecorded online speech at 8:10 a.m. ET.
     • Federal Reserve: Atlanta's Raphael Bostic, Boston's Eric Rosengren and Minneapolis's Neel Kashkari host a virtual series on racism and the economy 1 p.m. ET, the Fed releases minutes from its Sept. 15-16 meeting at 2 p.m. ET, New York’s John Williams moderates a virtual conversation with Henry Kissinger at the Economic Club of New York at 2 p.m. ET, Williams speaks to the Hoover Institution at 3 p.m. ET, the Fed releases consumer credit data for August at 3 p.m. ET, and Chicago’s Charles Evans speaks on the economy and monetary policy at 4:30 p.m. ET.


Fed’s Powell warns that fiscal stimulus still very much needed for U.S. economy. Additional fiscal stimulus for the U.S. economy is still very much in need and the risk of providing too much “seem, for now, to be smaller.” The U.S. economic expansion from the depths of the pandemic has been solid, but it is “still far from complete” and additional aid is needed to “manage downside risks to the outlook,” the Fed chairman noted. Powell — and most other Fed officials — have been consistent in their urging for lawmakers to provide additional stimulus for the U.S. economy, arguing that monetary policy alone cannot provide enough support to maintain the economic recovery. For more on this topic, see the lead policy item below.


The U.S. trade deficit hit a 14-year high. The gap between what America sells abroad and what it imports went up 6% in August from the previous month, to $67.1 billion. That runs counter to President Trump’s goal of closing the gap, although the deficit with China shrank 6.7% to $26.4 billion.


     Lighthizer blames Covid, gold on trade deficit situation. The rising U.S. trade deficit in August that hit the highest in 14 years prompted the Office of the U.S. Trade Representative (USTR) to issue a statement from USTR Robert Lighthizer that blamed much of the effect on Covid-19. The trade data, Lighthizer said, “reflect the effects of the coronavirus on the U.S. and our trading partners. Basically, many of our partners were more negatively affected by the pandemic than we were. Indeed, the U.S. economy has outperformed every other G7 country. In spite of the pandemic, our goods deficit is down 2.4% year-to-date. The goods deficit would have decreased by at least 6% but for a large spike in gold imports reflecting risk-hedging strategies during the pandemic, not underlying economics.”


     Agriculture regains trade surplus as exports rise. U.S. agricultural exports reached $11.1 billion in August, up nearly 8% from July and the highest level since March when $11.9 billion in U.S. ag goods were shipped. Imports, however, eased to $10.9 billion, down 0.6% from the July mark and counter to the trend seen in overall U.S. trade which saw imports rise by a greater percentage level than exports. But this helped U.S. agriculture regain a trade surplus of $245.6 million, reversing what had trade deficits for five straight months and in six of the last seven months. This brings cumulative U.S. ag exports for fiscal year (FY) 2020 to $123.7 billion against imports of $122.3 billion for a trade surplus of $1.4 billion. To meet USDA’s forecast for FY 2020 of $135 billion in exports and $131.7 billion in imports, September exports would need to be $11.35 billion and imports $9.43 billion. With large shipments to China expected to be registered for some key commodities for September, the export target could well be hit. Imports have not fallen under $10 billion since February 2019, which would suggest the import total will surpass USDA’s current forecast and further trim the trade balance, but still should result in an annual trade surplus.


     As for China, Lighthizer pointed out that the goods deficit with China is down 16.5% compared with a year ago. “It is worth remembering that before the fallout from the pandemic, our goods trade deficit had been down from the previous year in five of the last six quarters,” Lighthizer said.


     Trade deficit


The global economy won’t contract this year as much as the IMF projected in June, International Monetary Fund (IMF) Managing Director Kristalina Georgieva said. “The picture today is less dire,” Georgieva said ahead of next week's annual IMF and World Bank meetings. “We now estimate that developments in the second and third quarters were somewhat better than expected, allowing for a small upward revision to our global forecast for 2020.” The IMF’s updated forecast will be released on Oct. 13. In June, it called for a 4.9% fall in global gross domestic product.


Market perspectives:


     • Outside markets: The U.S. dollar index is slightly higher. Nymex crude oil prices are lower and trading around $39.75 a barrel. The 10-year U.S. Treasury note yield is presently trading around 0.76%.

     • Crude oil saw price pressure building ahead of the U.S. trading day as markets grapple with American Petroleum Institute (API) showing a build in crude inventories while an increasing level of US Gulf oil production is being shut-in ahead of Hurricane Delta. U.S. crude has fallen to around $39.50 per barrel and Brent to around $41.60 per barrel. Prices were under pressure in Asian action, with U.S. crude trading down to $40.34 per barrel and Brent to $42.40 per barrel.


     • Goldman Sachs economists estimate that winter weather will reduce total restaurant spending by 3%-4% and consumption by 0.2 percentage points. This translates to a 0.3 percentage point hit to real GDP growth in Q4 and a 0.1 percentage point hit in Q1 next year, followed by a rebound as temperatures rise.


Hurricane Delta is rushing toward landfall in Mexico's Yucatan Peninsula today with "life-threatening storm surge" and "significant flash flooding." The National Hurricane Center said Delta, which intensified into a powerful Category 3 "major" hurricane with winds up to 145 mph, is going through "a very impressive rapid intensification episode." Delta intensified from 40 to 110 mph in the first 24 hours since it became a named storm, said Colorado State University hurricane researcher Phil Klotzbach. Though forecasters are unsure exactly where or when it could hit the USA, areas from Louisiana to the western Florida panhandle could see dangerous conditions Thursday night into Friday.


Oil, gas production in Gulf being shut-in ahead of hurricane. The approach of Hurricane Delta has already prompted a portion of oil and natural gas production in the Gulf of Mexico to be taken offline ahead of the storm. As of midday Tuesday, the Bureau of Safety and Environmental Enforcement (BSEE) said 29.2% of crude oil and 8.6% of natural gas production had been shut-in ahead of the storm, and personnel had been evacuated from nearly 9% of manned production platforms and some rigs had been moved out of the path of the storm.




Trump halts Covid-aid/stimulus talks then calls for action on specific aid. President Donald Trump on Tuesday abruptly cancelled negotiations with Democrats on an additional aid package, sending U.S. stock indices into a tailspin, knocking them out of positive territory toward a lower finish. “I have instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill that focuses on hardworking Americans and Small Business,” Trump tweeted.


     Trump's latest surprise came as House Speaker Nancy Pelosi (D-Calif.) was on a call with fellow Democrats, according to reports. “Walking away from coronavirus talks demonstrates that President Trump is unwilling to crush the virus,” Pelosi said.


     But later, Trump again took to Twitter, this time to urge passage of specific Covid aid efforts, including for airlines and sending additional funds to taxpayers. “If I am sent a Stand Alone Bill for Stimulus Checks ($1,200), they will go out to our great people IMMEDIATELY. I am ready to sign right now,” he tweeted, adding a dig at Pelosi, saying, “Are you listening Nancy?”


     Trump urged aid be put through for airlines that have struggled with the downturn in travel linked to the pandemic. “The House & Senate should IMMEDIATELY Approve 25 Billion Dollars for Airline Payroll Support, & 135 Billion Dollars for Paycheck Protection Program for Small Business,” Trump said. “Both of these will be fully paid for with unused funds from the CARES Act. Have this money. I will sign now!”


     Earlier Tuesday, Federal Reserve Chairman Jerome Powell reiterated his contention that more fiscal support from Congress is needed. “Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses. Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy and holding back wage growth,” Powell said at the National Association of Business Economics annual meeting. “By contrast, the risks of overdoing it seem, for now, to be smaller. Even if policy actions ultimately prove to be greater than needed, they will not go to waste.”


     Trump's abrupt halt to negotiations came shortly after he held a phone call with Treasury Secretary Steven Mnuchin, who had been negotiating with Pelosi, Senate Majority Leader Mitch McConnell (R-Ky.), and House Minority Leader Kevin McCarthy (R-Calif.). McConnell later told reporters he agreed with Trump’s decision to end negotiations. “I think his view was that they were not going to produce a result and that we needed to concentrate on what’s achievable,” he said. Some observers note that it was McConnell's message to Trump that precipitated the tweet that ended negotiations. Meanwhile, leaders of the 50-member, bipartisan Problem Solvers Caucus, which had put together a $1.5 trillion framework that Mnuchin used as the basis for his offer, put out a statement claiming a deal was within reach. They urged leaders of both parties, including the president, to reverse course and get an agreement. Republicans abandoning the coronavirus relief talks means the Senate is free to fully focus on U.S. Circuit Judge Amy Coney Barrett’s nomination to the Supreme Court. Trump in his tweets said he urged McConnell to “not to delay, but to instead focus full time” on Barrett’s confirmation.


     Outlook: Trump's walking back his initial tweet by saying he does want certain stimulus measures suggests to some that the pullback on negotiations simply was just a negotiating tactic that Trump has used before. Democrats previously resisted this “skinny” approach to stimulus, insisting on a more comprehensive bill. More than 70% of voters supported more stimulus in a recent poll, making the political rationale for Trump's move unclear. Although Democrats and Republicans were edging closer to an agreement to spend around $1.6 trillion, they remain far apart on the details, with Democrats pushing for significant aid for state governments and Republicans worrying about the effect on the national debt.


     Impacts: A new survey from Alignable finds that many small businesses are growing more worried about "a severe cash crunch," with 42% saying they could collapse by the end of the fourth quarter. As usual, lawmakers from both parties are spinning the topic. For example, Rep. Alexandria Ocasio-Cortez (D-N.Y.) said if Trump walks away from relief spending, the economy would be “staring down the barrel” of one of the largest mass evictions in U.S. history. The U.S. could experience problems with hunger unseen since the Great Depression, the 30-year-old Democrat said. Meanwhile, equity markets recovered some ground overnight as the president went on a two-hour Twitter spree which signaled support for some economic measures. Just another day in Trump Land. “It’s simple: Less fiscal stimulus means more economic pain,” Gregory Daco of Oxford Economics wrote in a research note. The absence of additional fiscal aid could reduce economic output 1.5% over the next year, he estimated.


Trump administration announces new H-1B visa restrictions. The Trump administration on Tuesday announced new rules on the H-1B visa program that will make it more difficult for highly skilled foreign workers who have at least a college degree to work for U.S. companies.


     Details: Officials said the new rules would modify the current wage requirements of the program and restrict what types of occupations would be eligible for such visas, as well as put in place stricter enforcement. In an accompanying press release, officials billed these changes as an important first step in a larger coordination between the two departments to "protect American workers."


     The Labor Department rule, unveiled in the Federal Register, would go into effect when it is published Thursday. In general terms, it would require U.S. employers to pay H-1B recruits higher wages so they have little incentive to lay off or displace American workers and replace them with cheaper foreign labor.


     Changes under the rule would be geared towards closing "loopholes" in the current regulations that allow companies — often called "shadow employers" or "body shops" — to mass recruit foreign workers and then contract them out to other businesses. The rule would also narrow the definition of "specialty occupations" eligible for H-1B visas and create a process for more worksite enforcement.


     Background. The H-1B program allows 65,000 visas to be distributed each year to eligible foreign workers. It is most often associated with the tech sector, and enjoys wide support in Silicon Valley, but is also used to employ workers in academic, health care and business roles. In recent years, the number of applications for H-1Bs have far exceeded the annual cap, prompting the use of a lottery system to select which applications would be processed to fill the available spots.


     Outlook: Lawsuits are expected on the scope of the rule but also in issuing it as an interim final rule, meaning they would be enacted immediately. The interim final rule is effective upon being published in the Federal Register which is currently set for Thursday, Oct. 8. Comments on the plan are due within 30 days after it is published.


Update on China:

  • China forex reserves fell in September. China data shows that their country’s foreign exchange reserves declined to $3.14 trillion in September, down 0.7% from $3.17 trillion seen at the end of August.
  • A graphical look at U.S. ag exports to China, from Farm Bureau's John Newton:

    China one
    China two
    China three
  • U.S./China Phase 1 tracker: China’s purchases of U.S. goods. Link.

Coronavirus update:

  • Summary: Global cases of Covid-19 are now at 35,841,357 with 1,050,371 deaths, according to data compiled by the Center for Systems Science and Engineering (CSSE) at Johns Hopkins University (JHU). The U.S. case count is at 7,501,816 with 210,909 deaths.

    Link to Covid Case Tracker

    Link to Our World in Data

  • The White House approved stricter Covid-19 vaccine guidelines. The FDA released new requirements for drug makers working on coronavirus vaccines, after White House officials blocked the move for two weeks. That means such treatments probably won’t be available until after the November election.




  • Links
    2020 Presidential Election Interactive Map
    The Green Papers
    Real Clear Politics
    2020 Political Atlas
    2020 Demographic Swingometer
    — Presidential debates: Scheduled to occur Sept. 29, Oct. 15 and Oct. 22.
    — VP debate: Scheduled for Oct. 7.
    Days until election

  • Vice President Mike Pence, 61, and Democratic nominee Sen. Kamala Harris, 55, hold their only debate in Salt Lake City, Utah this evening, moderated by USA Today's Susan Page. Harris hasn’t debated a Republican since her 2010 race for California attorney general. The recent news that President Trump tested positive for coronavirus and was taken to Walter Reed hospital has triggered renewed attention on presidential inability and succession.

    Sen. Harris' record will be one of the focal points of tonight's debate, according to the Wall Street Journal: “Harris struggled during her presidential campaign to explain her policy positions as they evolved. As a senator she supported Medicare for All, which would shift the health-care system from private and employer-based insurance to a government-run program. But during her run for the White House, she released a more moderate proposal to expand access to Medicare while keeping private insurance intact.”

    Harris will likely focus on the Trump administration's handling of the Covid epidemic.

  • McConnell expects to confirm Barrett before election. In a Fox News interview, Senate Majority Leader McConnell (R-Ky.) said on Tuesday night that he expects Republicans will confirm President Trump’s Supreme Court nominee before the election. McConnell said, “That’s the plan and there’s nothing I can see that would keep that from happening.” McConnell said the members who tested positive for Covid-19 “got it somewhere else, not here in the Senate.”
  • Cook Political Report moves South Carolina Senate race to toss up. The bipartisan election watcher's Jessica Taylor writes, “There has been no more surprising race on the Senate map than South Carolina. Even early this year, it looked like Sen. Lindsey Graham (R-S.C.) would cruise to re-election. Instead, the Republican incumbent finds himself in a tied race in both public and private surveys with challenger Jaime Harrison, who has proven to be perhaps Democrats’ best recruit and a fundraising behemoth.” Say adds, “Even Democrats in and outside of the Palmetto State are surprised such a typically red state is truly in play. Many Republicans have privately voiced frustrations that Graham’s campaign didn’t take the challenge from Harrison — a charismatic 44-year-old African-American former state party chairman who tells a compelling story of growing up with a teen mother and being raised by his grandparents in impoverished Orangeburg — seriously enough from the get-go.”
  • Trump campaign beating Democrats at voter registration in key states. The Republicans have cut the Democratic Party’s voter registration edge in key states. In Pennsylvania, the Republican Party has reduced the Democrats’ dominance with registered voters by nearly 200,000 since Election Day 2016. The Republicans also made up ground in North Carolina, reducing the Democrats’ superiority among registered voters by 243,000 compared to four years ago. In Florida, the GOP chopped the Democratic advantage by 154,000. In Iowa, the Republicans turned a nearly 15,000 voter registration deficit on March 1 into a 13,000 lead on Thursday.



  • President Trump’s $70,000 in tax deductions for hair care may have broken the law. Link to NYT for details.
  • House panel releases findings investigation into Big Tech. House Democrats released a 449-page report on the dominance of Silicon Valley’s big tech companies, outlining how they have become “the kinds of monopolies we last saw in the era of oil barons and railroad tycoons.” Democrats on the House Judiciary Committee said Congress should consider forcing Amazon, Google, Apple and Facebook to separate key sections of their business empires to reduce alleged monopoly power. “This pattern of behavior raises questions about whether these firms view themselves as above the law, or whether they simply treat lawbreaking as a cost of business,” the report said. As for what happens next, the Trump administration is continuing inquiries into the four companies, with an antitrust case against Google potentially coming soon. House Democrats have briefed Joe Biden on their findings, aiming to persuade a potential Biden administration to take up the issue.
  • Nasdaq is in talks with Texas Gov. Greg Abbott about potentially relocating its electronic trading systems from New Jersey to Texas. Link to details from the Dallas Morning News.
  • Labor Department questions Microsoft, Wells Fargo plans to hire Black employees. The U.S. Labor Department has contacted Microsoft and Wells Fargo, questioning the companies' plans to hire more Black employees. Each company said in June that it planned to double Black leadership in the coming five years, but each last week received a letter from the agency overseeing federal contractors raising the question of whether the pledges violate federal race discrimination laws. Federal contractors are required to address areas of potential discrimination, and at least in Microsoft's case the company has been asked to prove its actions are not illegal.


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