New sanctions on Iran | Push for MFP 2.3 installment | Groups, analysts to brief Perdue
In today's updates:
* White House invites 200 to Jan. 15 Phase 1 signing ceremony
Markets: After briefly topping the 29,000 milestone on Friday, the Dow looks to firmly regain the level today as futures signaled a strong start, but not as high as signaled... at 9 a.m. CT, the Dow was up just over 50 points. The blue-chip market benchmark has now racked up 10,676 points since election day 2016. The major averages set record intraday highs early in Friday's session, with the Dow topping 29,000 for the first time, but then slid the rest of the day to finish lower.
Any lingering grain market bull should read this (link) Bloomberg article. Crazy weather but crazier yields. USDA reports on Friday didn't douse the corn market bulls. However, others note USDA raised the yield for the 2019 crop and the production number was larger than the market anticipated. The corn carryout number was larger than anticipated. World stock numbers were larger than pre-report pegs. Looking to the 2020 crop, U.S. corn acreage will be larger, with some expecting an increase of 5 million acres or so. Bullish?
— U.S./China trade policy update:
- The Trump administration has invited at least 200 people to a Jan. 15 ceremony for the signing of a Phase 1 trade deal.
- U.S. and China have agreed to semiannual talks to push for economic reform and resolve disputes, similar to a format from previous administrations that Trump trade officials had once derided. The effort (separate from trade talks) will be headed by Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He, among other senior officials, according to a statement by Mnuchin and U.S. Trade Representative Bob Lighthizer released on Saturday. It is set to be announced on Jan. 15 as part of the signing of a Phase 1 trade deal between the U.S. and China that includes Chinese purchases of American goods and some reforms to China’s economic system. The deal includes a dispute-resolution section that envisions consultations between the two nations to handle any conflicts arising from the agreement. There will be “at least bi-annual meetings” between Lighthizer and Liu to resolve conflicts, according to the statement. Mnuchin will also confer “on a regular basis” with Liu on macroeconomic issues, the statement said. Those sessions are also expected to include Chinese central banker Yi Gang and Federal Reserve Chairman Jerome Powell. The two sides are considering naming the process the Comprehensive Economic Dialogue.
- “There is a real enforcement provision,” Treasury Secretary Steven Mnuchin said Sunday on Fox News. “And if they don’t comply with the agreement, the president retains the authority to put on tariffs, both existing tariffs and additional tariffs.” Each country will establish a special office to monitor the deal’s implementation and address any disputes. If conflicts aren’t resolved within 90 days, the U.S. could take unspecified “proportionate” action against China and vice versa.
- Mnuchin said an English-language version of the detailed agreement will be released this week and stressed there won’t be anything changed in the translation of a Phase 1 trade deal with China. “It was not changed in translation. I don’t know where that rumor started. We've been going through a translation process that I think we said was really a technical issue.
- U.S. business officials said they had been told that intellectual property safeguards in the Phase 1 agreement appear relatively robust, including measures aimed at protecting trade secrets during the administrative licensing process. One provision reportedly would bar Chinese companies from gaining approval, marketing or selling generic versions of pharmaceuticals still under patent abroad, an issue known as “patent linkage.”
- The Phase 1 document will include language tackling certain non-tariff barriers to food and ag exports, such as blocking meat imports by citing microscopic and completely healthy traces of bacteria. Language also addresses sanitary and phytosanitary measures relating to seafood, pet food, beef, pork, poultry, ethanol and biotech products.
- The Phase 1 deal includes provisions making it easier to prosecute intellectual property violations through Chinese courts and administrative bodies, which echoes China’s own national interest as more Chinese hi-tech companies innovate and expand globally.
- Trump administration to ground civilian drone program on concerns over China tech. The Department of the Interior is planning to halt the use of its nearly 1,000 drones.
- China’s growth figures on Friday will be closely watched, alongside retail sales and industrial production.
- WSJ analysis of trade war with China. “Farmers took a big hit. Importers of auto parts, furniture and machinery choked down punishing tariffs. Investment between the world’s two largest economies tumbled. Yet despite the damage to these trade-related sectors, most of the U.S. economy sailed through two turbulent years of trade war with China with barely a scratch, a review of key economic indicators shows.” Link for details. Key findings:
— U.S. farm exports to China fell to as low as $7 billion from $25 billion in recent years, and farm debt soared to a new record. The agricultural sector relied on $28 billion in federal aid to survive.
— Foreign direct investment in the U.S. contracted sharply in 2018 and 2019.
— Inflation remained largely stable, and most of the U.S. economy now works in sectors largely unaffected directly by the trade fight.
Things could have been worse, but they could have been better, the WSJ writes. The economy grew just 2%, despite President Trump’s goal of 3%. And Gregory Daco, the chief U.S. economist for Oxford Economics, estimates that it could have grown 2.6% if the trade fight hadn’t happened.
— Farm groups, lobbyists urge third installment of MFP despite apparent hold. It didn't take long for some commodity, farm and other ag sector lobbyists to urge the Trump administration to follow through on the third and final installment of the Market Facilitation Program (MFP). The push came following reports that some Trump administration officials, apparently including USDA Secretary Sonny Perdue, were testing the waters on holding off on the final installment pending how the Phase 1 agreement with China to be announced this Wednesday unfolds.
Key farm-state lawmakers also are strongly encouraging USDA to distribute the aid this month since the deal with China has yet to result in a boost in commodity prices. Moreover, they note, President Trump has repeatedly and emphatically promised the full “$16 billion” in trade aid, so it is hard to imagine it would not be fulfilled. These observers question the political judgment of any failing to issue what some call MFP 2.3 payouts.
Sources confirm that a group of industry analysts and farm group lobbyists have been asked to brief Sonny Perdue sometime before the USDA Ag Outlook Forum in February. If no final decision regarding the third MFP installment is not announced prior to the confab with Perdue, several of the participants inform they will have analysis to show Perdue how much the payments are needed in farm country.
— Mideast tension update:
- Treasury Secretary Steven Mnuchin announced new sanctions on Iran targeting several of the country's top economic sectors, including: mining, textiles, construction, as well as steel and iron manufacturing. The new economic penalties are meant to "cut off billion in support" to Iran's top leaders, he said during a White House briefing.
- Iranian leaders facing backlash. Iranian security forces stepped up patrols in Tehran, seeking to quell further anti-government protests after the regime admitted downing a Ukrainian passenger jet, triggering anger on the streets. Unlike the protests that began over a rise in fuel prices last fall, the latest wave of demonstrations includes many students and middle class Iranians. “We are following your protests closely, and are inspired by your courage,” President Trump said Saturday in a tweet posted in Farsi and English. Canadian Prime Minister Justin Trudeau Saturday said he was “outraged” and “furious” by the admission that Iran had shot down Ukrainian International Airlines Flight PS752. At least 57 Canadians were among the dead. “What Iran has admitted to is very serious. Shooting down a civilian aircraft is horrific. Iran must take full responsibility,” Trudeau said Saturday at a press briefing in Ottawa. He earlier declared the incident a national tragedy. Ukrainian President Volodymyr Zelenskiy said in a televised address that he wants a full admission of guilt by Iran for what authorities there called a “disastrous mistake.”
- Iran’s supreme leader, Ayatollah Ali Khamenei, offered his condolences to the victims of the Ukrainian flight, while President Hassan Rouhani said the Islamic Republic “deeply regrets the disastrous mistake” and vowed compensation for the families of victims.
- The State Department warned the U.S. could shut down Iraq’s access to the country’s central bank account held at the Federal Reserve Bank of New York, a move observers said could negatively impact Iraq’s already shaky economy.
— Highway construction is kicking into higher gear across the U.S. even if lawmakers in Washington aren’t taking any new steps to help. State transportation departments are pumping more money into projects to clear up traffic-clogged highways and modernize aging infrastructure, the Wall Street Journal reports (link), with budgets buoyed by a recovering economy and increases in tax revenues. The 50 states collectively spent $113.2 billion on transportation in fiscal year 2019, a 9% jump from the previous year and the biggest jump since 2015. Transportation industry trackers say they expect spending to continue to grow this year. The American Road & Transportation Builders Association expects state transportation departments and local governments to spend $77.5 billion on highway and street construction investments alone in 2020, a 6% increase over 2019. States and local governments are now paying larger portions for public infrastructure, about 80% of all projects.
— Other items of note:
- Taiwan’s president, Tsai Ing-wen, won re-election after a campaign in which she vowed to preserve the island’s sovereignty amid pressure from Beijing. China’s leader, Xi Jinping, has warned Taiwan that unification between the sides is inevitable.
- The U.S. has reportedly reached out to North Korea to restart diplomatic talks that stalled last October. Washington wants to get negotiations with Pyongyang "back on track" and implement leader Kim Jong Un's "commitment" to the denuclearization of the Korean Peninsula, White House national security advisor Robert O'Brien told Axios.
- Germany’s government said on Friday it is concerned about the spread of African swine fever (ASF) in wild boars in Poland close to the German border. Poland recorded 55 outbreaks of ASF in wild boars in December, the World Organization for Animal Health (OIE) said. Poland’s agriculture minister says 21 wild boars have died as a result of an outbreak of AFS close to the German border. Despite its relatively small size compared with producers like China or the U.S., Germany is a heavyweight in the global pork trade — accounting for 15% of the world’s exports in 2017. “We don’t know what will happen, but we are trained how to act and react,” German Agriculture Minister Julia Kloeckner said. “For us, it’s important to inform everybody —- to inform tourists, to inform the farmers, and to prevent swine fever.”
- The Government Accountability Office is investigating the EPA's issuance of hardship exemptions to small refineries, which allow them to avoid complying with the nation's biofuel policy (Renewable Fuel Standard). The probe was requested by a bipartisan group of Midwestern lawmakers who say the waivers hurt the revenues of farmers and biofuel producers. Link to letter.
- China and EU may hold summit at end of March, ahead of ‘17+1’ meeting, the South China Morning Post reported. President Xi Jinping is then expected to host Central and Eastern European countries on April 15.
- Panera Bread to cut meat on its menu by a third. JAB-owned food chain to introduce more plant-based options as meatless trend gathers pace. At present about a quarter of Panera’s dishes are meat-free. The company plans to double this to about half, introducing more lentils, seeds, nuts and fruits. Niren Chaudhary, a former executive at JAB-owned doughnut company Krispy Kreme who took charge of Panera last year, told the Financial Times that he recognized there was a risk of a backlash and the changes would need to be managed carefully. “People are so fanatical about their personal favorites,” he said. “Food innovation is one of the toughest things to get right.”
- The last Democratic presidential debate before the Iowa caucus (Feb. 3) will be held in Des Moines on Tuesday, with six candidates taking the stage — making it the smallest debate so far. Sen. Bernie Sanders moved ahead of his rivals in a new poll from Iowa on Friday, followed closely by Sen. Elizabeth Warren, Mayor Pete Buttigieg, and former Vice President Joe Biden.
- FEMA official to depart Feb. 1. Jeffrey Byard, the top official for disaster response at the Federal Emergency Management Agency and Trump's former nominee to lead the agency, will leave the agency Feb. 1, according to a Dec. 20 letter, and plans to seek a career outside of government, according to a FEMA spokesperson. Trump nominated Byard in February for the administrator post but withdrew the bid in September after the nomination was stymied by a background investigation by the Senate Homeland Security and Governmental Affairs Committee.
— Markets. The Dow on Friday fell 133.13 points, 0.46%, at 28,823.77. The Nasdaq lost 24.57 points, 0.27%, at 9,178.86. The S&P 500 was down 9.35 points, 0.29%, at 3,265.35. All three are within a half-percentage point of their highest-ever closes. The S&P 500 is trading for almost 19 times projected 2020 earnings, one of the highest readings in more than 40 years.
For the week, the Dow advanced 189 points, 0.7%, the Nasdaq gained 1.8% and the S&P picked up 0.9%.
Mnuchin: Boeing woes could lop a half-point from U.S. GDP. Troubles at aircraft maker Boeing Co. could trim about half a point from U.S. GDP in 2020 but economic growth should still come in at about 2.5%, said Treasury Secretary Steven Mnuchin. Mnuchin discussed the growth outlook, plans to sign the first phase of a U.S.-China trade deal and new sanctions against Iran on Fox News' Sunday Morning Futures.
Non-farm payrolls expanded by 145,000 in December, the Bureau of Labor Statistics said Friday. The report was below economists' expectations of a gain of 160,000 jobs. The BLS said the December unemployment rate was unchanged at 3.5%.
Managed funds are increasingly bullish on gold. Net long positioning is at its highest level since September.