End of U.S./China Phase 1 deal brings lots of unanswered questions, dilemma for Biden
In Today’s Digital Newspaper |
Market Focus:
• Many investors off for holiday season, could cause volatile trading
• For 2021: S&P 500 up more than 27%; Dow nearly 19% higher; Nasdaq up about 22%
• Canceled trips still piling up, with more than 1,300 flights nixed Thursday
• Starting Jan. 1, U.S. banks won’t be allowed to issue new debt tied to Libor
• State of emergency in Colorado as wildfires swept through Boulder county
• Aluminum prices rose as investors weighed fresh signs of pressure on output
• First notice day for January soy futures
• Ag demand update
• Quiet overnight trade... Corn, soybeans and wheat traded both side of unchanged
• Cash cattle prices rise further
• Hog futures have big premiums to cash index
Russia/Ukraine:
• Biden, Putin trade frank talk as alarm rises over Ukraine
Afghanistan:
• Former Afghan president Ashraf Ghani defending his decision to escape
China Update:
• Beijing fell short on its Phase 1 trade promises to the U.S., creating a dilemma for Biden
• China warns Walmart, Sam’s Club over Xinjiang products
• China to cut subsidies for new energy vehicles by 30% in 2022
• PBOC issues guidelines to guard against systemic financial risks
• China’s sow herd grows 4.7% from last year
• Cuba signs ‘Belt and Road’ agreement with China
Energy & Climate Change:
• Biden trying to speed up the permitting process for new power lines
Coronavirus Update:
• Johnson & Johnson booster shot greatly reduces risk of hospitalization from Omicron
• Urgent-care centers across U.S. are temporarily closing
• CDC’s travel warning for cruise ships moved to highest level
• November was Russia’s deadliest month of the Covid-19 pandemic
Politics & Elections:
• Trump has the Republican nomination for president if he wants it: Lindsey Graham
Congress:
• McCarthy names Rep. Turner as top House Intelligence Committee replace Nunes
Other Items of Note:
• Warship: ‘Six years late and $2.8 billion over budget’
MARKET FOCUS |
Equities today: Global stock markets were mixed in quiet overnight dealings, with some closed for the New Year holiday. U.S. stock indexes are pointed toward slightly lower openings. Lower-than-average trading volumes, with many investors off for the holiday season, could cause volatile trading or outsize moves in markets. Some are also adjusting portfolios to end the year.
U.S. equities yesterday: The Dow lost 90.55 points, 0.2%, to 36,398.08. The S&P 500 ticked down 14.33 points, 0.3%, to 4,778.73 a day after the broad-market index climbed to a record. The Nasdaq slid 24.65 points, 0.2%, to 15,741.56.
For the year, the S&P 500 is up more than 27%. The Dow is nearly 19% higher and the Nasdaq has returned about 22%.
On tap today:
• No reports… U.S. gov’t closed for holiday.
Canceled trips are still piling up, with more than 1,300 flights nixed Thursday as rising coronavirus cases continue to hobble staffing. About half as many have already been scrapped for today as well, according to FlightAware, as a coronavirus surge continued to disrupt U.S. air travel. The tally included domestic flights and those into and out of the U.S. Winter storms threaten to further disrupt travel this weekend.
Libor transition: Starting Jan. 1, U.S. banks won’t be allowed to issue new debt tied to Libor, the global benchmark underpinning trillions of dollars in financial contracts. The Wall Street Journal notes (link) that some companies are more prepared for it than others.
Colorado’s governor, Jared Polis, declared a state of emergency as wildfires swept through Boulder county, a largely suburban area north of Denver, the state capital. At least 33,000 people have fled and hundreds of homes have been destroyed. The fires are thought to have begun when strong winds toppled power lines; that wind is now fanning the flames. A prolonged drought in the region has helped to create conditions conducive to fires.
Market perspectives:
• Mostly normal market hours today. U.S. government offices are closed in observance of the New Year’s holiday, while most markets will trade normal hours. The exception is the bond market which will close at 2 pm ET.
• Outside markets: Nymex crude oil prices weaker and trading around $76.25 a barrel. The U.S. dollar index is near steady early today. Meantime, the yield on the U.S. Treasury 10-year note is presently fetching 1.51%. For 2021, the 10-year yield was up 0.6% — the biggest yearly gain in eight years.
• Aluminum prices rose as investors weighed fresh signs of pressure on output, with Alcoa planning to shut a European plant and Beijing vowing to cut carbon emissions from China’s smelters.
• First notice day for January soy futures. Today marks the start of the delivery process for January soy futures. CME Group reported deliveries of 244 contracts against January soybeans, no deliveries against January soymeal and 36 deliveries against January soyoil.
• Ag demand: Jordan tendered to buy 120,000 MT of optional origin milling wheat.
• NWS weather: Record breaking Spring-like temperatures in the South to reach the portions of the East Coast... ...Winter weather, flash flooding, and severe weather to usher in 2022.
Items in Pro Farmer’s First Thing Today include:
• Quiet overnight trade... Corn, soybeans and wheat traded both side of unchanged
• Cash cattle prices rise further
• Hog futures have big premiums to cash index
RUSSIA/UKRAINE |
— President Joe Biden and Russian President Vladimir Putin spoke by phone on Thursday as tensions rise over a significant military buildup on the Ukrainian border. The call began at 3:35 p.m. ET and lasted 50 minutes, the White House said. The White House released a statement which said: “He made clear that the United States and its allies and partners will respond decisively if Russia further invades Ukraine. President Biden also expressed support for diplomacy, starting early next year with the bilateral Strategic Stability Dialogue, at NATO through the NATO-Russia Council, and at the Organization for Security and Cooperation in Europe. President Biden reiterated that substantive progress in these dialogues can occur only in an environment of de-escalation rather than escalation.”
Putin’s foreign affairs adviser said Biden reaffirmed the U.S. threat of new sanctions against Russia in case of an escalation or invasion, to which Putin responded with a warning of his own that such a U.S. move could lead to a complete rupture of ties. “It would be a colossal mistake that would entail grave consequences,” said Yuri Ushakov. He added that Putin told Biden that Russia would act as the U.S. would if offensive weapons were deployed near American borders.
Putin requested the call, the second between the leaders this month, ahead of scheduled talks between senior U.S. and Russian officials set for Jan. 10 in Geneva.
Intelligence officials from several Western countries say that there has been no significant pullback of Russian troops or equipment from the border, and that low-level cyberattacks — many seemingly intended to penetrate Ukrainian infrastructure — are continuing.
Bottom line: Biden and Putin discussed the potential for a dangerous downturn in relations if the current crisis over Ukraine further escalates, but kept a pathway open for diplomacy. Both sides described the tone of the discussion as serious and substantive. Putin warned the U.S. that imposing sanctions would be a “colossal mistake” that could rupture ties between the two countries.
AFGHANISTAN |
— In his first interview since escaping Afghanistan, former President Ashraf Ghani defended his decision to flee Kabul as the Taliban advanced, saying, “I had to sacrifice myself in order to save Kabul.” Meanwhile, the ruling Myanmar military has again turned to a strategy of massacres and village burnings as a tool to accomplish its goals, the Associated Press reported.
CHINA UPDATE |
— Beijing fell short on its Phase 1 trade promises to the U.S., creating a dilemma for President Biden. Beijing’s commitment to step up purchases of U.S. goods and services under a 2020 Phase 1 trade pact expires today, with China expected to miss its targets by a wide margin. Observers note the White House could reinstate certain tariffs that were cut as part of the trade deal, though that could backfire if China were to cut back U.S. purchases or take measures against American companies doing business there. If the U.S. ignores the shortfall, that could signal to Beijing that it won’t face consequences. U.S. businesses are closely watching the Biden administration’s response; many of them want smooth relations with China to ensure continued access to its giant market. Others including some domestic manufacturers take a harder line, saying the U.S. needs to nurture its own supply chains.
— China warns Walmart, Sam’s Club over Xinjiang products. China’s anti-graft agency on Friday accused U.S. retail giant Walmart and its Sam’s Club chain of “stupidity and short-sightedness” after Chinese news outlets reported Sam’s Club had removed Xinjiang-sourced products from stores. China’s Central Commission for Discipline Inspection (CCDI) accused Sam’s Club of boycotting Xinjiang products and trying to “muddle through” the controversy over Beijing’s treatment of Uyghurs and other minority Muslims in Xinjiang by remaining silent. “To take down all products from a region without a valid reason hides an ulterior motive, reveals stupidity and short-sightedness, and will surely have its own bad consequences,” it said on its website.
— China to cut subsidies for new energy vehicles by 30% in 2022. China will cut its subsidies for new energy vehicles (NEVs), such as electric cars, by 30% next year, the Finance Ministry said today. The ministry said the NEV subsidy policy will end on Dec. 31, 2022, and NEVs will not be subsidized thereafter. China, the world’s largest auto market, has set a target for NEVs, including electric hybrids and hydrogen fuel cell vehicles, to account for 20% of car sales by 2025.
— PBOC issues guidelines to guard against systemic financial risks. The People’s Bank of China (PBOC) issued guidelines for macro prudential assessments, with the aim of establishing a basic framework and enhancing transparency to guard against systemic financial risks. It says key areas for the monitoring of systemic risks include China’s macro leverage ratio, debt levels and the repayment abilities of government departments as well as companies.
— China’s sow herd grows 4.7% from last year. China’s sow herd at the end of November was 4.7% higher than the previous year at 42.96 million head, the country’s ag ministry reported, though down 1.2% from October. China slaughtered 235.9 million hogs in the first 11 months of 2021, up 66.1% from the same period the previous year, amid rapid expansion of the hog herd after the African swine fever outbreak. Rising output and oversupply have caused pork prices to plunge this year and pushed hog margins to negative territory.
— Cuba signs ‘Belt and Road’ agreement with China. Cuba and China have signed a cooperation plan to push forward construction projects under Beijing’s controversial overseas infrastructure program, the Belt and Road Initiative (BRI), which has saddled many participating countries with heavy debt loads. The Chinese Embassy in Cuba announced the agreement on its website, saying that the deal was inked by He Lifeng, head of China’s top economic planning agency, the National Development and Reform Commission, and Cuban Vice Prime Minister Ricardo Cabrisas. The agreement implemented a memorandum of understanding the two nations signed in 2018, when Cuba agreed to become a BRI participating nation. Under the agreement, the two nations aimed to work together on projects in several key sectors, including communications, education, health and biotechnology, science and technology, and tourism, according to the Agencia Cubana de Noticias news agency. The Chinese Embassy also stated that a timetable and a roadmap had been proposed to implement the projects, without giving details.
ENERGY & CLIMATE CHANGE |
— Biden is trying to speed up the permitting process for new power lines. The White House wants to increase federal involvement in building high-voltage lines, which often takes years, as part of an effort to accelerate renewable energy growth. Approvals often encounter regional opposition and face years of delays.
CORONAVIRUS UPDATE |
— Summary:
— Johnson & Johnson booster shot greatly reduces the risk of hospitalization from the Omicron variant, according to a clinical trial.
— Urgent-care centers across the U.S. are temporarily closing as they try to manage community needs and staff shortages.
— The CDC’s travel warning for cruise ships moved to its highest level, with the agency telling Americans to avoid cruises regardless of Covid-19 vaccination status.
— November was Russia’s deadliest month of the Covid-19 pandemic. There were a record 85,527 deaths associated with the virus last month, according to government officials. That was a 16% increase over the previous month, and raised total confirmed fatalities linked to the coronavirus in Russia to more than 625,000, though the actual number is likely higher.
POLITICS & ELECTIONS |
— Donald Trump has the Republican nomination for president if he wants it: Lindsey Graham. Sen. Lindsey Graham (R-S.C.) said former President Trump would likely have the Republican nomination for the 2024 elections if he wants to run. “Unless there’s something coming out of left field I don’t see coming, it’s his nomination if he wants it,” Graham told guest host Pete Hegseth on Hannity. “The Republican base appreciated him. We don’t appreciate all the things he does sometimes. But from a policy point of view, he was the most successful president from a conservative’s point of view since Ronald Reagan… [Trump] will be in the White House in 2024 if he runs a disciplined campaign,” Graham said.
CONGRESS |
— McCarthy names Rep. Mike Turner as top House Intelligence Committee Republican to replace Devin Nunes. House Minority Leader Kevin McCarthy on Thursday appointed Rep. Michael Turner of Ohio as ranking member on the House Permanent Select Committee on Intelligence. Turner will take on the role effective Jan. 1. Turner’s appointment will follow the resignation of Rep. Devin Nunes (D-Calif.), who announced earlier this year that he will leave Congress to become the CEO of former President Donald Trump’s new media company. The move sets up Turner to head the panel if Republicans win a House majority in 2022.
OTHER ITEMS OF NOTE |
— Warship: “Six years late and $2.8 billion over budget.” That’s what one senator called the Navy’s costliest warship. The aircraft carrier USS Gerald Ford, built by prime contractor Huntington Ingalls Industries with systems suffering from a host of critical defects, finally has all the elevators it needs to lift bombs from below deck. Now it can deploy.