U.S. jobs report | Baltic Dry Index on the rise | Trump insists on Census citizenship question
— U.S./China trade policy update:
- U.S./China trade talks to resume. Top representatives of the U.S. and China will talk by phone in the coming week as they seek to resolve the trade war between the two countries, according to White House Economic Adviser Larry Kudlow. It's still unclear about the timeline for relaunching face-to-face talks, but Chinese media say U.S. negotiators are coming to Beijing next week. President Trump and Chinese President Xi Jinping agreed to restart talks at the Group of 20 summit in Japan last weekend.
- Existing U.S. tariffs will have to be removed if there is to be a trade deal between Beijing and Washington, China's commerce ministry said on Thursday. Trade teams from both countries are in contact, commerce ministry spokesman Gao Feng told a regular media briefing. The U.S. now has tariffs of 25% on $250 billion of Chinese goods. “If both sides are able to reach an agreement, the tariffs that have been imposed have to be removed completely. China’s attitude on the issue is clear and consistent,” Gao said, adding that both countries’ trade teams had been in touch about resuming talks.
- President Donald Trump leveled another accusation of currency manipulation at China, suggesting progress in coming talks will be unpredictable. “China and Europe playing big currency manipulation game and pumping money into their system in order to compete with USA,” Trump wrote in a Twitter post. “We should MATCH, or continue being the dummies who sit back and politely watch as other countries continue to play their games — as they have for many years!”
- Beijing remained coy on whether China would immediately resume buying American soybeans, an American source briefed about the situation told the South China Morning Post. He said Beijing wanted first to see how — and if — the Trump administration would ease the supply ban on Huawei, as promised by Trump. He said the White House probably would make an announcement “in the next couple of days” on the conditions under which American companies would be allowed to resume supplying the Chinese tech giant. The Chinese would then commit to buying American agricultural products.
- The U.S. government issued its first public defense of its blacklisting of Chinese technology firm Huawei, saying it had ample reasons to restrict its access to U.S. products. The tech giant first challenged the law back in March in a Texas court.
- U.S. farmers built a soybean export empire around China. Now they're trying to save it. Trade tensions have hammered sales of soybeans to the Chinese, a major export market it took U.S. agriculture decades to create. Growers are traveling to Beijing and Washington to plead their case. Any more uncertainty in negotiations could undermine them. A prominent Chinese state media outlet, Taoran Notes, has said that “if the U.S. flip-flops again in the negotiations, the promises to buy American agriculture products will also be overturned.” It added that China would have to consider its domestic demand and the opinions of domestic companies before buying U.S. agricultural products. Link to Wall Street Journal article.
- In the U.S./China trade negotiations, Beijing has a distinct advantage, Grep Ip of the Wall Street Journal writes: It knows what it wants. “Though its negotiating priorities change, over the decades its goal has remained the same: moving steadily up the development ladder while remaining a one-party state,” Ip writes. Link to article.
- China Ministry of Finance says state soy, meat stockpiling agencies exempt from certain taxes. China will exempt Sinograin, China Merchandise Reserve Management Center and storage facilities under their management from stamp duties on trading contracts set relative to stockpiling commodities, according to a notice from the Chinese Ministry of Finance. A report from Reuters on the development said the action would benefit those that stockpile grains, soybeans, edible oils, cotton, sugar and meat would have the exemption from January 1, 2019, through December 31, 2021. Those companies already paying taxes this year can claim a rebate, the notice said. The companies will also not have to pay property and urban land use taxes on facilities they use to stockpile the commodities, the statement said.
— Argentina, Brazil eyeing trade deal with U.S. Argentine and Brazil are in discussion over pursuing a free trade agreement with the U.S., according to comments Thursday by Argentine President Mauricio Macri. Argentine Foreign Minister Jorge Faurie Wednesday told the La Nacion newspaper that there was a possibility of a free trade deal with the US. Macri echoed that view Thursday, stating, “The chancellor has said that we are also talking with Brazil about free trade deals with the United States and China.” Neither Macri nor Faurie offered any details of the potential trade negotiations, but the Mercosur bloc of countries are just coming off the conclusion of a trade deal with the European Union (EU) that was some 20 years in the making.
— China urea, japonica rice futures trade to start in August. Trading in urea futures and japonica rice futures will start in August, the China Securities Regulatory Commission (CSRC) said today. Trading in urea futures will start August 9 with trading in japonica rice futures commencing August 16.
— China securities regulator releases new equity management rules for securities companies. The China Securities Regulatory Commission (CSRC) today issued new equity management rules for securities companies, including that it will bar the use of entrusted funds, an agency spokesperson said. The CSRC also indicated it would restart approving securities firms that are domestically funded. Firms that fail to meet requirements will be granted a five-year grace period, including restrictions on asset size.
— Fall in imports still failed to keep agriculture from posting a trade deficit in May. U.S. agricultural exports rose in May while U.S. agricultural imports fell, but the sector still registered its second consecutive monthly trade deficit.
The value of exports rose to $11.4 billion, up from $11.24 billion in April. Imports fell to $11.65 billion, down from a record $12.1 billion in April, which left a trade deficit of $250 million compared with the record from April of $865 million.
This is the first time U.S. agriculture has registered back-to-back monthly trade deficits since April and May of 2016.
Fiscal Year (FY) 2019 U.S. ag exports have reached $92.42 billion, down from $99.19 billion at this point in FY 2018. Imports, meanwhile, are valued at $88.89 billion, up from $86.83 billion at this stage in FY 2018.
Perspective: With USDA forecasting FY 2019 U.S. ag exports at $137 billion, exports would need to average $11.15 billion per month to hit that mark. However, the final months of the fiscal year typically do not see lofty U.S. export values. But if US ag exports match the year-ago levels for the remainder of FY 2019, U.S. ag exports would total just under the USDA forecast. For imports, they would need to average $10.03 billion to hit USDA’s FY 2019 forecast of a record $129 billion. That would seem to be a reachable mark even though imports typically decline in the final months of the fiscal year. Since October 2017, the value of U.S. ag imports has only been below $10 billion two months. The biggest risk would appear to be USDA’s import forecast being too low, but the export mark could prove difficult to reach.
— Other items of note:
British marines intercepted an Iranian oil tanker near Gibraltar that was suspected of violating European sanctions. Gibraltar’s government said it believed the vessel was ferrying crude oil to Syria. Spain, which lays claim to the tiny territory, said the maneuver had been carried out at America’s behest. Iran called it a “form of piracy” and summoned Britain’s ambassador in Tehran.
To no one's surprise, Rep. Justin Amash is leaving the GOP. The Michigan congressman, the only Republican to back impeachment of President Trump, wrote Thursday in the Washington Post (link) that, “Today, I am declaring my independence and leaving the Republican Party.”
North Korea alleges U.S. is 'hell-bent' on hostility. The North Korean mission to the United Nations issued a statement claiming the U.S. is "more and more hell-bent on hostile acts" against Pyongyang, saying that Washington is "obsessed with sanctions."
Justice Department reverses course, seeks to add citizenship question. After pledging that the 2020 census would not ask respondents about their citizenship, Justice Department officials reversed course on Wednesday and said they were hunting for a way to restore the question on orders from President Trump. H=Justice Department officials informed a judge that there could be “a legally available path” to restore the question to the census, and they planned to ask the Supreme Court to help speed the resolution of lawsuits that are blocking their way.
Beyond Meat's sales pitch to customers has focused on the benefits of abstaining from meat: a healthier planet and a healthier lifestyle. But dietitians are not completely sold on the plant-based burger trend. "They are not necessarily healthier than beef burgers." Link to CNBC article.
— Markets. The Dow on Wednesday closed at a record, gaining 179.32 points, 0.67%, at 26,966.00. The S&P 500 added 22.81 points, 0.8%, to 2,995.82, its eighth milestone of the year, while the Nasdaq rose 61.14 points, 0.8%, to 8,170.23, its fifth record this year.
Gold prices gained on Wednesday, nearing a six-year high as economic concerns drove investors to safe haven assets. Futures for August delivery rose 0.9% to $1,420.90 a troy ounce on the Comex division of the New York Mercantile Exchange, its highest settle value since August 2013.
Analysts expect the Labor Department this morning to report 160,000 jobs additions in June, up from May's soft tally of 75,000 but just under the average of 164,000 adds per month this year for the first five months. A wildcard is how the temporary federal government hiring for the U.S. Census Bureau's 2020 count factors into the total. The nation's unemployment rate is forecast to stay at 3.6% and average hourly wages are expected to increase by 0.3% M/M. Heading into the jobs report, trading on federal funds futures implies a 72% probability of a rate cut at the July meeting.
Impact of lost Philadelphia Energy Solutions refinery showing up. The average price of gasoline on the East Coast rose by nine cents in the last week since the refinery fire, the federal Energy Information Administration (EIA) reported on Wednesday. The analysis was the agency's first formal assessment on the implications of the lost Philadelphia Energy Solutions refinery in the run-up to the Independence Day holiday. The closure of the facility due to the severe damage it sustained will reduce gasoline supplies by 160,000 barrels per day and diesel supplies by 100,000 barrels per day. The region is relying on gasoline stockpiles, but those are dropping fast since in the wake of the fire, the agency said. It noted the refinery closure will likely force the East Coast to find new sources of fuel, which will most likely come from foreign imports. Increasing the region's reliance on gasoline imports would solve its supply problem, but it could also force prices higher due to the cost of shipping the fuel. "The East Coast can import gasoline supplies from the actively traded Atlantic Basin, which is supplied by refineries in Eastern Canada, Northwest Europe, the Mediterranean, and India," the EIA said. The region has relied on the Atlantic Basin market to get fuel in the past when supplies have been lower.