UPDATE: Some Sources Dispute Sinograin, Cofco Told to Halt Buys of U.S. Soybeans, Pork

Posted on 06/01/2020 6:38 AM

Trump holds punches in reaction to China/Hong Kong tensions

 


In Today’s Updates


 

* Chinese equities rise after Trump holds back implementing specific sanctions, but...
* China asks state firms to halt buys of soybeans, pork from U.S.
* Trump plans expanded in-person fall G7 confab with Russia, others
* USDA cuts U.S. FY 2020 export, import forecasts on Covid-19 economic impacts
* Violent U.S. weekend of protests, looting
* 2020 on course to be America’s most traumatic year since 1968
* U.S. dollar index hits 2.5-month low
* McConnell: Next Covid aid package in July
* U.S. food supply update
* Meat plants reopen, but burgers stay pricey
* Update on reopening America... and around the world
* As of June 1, 49 states have reopenings in progress
* Nearly every major sport is preparing to come back
* Coronavirus update
* U.S. protests set off fears of new outbreaks

* SpaceX capsule carrying two NASA astronauts shows initial success
* Controversial company starts to deliver U.S. food aid

 


MARKET FOCUS


 

Equities today: Hong Kong’s Hang Seng jumped 3.4% on the first day of trading after President Donald Trump said he would revoke the city’s special trading status. Most observers believe Trump pulled his punches in a Friday press conference on China, after the U.S. said it no longer believed Hong Kong was autonomous from Beijing. Elsewhere in Asia, Japan’s Topix added 0.3% while South Korea’s Kospi index rose 1.8%. In Australia, the S&P/ASX 200 gained 1.1%. U.S. futures turned negative after Chinese officials told some agriculture companies to pause imports of some American farm goods, jarring with the more buoyant mood in Asia. Futures also likely reacted to the worst civil unrest in decades which unfolded in cities across the U.S. at the weekend.

 

     China market

 

U.S. equities Friday: The Dow ended down 17.53 points, 0.07%, at 25,383.11. The Nasdaq rose 120.08 points, 1.29%, at 9,489.87. The S&P 500 added 14.58 points, 0.48%, at 3,044.31, its best two-month performance since 2009, as investors were encouraged by states and businesses around the U.S. reopening.

 

     For the week, the Dow jumped 3.7% and the S&P surged 3%, while the Nasdaq added 1.7%.

 

     The U.S. dollar index was lower early today, hitting a 2.5-month low overnight.

 

Protesters in U.S. cities nationwide torched vehicles and smashed windows and looted stores as anger sparked by the death of a black man in Minneapolis police custody grew. The National Guard said about 5,000 of its personnel were activated in 15 states and Washington, D.C. Reports said President Trump Friday night had to take cover in a bunker at the White House due to unruly crowds gathered at the White House. At least 4,100 people nationwide have been arrested over days of protests, according to the Associated Press. President Donald Trump said he'll designate Antifa as a terror organization and thinks they are leading the violence at anti-police brutality protests.

 

     "The direct economic impact of the protests is small, at least so far," said Mark Zandi, chief economist of Moody's Analytics, but warned that the near-term damage to consumer and business sentiment may be more extensive. Wavering between gains and losses overnight, U.S. stock index futures have turned red again, as the mass demonstrations could also cause a major setback for controlling the coronavirus.

 

     President Trump will meet today with Attorney General William Barr at the White House, before convening a teleconference with governors, law enforcement and national security officials, the White House said late yesterday.

 

2020 is now firmly on course to be America’s most traumatic year since 1968, notes a Bloomberg opinion item. “That year saw the Tet Offensive in Vietnam, the assassinations of Martin Luther King and Robert Kennedy, any number of riots in the streets — most famously in Chicago during the Democrats’ convention — and a heated and divisive presidential election. Yet the stock market did fine. Aided by rallies before and after the victory of Richard Nixon in the election, the S&P 500 was up more than 10% for the year at one point. It gave it all up the following year, but the social and political trauma of 1968 wasn’t reflected contemporaneously in stocks:”

 

     1968

 

Federal Reserve Chairman Jerome Powell said the Main Street lending program is just days away from making its first loan. Setting up the program was "challenging" since that's a market the Fed hasn't been involved with before, he said. The Main Street Lending Facility is for small- and medium-sized companies that don't have access to the capital markets through selling bonds or equity. Powell said that the central bank “crossed a lot of red lines” to bolster the U.S. economy during the pandemic, defending the moves as necessary.

 

     Negative on negative interest rates. During his talk with Princeton economics professor Alan Blinder, Powell also repeated his view that negative interest rates are not appropriate for the United States.

 

The U.S. personal savings rate hit a record high.

 

     Savings

Consumer spending, the U.S. economy's main engine, fell by 13.6% in April. The month's weak spending, which economists say could have been the bottom, adds to the evidence that the U.S. economy is in for a long, slow recovery.

 

     Consumer spending

Crude oil futures are mixed, with U.S. crude weaker, trading around $35.30 per barrel, while Brent crude has edged higher to trade around $38 per barrel.

 

OPEC+ is set to discuss a short extension of its current output cuts, according to a delegate cited by Bloomberg, as the cartel considers bringing forward its next meeting a few days to June 4. Russia has no objection to the next OPEC+ meeting being brought forward to June 4 from the following week, sources told Reuters, in a move that could facilitate oil sales for countries like Saudi Arabia, Iraq and Kuwait. "We might see a cautious pullback in (crude) prices given that downstream prices haven't caught up... but if OPEC+ does come up with a three-month extension, there's a possibility that prices may hit the $40 level," said OCBC economist Howie Lee.

 

     North America supply is also falling as data from Baker Hughes showed that the U.S. and Canada rig counts dropped to a record low in the week to May 29.

 

American drivers are starting to take advantage of low gasoline prices as states loosen travel restrictions. More people on the roads is a boon for the energy industry and a hopeful signal for the U.S. economy.
 

     Gasoline use

 

Private survey shows China's manufacturing activity unexpectedly expanded in May. The Caixin/Markit Manufacturing Purchasing Manager’s Index came in at 50.7 for May. PMI readings above 50 indicate expansion, while those below that level signal contraction. Analysts polled by Reuters had expected the May PMI number to come in at 49.6 compared to the April reading of 49.4. Data suggested that production recovered faster than demand, and the rate of expansion for output was at its fastest since January 2011. However, the survey indicated that the global effects of the coronavirus pandemic would continue to weigh on exports from the world’s second-largest economy.

 

     China PMI

 

Chargers are biggest hurdle to electric cars. Before the pandemic struck, the auto industry had plans to spend at least $141 billion over the next few years to retool supply chains in a historic shift from internal combustion to battery-driven machines. The financial reasoning was clear, according to Bloomberg News: Roughly one-third of U.S. drivers say they may go electric the next time they buy a vehicle. While range anxiety will soon be a hurdle cleared, huge swaths of the U.S. are without charging stations, a reality that consultants such as McKinsey say may be the largest barrier to mass EV adoption in America.

 

     Charges

 


POLICY FOCUS


 

Update on China:

  • Wire service reports: China tells state firms to pause buys of U.S. soybeans, pork in response to Hong Kong actions announced by President Trump. China has told state buying firms Cofco and Sinograin to pause their purchases of U.S. soybeans and pork in the wake of actions President Donald Trump announced Friday in response to China approving security legislation relative to Hong Kong.

    However, other reports indicate that the Chinese state firms are asking PNW offers on U.S. soybeans today from September forward and are questioning the Reuters and Bloomberg pause reports.

    Bloomberg reported that the two state-run buying agencies had inquired about 20 to 30 cargoes of U.S. soybeans, but held off on moving ahead after Trump’s early afternoon announcement. The news service also reported that some pork purchases were also being cancelled by China. Private companies have not been told to halt their purchases, according to reports from both Bloomberg and Reuters. The reports are said to have shifted expectations for U.S. equity markets into negative territory.

    Reuters later reported that U.S. corn and cotton purchases were also on hold.


    Perspective: If China halts big buys of U.S. soybeans and pork, it could finally be the last straw for some U.S. farmers who until now have supported President Trump.
     
  • Trump announced broader China sanctions over Hong Kong, no details provided. Trump on Friday announced no specific action as a result of plans to strip Hong Kong of its special status as semiautonomous from Beijing. He announced coming sanctions against China for its actions to assert greater political control over Hong Kong on Friday, but he also attacked Beijing for its alleged role in covering up the outbreak of coronavirus and for its unfair trade policies. Trump said he’ll use his authority under last year’s Hong Kong Human Rights and Democracy Act and revoke the city’s special trade and other privileges since it is no longer autonomous.

    Trump threatened a broad range of sanctions ranging from greater restrictions on Chinese nationals studying at U.S. universities to a review of whether Chinese companies listed on U.S. financial markets pose a risk. However, details and timing of any sanctions are awaited.

    Among the Hong Kong-focused sanctions that the president promised were an administration review of special exceptions in U.S. laws and special agreements with Hong Kong, covering issues ranging from export control to extradition. Trump also said that the administration would take action to revoke Hong Kong's status as a special customs and travel territory under U.S. law. And Chinese officials involved in actions to suppress Hong Kong's autonomy will be targeted for visa restrictions, he said.

    The president also said he would withdraw the U.S. from the World Health Organization (see related item) and said he would issue a proclamation to study practices of Chinese companies listed on U.S. financial markets. He said investment firms shouldn't be subjecting clients to hidden and undue risks.

    Trump gave no indication whether he is considering ending or changing the Phase 1 U.S./China trade deal that took effect Feb. 14.

    The Senate Banking, Housing, and Urban Affairs Committee holds a hearing Thursday to review U.S. policy in Hong Kong after China moved to pass national security legislation expected to curb freedoms in Hong Kong.

     
  • Xi said the domestic market “will play a dominant role” for China going forward, signaling a shift from an export-led growth model to a new one that relies more on the domestic market.
     
  • China comments. “We do not believe that sanctions or trade restrictions against Hong Kong are justified,” a Hong Kong government spokesman said late Saturday. “They will lead to a breakdown of the mutually beneficial Hong Kong-U.S. relationship built up over the years and only hurt local and U.S. businesses in Hong Kong and the people working for them.”The U.S. is Hong Kong’s second-largest trading partner, after China, accounting for 6.2% of trade last year, compared with 50.8% for trade with China. Hong Kong officials point to the U.S. trade surplus with the city, which they said amounted to $297 billion between 2009 to 2018, to show how U.S. interests are also at risk.

    Chinese media reacts. The People’s Daily, mouthpiece of China’s Communist Party, wrote that the plans outlined by Trump at the White House on Friday were “gross interference” in Beijing’s affairs and were “doomed to fail.” In a second commentary published Sunday on its front page, the newspaper accused the U.S. and Western politicians of “double standards” and “shameless hegemony” for their criticism of the legislation. China’s ambassador to the U.S. wrote in a Bloomberg Opinion editorial that the central government has the ultimate responsibility for upholding national security in Hong Kong, and that the proposed legislation “will protect law-abiding citizens.”

     
  • American chip companies are lobbying Washington for billions to build new manufacturing plants in the U.S., seizing on anti-China sentiment among policymakers.

President Trump postponed a G7 meeting after Chancellor Angela Merkel of Germany declined to attend, adding that he wants Russia to rejoin the group. The president said he also planned to invite South Korea, Australia and India to the summit, with an adviser adding that the idea was to bring together traditional allies to discuss China. “I don’t feel that as a G7 it properly represents what’s going on in the world. It’s a very outdated group of countries,” Trump said. Russia was suspended from what was then the Group of Eight major economies in 2014 after its annexation of Crimea.

 

USDA cuts U.S. FY 2020 export, import forecasts on Covid-19 economic impacts. U.S. agricultural exports are now expected to value $136.5 billion, down from $139.5 billion in February, while the value of imports is now seen at $130.2 billion, down from $132.5 billion, with the economic impacts from the Covid-19 situation flagged for the downward revisions to the outlook. The outlook would leave a trade surplus of $6.3 billion.

 

     The Covid-19 situation is hitting with a one-two punch, the Economic Research Service (ERS) said, “damaging the ability of individuals and firms to produce goods and services while simultaneously changing the consumption behavior of consumers and businesses across the globe.”

 

     Global real per capita GDP growth is seen declining by 5.5% compared to 2019 with the U.S. result now expected at a decline of 7.1%. Their prior outlook was at 1.1%, which means the downgrade translates to a reduction of $1.8 trillion in economic activity.

 

     USDA's recap of the various US ag export sectors is replete with reductions linked to economic downturns along with reduced import outlooks on the slowdown in the US economy.

 

     USDA will update its trade data Thursday with April figures.

 

     Currencies are a key factor, as the Brazilian real has fostered extra demand for their soybeans in particular, as USDA noted, “China has been sourcing record volumes of soybeans from Brazil, helped by a weak Brazilian real.”

 

     Perspective: Under the new outlook and based on trade data for the first six months of FY 2020, it means U.S. ag exports would have to average $10.88 billion per month for the April-September period to meet the outlook while imports would have to average $10.59 billion per month over that period to meet the forecast.

     Ag trade
Update on likely next aid package — Phase 4/CARES 2:

  • The National Restaurant Association and major foodmakers on Friday sent a letter to House and Senate leaders re-upping their call for extra federal aid as negotiations over another stimulus package drag on in Congress. The restaurant industry has previously asked for its own $240 billion relief fund.
     
  • Next aid package in July. Senate Majority Leader Mitch McConnell (R-Ky.) said that Senate Republicans will consider a “fourth and final” coronavirus relief bill next month.

U.S. food supply/industry update:

  • Meat plants reopen, but burgers stay pricey. U.S. food industry heads into the summer months with beef and pork production last week about 7% lower than the same time last year, according to USDA. Production is up from steeper declines in late April. At the retail level, beef prices increased 21.7% and pork prices rose about 17.7% year-over-year for the week ended May 23, according to data provider Nielsen. Retail chicken prices climbed 10.5% for the same period. The Wall Street Journal (link) notes that meatpacking plants have largely resumed operations this month after a succession of plant closures in April due to Covid-19 outbreaks among employees that sickened thousands and killed dozens.

    What meatpacking companies are saying. The WSJ quotes a Cargill spokesman as saying the company’s beef business is running at about 70% normal levels as some employees have yet to return and workers adjust to new safety measures like plastic dividers between cutting-line work stations. Beef and pork plants run by JBS USA Holdings Inc. are all open but running between 85% and 90% of normal levels, a spokesman said, with employees over 60 years old currently being paid to stay home. Smithfield Foods Inc.’s plants are running, a spokeswoman said, though some workers aren’t coming in, and not all products are being produced at normal levels.

    Meat prices

     
  • Time magazine has an in-depth report on the history of food waste amid rising hunger, stretching back to the Great Depression, when the government started paying farmers to eliminate their surplus products. Link to article.
     
  • Will food companies’ newfound fortune last? The coronavirus crisis has brought massive shifts in how Americans buy and consume food. For America’s major packaged-food companies, which have struggled in recent years, that meant an unexpected upswing in sales. Now the question is which changes will last. Link to WSJ article for details.

    Flour power

Update on reopening America... and around the world:

  • As of June 1, 49 states have reopenings in progress. One state (South Dakota) never issued a stay-at-home order or closed businesses.
     
  • Nearly every major sport is preparing to come back. Nascar is already back. The NBA wants to start up again in late July; the NHL announced a playoff tournament through the summer; Major League Baseball is hoping to hammer out a deal with players by Monday for a shortened season; the NFL. is moving toward opening training facilities. Top-tier soccer leagues in England, Italy and Spain announced they would resume play in June.
     
  • Pope Francis appeared in person on Sunday to bless a gathering of the faithful in Saint Peter’s Square for the first time since the coronavirus exploded in Italy and the government imposed a national lockdown in March.

Coronavirus update:

  • Summary: Link to virus tracker.

    Cases of Covid-19 around the globe are put at 6,189,560 with deaths at 372,377, according to data from the Center for Systems Science and Engineering (CSSE) at Johns Hopkins University (JHU). The US case level is at 1,790,191 with deaths totaling 104,383. 16,495,443 tests have been conducted in the U.S.

    The number of daily new infections globally is still rising as the pandemic has exploded across developing economies.

    Covid rising

     
  • U.S. protests set off fears of new outbreaks. Mass protests over police violence against black Americans in at least 75 U.S. cities have spurred concern that the gatherings will seed new outbreaks. Speaking on CNN, Atlanta’s mayor, Keisha Lance Bottoms, said she was concerned that the protests could increase infections in communities of color, which are already being disproportionately hit by the disease. Death rates among black Americans are double those of whites.
     
  • Brazil has become the coronavirus hot spot, with Covid-19 cases now topping 500,000. Despite minimal testing, Brazil is starting to outpace the U.S. for daily new cases. Brazil reported 16,409 new cases on Sunday, a 3.3% jump that lifted total infections to 514,849, the health ministry said. The Latin American nation has the second-highest total after the U.S.

    Brazil cases

     
  • India reported 8,380 cases Sunday, taking the total confirmed cases to 182,143, one of the top 10 highest totals in the world. India has seen fewer deaths than some of the hardest-hit countries, with 5,164 killed by the virus, according to the Ministry of Health and Family Welfare.

    India cases

     
  • Trump says U.S. is ‘terminating’ its relationship with the World Health Organization (WHO). Trump accuses the United Nations agency of bowing to pressure from China and allowing the Covid-19 pandemic to spread out of control. “We have detailed the reforms that [the WHO] must make and engage with them directly, but they have refused to act,” Trump said Friday.

    “China has total control over the World Health Organization, despite only paying $40 million per year, compared to what the United States has been paying, which is approximately $450 million a year,” Trump claimed Friday.

    The medical community also condemned the decision. The American Medical Association urged Trump in “the strongest terms possible” to abandon the move. “This senseless action will have significant, harmful repercussions now and far beyond this perilous moment, particularly as the WHO is leading worldwide vaccine development and drug trials to combat the pandemic,” AMA President Patrice Harris said in a statement. “COVID-19 affects us all and does not respect borders; defeating it requires the entire world working together.”

    GOP lawmakers supported the U.S. move. Sen. Lindsey Graham (R-S.C.), the chairman of the Appropriations subcommittee that funds the foreign operations budget, has previously expressed support for putting pressure on the WHO by withdrawing funds. “Cutting off funding at this time is the right move. This is a critical time for worldwide public health and we cannot afford China apologists running the WHO,” the South Carolina Republican said in mid-April. “I support a suspension of funding by the United States until there is new leadership at the WHO.”

     
  • The American Association of Port Authorities asked the House Transportation and Infrastructure Subcommittee on Coast Guard and Marine Transportation for $1.5 billion in a future pandemic response bill. Separately, the National Association of Waterfront Employers requested $400 million, primarily for personal protective equipment.
     
  • Russia approved a flu drug for use in fighting coronavirus after officials said preliminary testing showed hospitalized patients who took the pills recovered more quickly.

OTHER ITEMS OF NOTE


  • SpaceX has delivered two astronauts to the International Space Station. The Dragon capsule arrived Sunday, at the station hours after a historic liftoff from Florida. It's the first time that a privately built and owned spacecraft has delivered a crew to the orbiting lab.
     
  • Controversial company starts to deliver food aid. The Texas-based event planner that received a $39 million contract from USDA to supply boxes of meat, dairy, fruits and vegetables has delivered its first 235 boxes to the San Antonio Food Bank. CRE8AD8 agreed to provide 750,000 boxes to feeding organizations across the Southwest by June 30. The company’s CEO said more food will be delivered this week to food banks in Arizona, Texas and Utah. For details, link to article from the San Antonio Express-News.

 

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