China taps the brakes on yuan rally | Big media, others see big wins by Dems in Senate
In Today’s Updates
* USDA left its China corn imports unchanged at 7.0 million tonnes, but...
* The corn price in China remains over $9.25 a bushel
* Libya restarts oil production at biggest field: WSJ
* Offshore yuan fell after China’s central bank took steps to restrain a recent rally
* Goldman Sachs: Dollar may tumble 2018 lows on Biden possible win
* Wheat prices are soaring
* ECB official say central bank would be just as aggressive as Federal Reserve
* Bank of England asks lenders to assess readiness for subzero interest rates
* Behind bank balance sheets: Cash, Treasuries, other securities backed by gov't
* Bank earnings expectations: a bad quarter, but not as bad as before
* Covid aid/stimulus after Nov. 3 elections: McConnell
* Pelosi says aid talks at impasse
* Oct. deadline to submit applications for WHIP+ for 2018 and 2019 losses
* China says hog herd has recovered to 80% of normal level
* China found an ASF outbreak among 70 piglets in southwest city of Chongqing
* Covid continues to grip in Europe
* India’s confirmed Covid-19 cases exceed 7 million, with over 108,000 dead
* Research signals Covid virus can stay on surfaces up to 28 days
* Emergency authorization request around Thanksgiving
Politics & Elections:
* Oct. 15 second presidential debate canceled
* Can Dems take it all?
* More analysts saying Dems will increase their House members
* Polling has further consolidated around a Biden advantage in the presidential election
* S.C. Democratic Senate candidate Jaime Harrison raised $57 million in third quarter
* NYT article raises allegations of Trump illegally financing his 2016 campaign
Other Items of Note:
* EPA dicamba decision nears
* USDA has extended Covid-19 waivers nationally re: expanding free meal service
* EU regulators crafting hit list of up to 20 Big Tech companies: FT
Equities today: U.S. equity futures signal a slightly higher opening. In Asia, the Hang Seng Index rallied 2.2%, while the yuan weakened 0.6% to 6.7302 per dollar. China scrapped a rule that made it expensive to bet against the yuan. The U.S. Treasury markets and U.S. government are closed today for the Columbus Day holiday, while Canadian markets are closed for the Thanksgiving holiday.
Earnings from S&P 500 companies are projected to drop 20.5% from a year earlier in the third quarter, according to FactSet, marking an improvement from the 25% decline anticipated at the end of June and the 32% drop reported for the second quarter. Results that top forecasts could fuel a further leg up for a stock market that has advanced more than 50% from its March lows, analysts note. Just 69 companies in the S&P 500 have issued earnings guidance for the quarter (vs five-year average of 104) and more than 1 in 4 companies are still not providing an EPS outlook for 2020 or 2021.
Democrats criticized the nearly $1.9 trillion aid/stimulus offer from Treasury Secretary Steven Mnuchin as insufficient, particularly in its funding and strategy for coronavirus testing and tracing. Senate Republicans, meanwhile, balked at the offer’s cost and its proposed expansion of the Affordable Care Act. See updates under Policy.
U.S. equities Friday: The Dow rose 161.39 points, 0.57%, at 28,586.90. The Nasdaq was up 158.96 points, 1.39%, at 11,579.94. The S&P 500 advanced 30.30 points, 0.88%, at 3,477.13.
For the week, the S&P 500 benchmark rose 3.8%. It has risen 7.6% this year. The Dow is now back into positive territory for the year, having climbed 3.3% for the week, notching its best weekly gain since August. The Nasdaq climbed 4.6% for the week and is up 29% this year.
On tap today:
• Usual Monday releases of Grain Inspections, Crop Progress released Tuesday due to gov't holiday today.
• European Central Bank President Christine Lagarde speaks to the International Monetary Fund at 7 a.m. ET.
A top European Central Bank official (ECB) said the bank would be just as aggressive as the Federal Reserve in stimulating the region’s economy as it recovers from the Covid-19 pandemic, implying the ECB would also allow inflation to overshoot its target. Philip Lane, the ECB’s chief economist, said the eurozone economy faces a rocky patch after an initial rebound from its sharp spring contraction, with inflation still far too weak.
• Outside markets: Crude oil declined, while gold and the dollar index were steady. Treasuries are closed for a U.S. holiday today.
• Dollar may tumble to its lows of 2018 on the rising likelihood of Joe Biden winning the U.S. election and progress on a coronavirus vaccine, according to Goldman Sachs Group Inc. “The risks are skewed toward dollar weakness, and we see relatively low odds of the most dollar-positive outcome -- a win by Trump combined with a meaningful vaccine delay,” strategists including Zach Pandl wrote in a note Friday. “A ‘blue wave’ U.S. election and favorable news on the vaccine timeline could return the trade-weighted dollar and DXY index to their 2018 lows.”
• Cash, Treasuries and other securities backed by the government now make up more than 35% of the combined balance sheets of the 25 biggest U.S. banks, the highest level in history. Link to Bloomberg.
• U.S. crude futures on Friday dropped 1.4% to $40.60 a barrel, trimming their gains for the week to 9.6%.
• Crude oil futures have seen additional pressure ahead of the U.S. trading start as Covid remains a focus. U.S. crude is trading around $40.10 per barrel while Brent has traded around $42.35 per barrels. Futures were under pressure in Asian action, with U.S. crude down 35 cents at $40.25 per barrel while Brent crude was 59 cents lower at $40.60 per barrel.
• Libya restarts oil production at biggest field, according to the Wall Street Journal (link), which says Sharara is currently pumping 27,000 barrels a day, and can contribute an additional 300,000 barrels a day.
• The offshore yuan fell after China’s central bank took steps to restrain a recent rally. China scrapped a rule that made it expensive to bet against the yuan and the People’s Bank of China set its daily reference rate only slightly weaker than analysts expected.
• USDA left its China corn imports unchanged at 7.0 million tonnes, but some industry analysts say Department analysts' corn exports for countries other than the U.S. appear too high and thus is a cushion for likely USDA changes ahead for more Chinese corn imports from the U.S.
Meanwhile, the corn price in China remains over $9.25 a bushel. JCI says “after the [China] holiday, DCE most-active corn futures 2101 contract soared, setting a new record
•Turmoil on several fronts is sending prices soaring for wheat. Prices have hit their highest level in over five years, the Wall Street Journal reports (link), in reaction to scorching weather, concerns over food insecurity brought on by the pandemic and the lockdowns put in place to fight the coronavirus. Extreme dryness and heat in the world’s breadbaskets, including Russia and the U.S., are key factors in the price surge and have made it more difficult to respond to growing need in poor countries. The article says the surge in wheat markets is part of a broader upheaval in food supply chains as traditional production and distribution networks have been wracked on a number of fronts. Meanwhile, a U.N. agriculture agency’s Food Price Index recently rose to a seven-month high, with global cereal prices hitting their highest level in over two years.
• The Bank of England has asked British lenders to assess their readiness for subzero interest rates, the latest sign that officials are weighing the merits of such a policy as a way to support the economy during the coronavirus pandemic.
Items in Pro Farmer's First Thing Today include:
• Trade union lowers wheat, corn & barley crop forecasts for Ukraine, citing poor weather
• Russian wheat prices on the rise
• Bolsonaro plans to meet with Brazilian soy producers regarding rising prices
• India’s bean crop clipped by too much rain, disease and pests
• Britain thwarts vote that would block imports of chlorinated chicken, hormone-fed beef
— Covid aid/stimulus after Nov. 3 elections: McConnell. The Trump administration offered a $1.88 trillion ($1.5 trillion in new spending) new stimulus package to congressional Democrats, days after the president declared negotiations were over. That figure is higher than congressional Republicans would support and lower than the $2.2 trillion Democrats have pushed for.
Timeline: Senate Majority Leader Mitch McConnell (R-Ky.) suggested a deal was unlikely before the election. “Even if an agreement is reached, and it may be, the process around it, literally the writing and all that, does take a while. The first item of priority for the senate is the Supreme Court,” McConnell said at an event in Kentucky. “I just think the situation is kind of murky,” McConnell said at an appearance in Bullitt County, Kentucky. “And I think the murkiness is a result of the proximity of the election and everybody kind of trying to elbow for political advantage. I'd like to see us rise above that like we did back in March and April, but I think that's unlikely in the next three weeks.” McConnell has led a campaign to include liability protection from pandemic-related lawsuits for employers. Democrats have resisted that effort, saying workers deserve the right to sue to ensure their workplaces are safe.
Sen. Ted Cruz (R-Texas), who talked to Trump, said he was pessimistic about a deal emerging. “I think the president is eager to cut a deal for a relief package,” Cruz said on MSNBC. “And at the same time, I don’t think it’s going to happen.” He said he thought Democratic leaders “have made the political judgment that it benefits [Democratic presidential challenger] Joe Biden if nothing passes.”
Details: Reports note the new White House offer included $1.88 trillion in spending, with about $400 billion of the funds reallocated from unspent money from earlier relief legislation, bringing the total cost to about $1.5 trillion. The latest offer from the Trump administration includes $300 billion for state and local governments, an increase from the $250 billion that they had proposed last week. A bill passed by Democrats included $436 billion for state and local governments, a drop from the more than $900 billion they had sought earlier this year. The two parties have also quarreled over the size of an expanded unemployment insurance benefit. A $600 weekly benefit provided in March expired at the end of July. Democrats want to restore that benefit while Republicans have pushed for a smaller amount, saying $600 provides a disincentive to return to work.
On Friday, President Trump said he wanted “a bigger stimulus package frankly than either the Democrats or Republicans are offering." He also tweeted that relief negotiations were “moving along.” Trump told radio host Rush Limbaugh that he wanted a bigger package. “I would like to see a bigger stimulus package, frankly, than either the Democrats or Republicans are offering. I'm going the exact opposite now, OK?" he said. "I'm telling you something I don't tell anybody else cause maybe it helps, maybe it hurts negotiations."
The Trump administration is willing to go higher so long as the top line remains "below $2 trillion," White House Director of Strategic Communications Alyssa Farah told reporters Friday. Farah said Trump's comment to Limbaugh referred to the size of relief checks rather than to the size of the package. "We're willing to come up on the levels that we're giving in terms of direct payments to the American people, potentially PPP loans as well as airline aid," Farah said, referring to the Paycheck Protection Program that provides forgivable loans to small businesses. "We're still looking at; we want to keep that [topline] number below $2 trillion. But some progress being made."
House Speaker Nancy Pelosi (D-Calif.) and Treasury Secretary Steven Mnuchin spoke for about 30 minutes Friday afternoon about a GOP plan that “attempted to address some of the concerns Democrats have,” according to a spokesman for Pelosi. The spokesman said negotiations are still seeking an agreement on language on a Covid-19 public-health plan, as well as the overall funding level. In a letter to House Democrats Friday, Pelosi said the bill needed to include funding for testing, contact tracing, isolation protocols, as well as vaccine development and distribution.
Bottom line: Odds are fading for any action prior to Nov. 3 elections. On a conference call Saturday morning with Treasury Secretary Steven Mnuchin and White House chief of staff Mark Meadows, several GOP senators nixed the proposal, saying the price tag is too lofty, questioning the overall direction and criticizing individual proposals.
— Oct. 30 deadline to submit applications for the Wildfire and Hurricane Indemnity Program – Plus (WHIP+) for 2018 and 2019 losses announced. USDA did not originally specify a deadline when the program was announced.
Background. WHIP+ compensates producers for losses due to hurricanes, floods, snowstorms, tornadoes, typhoons, volcanic activity, drought, excessive moisture, and wildfires occurring in calendar years 2018 and 2019. Drought and excessive moisture were added as eligible losses for the program in March 2020. To date, FSA has received more than 133,000 applications for WHIP+ disaster assistance and paid out nearly $1.4 billion in WHIP+ benefits.
This week, FSA will launch a new tool on the farmers.gov WHIP+ webpage (link) to help producers understand eligibility for the program and whether they had possible losses in 2018 and 2019. The tool will also allow producers an opportunity to provide information for FSA staff to reach out to them. That should be helpful based on calls and emails from farmers about this program.
FSA will announce soon the details for producers who experienced quality loss from 2018 and 2019 natural disaster events authorized in appropriations legislation. There will be a separate signup period for producers reporting quality loss.
Comments: It has taken USDA quite some time to work out the details, with still more to come. But it appears USDA is finally focused on this program, after receiving recent criticism from producers and farm-state lawmakers. Farmers also want to know if WHIP+ will be available for 2020. Checks with lawmakers say the push is on for just that to occur. Efforts will be made to simplify the program and get information and payments to farmers in a more accelerated timeline.
— Update on China:
- China says hog herd has recovered to 80% of normal level, after outbreaks of African swine fever in 2018 slashed headcount, according to a report by the agriculture ministry. Large-scale farms now breed 53% of all hogs; small-to-middle sized farms should also be encouraged to increase their herds, the ministry said. China will boost its frozen pork reserves and increase production of other meats to ensure protein supplies, and the country will continue its strict measures to control African swine fever.
- China found an ASF outbreak among 70 piglets in the southwest city of Chongqing, the Ag ministry said at a report on Friday. The piglets were illegally transported from other areas to the city.
- Major Chinese hog producer expects a 14-fold jump in profits. China’s leading hog producer Muyuan Foods expects its net profits attributable to shareholders for the first nine months of the year to shoot to 20.7 billion to 21.2 billion yuan ($3.07 billion to $3.14 billion), a 14-fold surge from the same period last year, the firm told the Shenzen Stock Exchange. Muyuan Foods indicated the increase was due both to rising hog prices and an increase in the number of hogs sold. It sold 11.88 million pigs through September, a 49.8% surge from year-ago, Muayuan detailed.
- 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 37,563,225 with 1,077,327 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 7,763,371 with 214,776 deaths.
Link to Covid Case Tracker
Link to Our World in Data
- Covid continues to grip in Europe, with 100,000 new cases confirmed in 24 hours — a grim new record. New infections exceeded 5,000 in Italy for the first time since March. In hard-hit Spain, the central government reimposed movement restrictions in and out of Madrid, the capital. France introduced restrictions on bars’ opening times in four more cities.
- India’s number of confirmed covid-19 cases exceeded 7 million, with over 108,000 dead. Meanwhile, Brazil’s health ministry confirmed that over 150,000 people have died from the virus. India and Brazil have the second- and third-greatest numbers of covid-19 cases in the world respectively. Only America has more. India’s caseload is expected to surpass America’s within weeks.
- Australia’s national science agency published research suggesting that SARS-Cov-2, the virus that causes covid-19, can stay infectious on surfaces such as banknotes, phone screens and stainless steel for up to 28 days when kept at room temperature and in the dark. Previous laboratory studies had suggested that the virus could survive for only two to three days.
- Emergency authorization requests around Thanksgiving. The head of the Trump administration's Operation Warp Speed program, Moncef Slaoui, expects drugmakers to file with the FDA for emergency authorization of a coronavirus vaccine by late November. The project aims to deliver 300 million doses of a vaccine starting in January, though none of the four vaccine candidates to enter Phase 3 trials have yet publicly reported data from the mid-stage studies. "My expectation is really something between 80% and 90% efficacy," Slaoui added, saying immunization in high-risk populations could begin this year.
POLITICS & ELECTIONS
— 2020 Presidential Election Interactive Map
— The Green Papers
— Real Clear Politics
— 2020 Political Atlas
— 2020 Demographic Swingometer
— Next presidential debates Scheduled to occur Oct. 22
— Days until election
- Oct. 15 second presidential debate was canceled after President Trump refused to participate after it was changed to a virtual format.
- Can Dems take it all? Sen. Ted Cruz (R-Texas) said on CNBC Friday that if people are upset and depressed on Election Day, “I think we could lose the White House and both houses of Congress, that it could be a bloodbath of Watergate proportions.” Several stories in major media and on wire services are suddenly noting the chance that Democratic can recapture the Senate.
- More analysts saying Dems will increase their House members. David Wasserman, House editor for the Cook Political Report, pegs GOP losses at between five and 15 seats. Link for more. He lists Rep. Collin Peterson's (D-Minn.) race as a “toss up.”
- How Trump is doing relative to Hillary Clinton race at this time: On Oct. 10, 2016, Clinton’s lead in the RealClearPolitics poll average stood at 5.8 points, and reached its high for the month the following week, at 7.1 points. Joe Biden’s average lead, as of Friday, stood at 9.6 points. Trump supporters note that state polls show Biden ahead by about the same margins now as then-Democratic nominee Hillary Clinton was at this point in 2016. While true in some battleground states, in other states, Biden’s lead in poll averages is wider than Clinton’s was.
- “Polling has further consolidated around a Biden advantage in the presidential election... and options markets have significantly reduced the premium they assign to that date,” JPMorgan Chase & Co. strategists wrote in a note to clients. A Democrat “Blue Wave” victory “has curiously flipped from consensus bear catalyst to bull catalyst,” Bank of America analysts wrote.
- South Carolina Democratic Senate candidate Jaime Harrison raised $57 million. The amount is the highest quarterly fund-raising total (July through September) for any Senate candidate in U.S. history. Harrison is challenging Sen. Lindsey Graham. Graham has not yet announced his third-quarter numbers. Before this year, the biggest quarterly haul for a Senate candidate was $38 million, raised by former Rep. Beto O’Rourke of Texas during his unsuccessful challenge to Senator Ted Cruz in 2018. Much of the money for Harrison came from out-of-state donors. South Carolina, which voted for Donald Trump in 2016 by more than 14 points, has not elected any Democrat statewide since 2006 and has not sent a Democrat to the Senate since 1998, when Ernest Hollings was re-elected.
The South Carolina race is now in the tossup category, where the nonpartisan Cook Political Report put it last week. “Even Democrats in and outside of the Palmetto State are surprised such a typically red state is truly in play,” wrote Jessica Taylor, the Cook Political Report’s Senate analyst.
For Democrats to regain control of the Senate, they must win four Republican-held Senate seats to take the majority, or three if Joe Biden wins the White House, as the vice president serves as the tiebreaker. Democratic strategists widely expect to lose one seat in Alabama, but the party is competitive in races for close to a dozen Republican-held seats. In a Quinnipiac University survey late last month Graham and Harrison were tied at 48%, with 95% of likely voters saying their minds were made up.|
- A New York Times story raised allegations of Trump illegally financing his 2016 campaign with a secret loan that exceeded legal limits. Link for details.
OTHER ITEMS OF NOTE
- EPA dicamba decision nears. EPA Administrator Andrew Wheeler said the agency’s scientists are still reviewing the companies’ dicamba-based crop sprays. “We intend to have a decision made by the middle of October,” he said during an Oct. 1 presentation to the Minnesota Farm Bureau. Chemical makers Bayer AG and BASF SA are pushing to keep the weedkiller on the market after a federal court in June blocked its use in U.S. soybean and cotton fields.
Bayer is asking the agency to consider re-approving its dicamba spray along with an additional chemical agent that the company says can keep the herbicide from moving. The additive, called an adjuvant, prevents the formation of dicamba acid, which can evaporate off of plants and drift on the wind. BASF, which is seeking EPA approval for its own dicamba sprays, also has proposed farmers mix in such a product, developed by BASF.
- USDA has extended Covid-19 waivers nationally that allow participating school districts to expand free meal service and provide food to students on campus or at off-campus locations through June 30, 2021.
- EU regulators are crafting a hit list of up to 20 Big Tech companies that will be subject to new and far more stringent rules aimed at curbing their market power, according to the Financial Times (link/paywall).