Fed's Powell testifies today | North Korea | Retail sales | Trump and infrastructure
In Today’s Updates
* Powell today opens two days of congressional testimony on U.S. monetary policy
* Retail sales released this morning
* Investors are sitting on the biggest pile of cash ever
* Trump weighs $1 trillion for infrastructure
* Ag sector writes Trump re: Phase 1 agreement
* Cass freight index remained at recessionary levels in May
* China Covid-19 actions raise new concerns on trade
* U.S., China allow more flights
* India confirmed three of its soldiers were killed on border with China
* China-Canada tensions escalate
* Supreme Court rules on Atlantic Coast Pipeline
* Ag sector no longer struggling to get PPP loans
* SBA publishes changes to PPP
* U.S. food supply update
* Restaurants face a cash crunch
* Update on reopening America... and around the world
* Prepare for baseball-less 2020: Major League Baseball’s commissioner
* Coronavirus update
* FDA pulls emergency Covid-19-use approval for hydroxychloroquine
* Firms requiring customers and workers to sign forms saying they won't sue
* Covid-19 outbreak linked to Beijing’s Xinfadi food market raises questions
* U.S. birthrates, already at a record low, will be made worse by coronavirus
* North Korea blows up liaison office with South
* Iowa Poll: Trump leads Biden 44%-43%, down from 10-point edge In March
* Trump confirms administration’s plans to cut U.S. military troop presence in Germany
* VP Mike Pence in Iowa today for lunch with GOP Gov. Kim Reynolds
* Boris Johnson held first direct talks about a post-Brexit trade deal with EU leaders
* Voice of America (VOA) director Amanda Bennett has resigned
* IAEA head: Iran is denying access to key site
* Mary Trump, the president’s niece, plans to release a book next month
Equities today: Asia and European equities saw firm gains, while U.S. futures are firmly higher. Investor optimism was also buoyed by a Bloomberg News report that President Trump’s administration is preparing a nearly $1 trillion spending plan on infrastructure. The pan-continental Stoxx Europe 600 advanced 2.7%. In Asia, regional benchmarks rallied. South Korea’s Kospi Composite gained 5.3% and Japan’s Nikkei 225 climbed 4.9%. Benchmarks in Hong Kong and Shanghai also advanced.
U.S. equities yesterday: The Dow rebounded from sharp losses early to finish up 157.62 points, 0.62%, at 25,763.16. The Nasdaq gained 137.21 points, 1.43%, at 9,726.02. The S&P 500 added 25.28 points, 0.83%, at 3,066.59 — the index has surged 37% since late March and is off just 5.1% for the year. Stocks extended the rebound after the Fed said it will buy individual corporate bonds, besides those held in exchange-traded funds. The Federal Reserve said that on June 16 it “will begin buying” up to $750 billion of corporate bonds and related securities “to support market liquidity and the availability of credit for large employers." The program was created by March’s roughly $2 trillion relief bill. he Fed began buying outstanding corporate bonds via ETFs in the middle of May as part of a $250 billion lending program. An additional $500 billion program is meant to purchase newly issued debt.
Powell to focus on lending, spending and rates. Federal Reserve Chairman Jerome Powell returns to Congress today to testify after a four-month interval in which the central bank has clearly elevated its role in supporting the U.S. economy. The central bank’s asset portfolio, at $7.2 trillion, is nearly double its size one year ago. And Fed officials, who cut interest rates in March to near zero, have projected that rates will remain that low for years.
Powell today opens two days of congressional testimony on U.S. monetary policy and the Semiannual Monetary Policy Report to the Congress. The report was released Friday (June 12) and outlines the economic impacts seen from the Covid-19 situation and the Fed’s responses and their assessment of fiscal responses to the pandemic.
Appearing today before the Senate Banking, Housing and Urban Affairs Committee, Powell is not expected to veer greatly from the assessment of conditions he delivered last Wednesday (June 10) at the conclusion of the Federal Open Market Committee (FOMC). The Fed is poised to keep the target range of the Fed funds rate at zero to 0.25% through 2022, Powell observed, cautioning that it appeared the economic recovery from the Covid-19 situation may take longer than many hope.
Observers are looking for lawmakers to focus on the Fed’s announcement Monday that bolstered financial markets — that they would be buying a broad and diversified portfolio of corporate bonds, extending a program that until now has been limited to purchasing bond exchange-traded funds. And the Fed’s Main Street Lending effort is also expected to be another attention point. But most attention will be on whether Powell shifts from the rather downbeat outlook in his post-FOMC remarks.
The May retail sales report from the Commerce Department, released today at 8:30 a.m. ET, is expected to offer another sign that the worst of the economic shock from the pandemic likely occurred in late March and April when widespread shutdowns to contain the virus were in place across the country. Retail executives continue to note that spending has picked up and that shoppers returned to reopened stores faster than expected. Private data also suggest that economic activity continued to rise in early June.
Economists expect retail sales, a measure of purchases at stores, at restaurants and online, increased 7.7% in May from a month earlier. That would mark the strongest month-over-month increase since records began in 1992, but follows two months of record drops.
Assets in money-market funds recently swelled to about $4.6 trillion, the highest level on record, according to data from Refinitiv Lipper going back to 1992. An article by the Wall Street Journal on the topic says analysts attribute the flight to cash to the coronavirus pandemic, which spurred a rush out of stocks, bonds and commodities. Meanwhile, stimulus checks sent to millions of Americans as part of the economic rescue package helped add to the heap.
“The meltup may need to take a break, as sentiment has turned too bullish too rapidly,” Ed Yardeni, president and chief investment strategist at Yardeni Research, said in a note on Sunday. “Now that reopening is happening, there’s fear of suboptimal results: less social distancing triggering a second wave of the virus, followed by another round of lockdowns.”
Morgan Stanley updated its base case for S&P 500 growth through June 2021, citing a swift economic recovery. The bank raised its base case for the S&P 500 to 3,350 from 3,000 through June 2021, implying a 10% jump from Friday's close, according to a Monday note from strategists led by Mike Wilson. "A faster re-opening than expected along with a powerful combination of fiscal an monetary stimulus all support an economic and earnings recovery," Wilson wrote.
• The yield on the 10-year U.S. Treasury note, which is seen as a haven, rose to 0.747%, from 0.701% Monday. Yields move in the opposite direction of prices.
• The Cass freight index for both shipments and expenditures remained at recessionary levels in May. "Sky-high unemployment, continuing fears of coronavirus and recent government action will suppress any sort of sharp rebound in activity and most likely keep volumes below 2019 levels until next year at the earliest," Stifel analyst David Ross said of the latest numbers.
• Crude oil prices have moved higher in part spurred by the International Energy Agency (IEA) predicting that oil demand in 2021 will rise by a record 5.7 million barrels per day (bpd). The IEA now sees 2020 global crude demand dropping by 8.1 million bpd, slightly less than the decline they forecast last month. US crude prices are up more than 2.2% at just under $38 per barrel while Brent crude is also up 2.2% trade above $40.60 per barrel.
— The White House is considering new infrastructure spending. The Trump administration is preparing a nearly $1 trillion infrastructure proposal as part of its push to spur the U.S. economy back to life, Bloomberg reports, citing people familiar with the plan. Most of the money would be reserved for traditional infrastructure work, like roads and bridges, but the plan would also set aside funds for 5G wireless infrastructure and rural broadband. President Donald Trump is scheduled to discuss rural broadband access at a White House event on Thursday. House Democrats have offered their own $500 billion proposal to renew infrastructure funding over five years.
— Update on China:
- U.S. ag sector writes President Trump to give China time to fulfill Phase 1 farm purchase commitments. "As you know, the U.S.-China Phase 1 Trade Agreement is critical to both the near- and longer-term success and growth of American agriculture — and the millions of American jobs the agricultural sector sustains," more than 180 organizations and companies said in a 13-page letter to the White House (link) that details the benefits and status of the agreement for U.S. farm products. “While the current pace of U.S. agricultural exports to China is below the pace needed to meet the Phase 1 goals, American farmers, ranchers, and rural communities remain optimistic that the purchases under this agreement will accelerate and be fulfilled by China, and that as a result, the American agriculture sector will enjoy important market opportunities,” the letter added.
U.S. Trade Representative Bob Lighthizer is slated to testify before the House Ways and Means Committee and Senate Finance Committee on Wednesday.
- India confirmed that three of its soldiers were killed on the border with China. “A violent face-off took place last night with casualties on both sides,” an Indian army statement said. There has been no confirmation of China’s losses in the first fatal incident in the disputed region since 1975. Chinese and Indian troops have been locked for weeks in a tense stand-off over disputed territory in the region. India said China also suffered casualties. The two sides have met to calm the situation.
- China Covid-19 actions raise new concerns on trade. Inspections of fresh and frozen meat and seafood are being increased by some Chinese provinces in the wake of a Covid-19 outbreak at the Xinfadi wholesale food market in Beijing (see related item below). The concerns arose after the virus was found on a cutting block used for salmon. However, the World Health Organization (WHO) said Monday the claim that it came from the salmon imports or its packaging was not the “primary hypothesis” in the situation. "I think we need to look at what has happened in this case, I don't believe it is the primary hypothesis. But it needs to be explored," Mike Ryan, in charge of the WHO emergencies program, told reporters in a briefing. The Xinfadi market is the largest in Asia and the situation has fanned fears that the situation could bring trade slowdowns or interruptions. Reports Monday indicated that China buyers had halted their purchases of European salmon due to the situation.
- FDA chief discounts potential that salmon was source of Xinfadi market Covid-19. U.S. FDA Commissioner Scott Gottlieb today discounted the potential that salmon imported into China was the source of the Covid-19 outbreak at the Xinfadi wholesale market. “The idea that it hitched a ride on fish is highly implausible. I mean it’s absurd,” Gottlieb said on CNBC. “It probably calls into question their fish-handling practices in these markets.” It could be due to an infected vendor, he said. “I can’t see any plausible scenario that this virus rode in on salmon.” This echoes comments noted previously from the World Health Organization (WHO) that the imported fish was not the “primary hypothesis.”
- Throw another log on the fire. China's Foreign Ministry is calling on Canada to investigate the discovery of pests found in shipments of logs into China from Canada, ministry spokesman Zhao Lijian told reporters in a daily briefing. Port authorities found pests in logs from Canada, Zhao said, and has asked Canada to take steps to resolve the situation. "Protecting China's agriculture and forestry industries, as well as its ecological safety is the Chinese government's obligation," he said, noting the move was "scientific and reasonable." The situation could be yet another friction point in the Sino-Canadian relationship that has become strained in the wake of clashes over the arrest of Huawei executive Meng Wanzhou, blocking of Canadian canola from two major exporters and other actions. Meanwhile, lawyers for Meng this week offered a new argument in Canadian court relative to fighting her extradition to the U.S. – the case the U.S. submitted to Canada is “so replete with intentional and reckless error” that it violates her rights. Meng has been detained in Canada since Dec. 1, 2018, at the request of the United States.
- U.S., China allow more flights. The U.S. Transportation Department (DOT) is amending its order to allow Chinese air carriers to fly four weekly flights between China and the United States. The amendment is in response to China approving U.S. carriers to fly four weekly flights to China, the DOT said in a statement.
- U.S. Secretary of State Mike Pompeo will meet China’s top diplomat, Yang Jiechi, in Hawaii on Wednesday, according to news organizations. It would be the first high-level U.S./China meeting since the signing of a Phase 1 trade deal Jan. 15.
— Supreme Court rules on Atlantic Coast Pipeline. The Atlantic Coast natural gas pipeline can cross the Appalachian Trail, rejecting a challenge brought by environmentalists that they disputed whether the U.S. Forest Service had the authority to approve the permit for the pipeline. The court ruled seven to two that the Forest Service controlled the land beneath the trail and said the environmentalists’ argument was overboard. Environmentalists insisted that the court decision does not mean the pipeline can go through, as Natural Resources Defense Council attorney Gillian Giannetti said in a statement that Dominion still needs to get “eight crucial federal and state permits for construction — concerning air pollution, endangered species, rights of way, and clean water.” Atlantic Coast Pipeline, owned by Dominion, said that it now is focused on the remaining permits. cThe pipeline would bring natural gas from West Virginia to North Carolina and Virginia if completed. Dominion Energy, which is developing the pipeline with Duke Energy, has said it expects to begin construction this year and have the pipeline fully in service by early 2022. The 7-2 ruling eliminates the biggest obstacle to the 600-mile pipeline, which would carry as much as 1.5 billion cubic feet of gas per day from the Marcellus shale basin in West Virginia to customers in North Carolina and Virginia.
— Update on implementation of CARES 1:
- Ag sector no longer struggling to get PPP loans. Small farms initially struggled to apply for Paycheck Protection Program (PPP) loans because of delays by the Small Business Administration (SBA) in approving farm lenders to participate in the program. As of last week, businesses in agriculture, forestry, hunting and fishing had received $7.578 billion in loans as of May 30. Still, only 1.49% of PPP has gone to agriculture, forestry, fishing and hunting businesses. Link for details.
- SBA publishes changes to PPP. The Small Business Administration today (June 16) published in the Federal Register (link) a series of changes to the interim final rule for the Paycheck Protection Program (PPP). On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020 (Flexibility Act) was signed into law, amending the CARES Act. The revisions published today include adjustments to the loan maturity, deferral of loan payments, and forgiveness provisions, to conform to the Flexibility Act. SBA also is making conforming amendments to the use of PPP loan proceeds for consistency with amendments made in the Flexibility Act. Several of these amendments are retroactive to the date of enactment of the CARES Act, as required by section 3(d) of the Flexibility Act. The provisions in this interim final rule related to loan forgiveness and deferral periods for PPP loans are effective March 27, while the provision relating to the maturity date of PPP loans is effective June 5, with remaining provisions in this interim final rule are effective June 12.
— Food supply/industry update:
- Restaurants face a cash crunch. Many are finding that reopening is harder than closing because revenues are almost impossible to predict and, in addition to financing their reopenings, restaurants need to pay overdue bills, the Wall Street Journal reports (link).
— Update on reopening America... and around the world:
- Prepare for a baseball-less 2020, warned Major League Baseball’s commissioner. Rob Manfred said that deadlock between team owners and the players’ union could prevent even an abbreviated season. Most see a deal of at least 50 games before playoffs begin.
- Next year’s Oscars will be delayed to April from February, the Academy of Motion Picture Arts and Sciences announced. Over 80% of the academy’s revenue comes from the ceremony. Walt Disney’s ABC pays about $75 million a year to broadcast it.
— Coronavirus update:
- Summary: Covid-19 cases around the world total 8,051,732 with deaths at 437,266, according to data from the Center for Systems Science and Engineering (CSSE) at Johns Hopkins University (JHU). Us cases now total 2,114,026 with deals at 116,127.
- Many businesses are requiring customers and workers to sign forms saying they won't sue if they catch Covid-19, the Associated Press reports (link). Businesses are afraid they could face lawsuits even if they follow social distancing and other government guidelines as they reopen across the U.S.
- FDA ends emergency use of hydroxychloroquine for coronavirus. The Food and Drug Administration on Monday withdrew controversial emergency use authorizations for two controversial coronavirus treatments promoted by President Donald Trump despite concerns about their safety and effectiveness.
- The coronavirus outbreak linked to Beijing’s Xinfadi food market raises renewed questions about hygiene and safety in such places. Dubbed the “vegetable basket of Beijing,” Xinfadi is Asia’s biggest wholesale food market, occupying 112 hectares (277 acres) in the city’s southwestern Fengtai district. It has more than 2,000 stalls selling everything from meat and seafood to fruit and vegetables. The market handles in excess of 3,000 pigs and 1,500 tonnes of seafood a day, according to its website. As many as 15,000 people visit the market each day and 3,000 trucks make daily deliveries, according to the Beijing municipal government. The market has been shut for medical testing and investigation.
Nearby residents have been forbidden to leave the city. Those who have recently been to the market have been ordered to quarantine themselves at home. Authorities have been testing market workers, anyone who visited the market in the past two weeks and anyone who came into contact with either group.
- U.S. birthrates, already at a record low, will be made worse by coronavirus. "The Covid-19 episode will likely lead to a large, lasting baby bust. The pandemic has thrust the country into an economic recession. Economic reasoning and past evidence suggest that this will lead people to have fewer children. The decline in births could be on the order of 300,000 to 500,000 fewer births next year," Melissa Kearney and Phillip Levine write at the Brookings Institution (link).
OTHER ITEMS OF NOTE
- North Korea blew up the inter-Korean liaison office near the country’s border with South Korea, marking a sharp escalation in hostilities by Kim Jong Un towards Seoul. Meanwhile, denuclearization talks with Washington remain gridlocked. Last week the North cut all communication channels with the South because of leaflets and anti-Pyongyang material sent across the border. Some experts say Pyongyang is expressing its frustration because Seoul is unable to resume joint economic projects due to U.S.-led sanctions. Meanwhile, state media said Kim Jong Un’s regime is reviewing a plan to send its army into some areas of the demilitarized zone separating the country from South Korea.
- President Trump confirmed in public for the first time his administration’s plans to cut the U.S. military troop presence in Germany from its current level of roughly 35,000 to a reduced force of 25,000. “So we’re protecting Germany and they’re delinquent. That doesn’t make sense,” Trump said on Monday, in a reference to Germany’s failure to reach a 2 percent spending threshold agreed by NATO member states in 2014. “So I said, we’re going to bring down the count to 25,000 soldiers,” Trump added. Germany’s ambassador to America returned that American bases in the country aid transatlantic security. Germany has agreed eventually to raise its military spending to 2% of GDP.
- VP Mike Pence will be in Iowa today for lunch with GOP Gov. Kim Reynolds and a tour of Winnebago Industries.
- Iowa poll shows Trump and Biden in toss-up race. A new Des Moines Register/Mediacom Iowa Poll shows the president leading former Vice President Joe Biden by just 1 point — 44% to 43%. Trump carried Iowa by 9 percentage points in his 2016 contest against Democrat Hillary Clinton. Details in Des Moines Register. The Register adds that a similar poll taken in March showed Trump leading Biden 51%-41%.
- Boris Johnson, Britain’s prime minister, held his first direct talks about a post-Brexit trade deal with EU leaders, by videolink. Johnson said he hoped to reach a trade agreement by summer’s end. In a joint statement released by Britain and the EU, both sides called for “new momentum” in the stalled discussions.
- Voice of America (VOA) director Amanda Bennett has resigned, according to an internal memo, on the heels of Trump appointee Michael Pack taking over VOA's parent agency.” Sandy Sugawara, VOA’s deputy director, also has resigned.
- IAEA head: Iran is denying access to key sites. International Atomic Energy Agency (IAEA) Director General Mariano Grossi today called on Iran to allow IAEA inspectors to access suspected nuclear sites in that country. Grossi said he has asked “Iranian authorities at higher levels” for permission to survey the sites, adding, “We need this cooperation. I regret that at this point we have this disagreement.” Grossi says he told the IAEA board in Vienna that “Iran has denied us access to two locations” for over four months “and that, for almost a year, it has not engaged in substantive discussions to clarify our questions related to possible undeclared nuclear material and nuclear-related activities.”
- Mary Trump, the president’s niece, plans to release a book next month titled, “Too Much and Never Enough: How My Family Created the World’s Most Dangerous Man.” In the book, she says she was the source who provided The Times with Trump tax documents a few years ago.