Biden Virtual Call with Russia’s Putin Today Has Important Geopolitical, Market Impacts

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U.S. farmers seek gov’t assistance re: fertilizer supply and prices

In Today’s Digital Newspaper

Market Focus:
• China’s real estate mess is growing
• Traders focus on Biden call with Putin
What should Federal Reserve do next?
GDP increased by 2.2% in euro area and by 2.1% in EU

U.S. natural gas futures down more than 40% from October’s peak
• ILWU initiated strike at one Portland port terminal

Policy Focus:
• Farmers want action re: supply and price of fertilizer
Announcement detailing supplemental DMC payments expected soon
EPA publishes proposed rule to revert WOTUS definition mostly to pre-2015 rules
• Slight uptick in CFAP 2 payouts

China Update:
Evergrande debacle may be forcing China into a policy shift
U.S. gov’t officials as expected will boycott the Beijing Winter Olympics in February
• China’s exports stayed strong in November
China’s soybean imports rise in November, but down from last year
• China’s meat imports weaken

Trade Policy:
• USDA’s Vilsack pushes back against calls for halt to imports of Brazilian beef

Energy & Climate Change:
• Carbon price surge triggers U.K. ‘cost containment’ market

• DOE official calls on oil companies to boost energy transition efforts
• At least two companies said to submit offers for SPR crude

Livestock, Food & Beverage Industry Update:
• Michigan firm recalls over 230,000 pounds of pork

Coronavirus Update:
New York City sets vaccine mandate

Politics & Elections:
• Nunes to resign and join Trump social media company

Other Items of Note:
• U.S. mulls Russia sanctions
Indonesia law would establish levy on palm plantations for environmental protection


Equities today: Global stock markets were higher in overnight trading. U.S. stock indexes are pointed toward higher openings. Asian equities rose as concerns over the Omicron COVID variant eased. The Nikkei was up 528.23 points, 1.89%, at 28,455.60. The Hang Seng advanced 634.28 points, 2.72%, at 23,983.66. European equity markets are registering solid moves higher in early trading, with the Stoxx 600 up nearly 2% and regional markets up 1% to 2.3%.

     U.S. equities yesterday: The Dow gained 646.95 points, 1.87%, at 35,227.03. The Nasdaq rose 139.68 points, 0.93%, at 15,225.15. The S&P 500 added 53.24 points, 1.17%, at 4,591.67.


On tap today:

     • U.S. trade deficit is expected to narrow to $66.9 billion in October from $80.9 billion one month earlier. (8:30 a.m. ET)
     • U.S. labor productivity in the third quarter is expected to decrease at a 5% annual pace from the prior quarter, unrevised from an earlier estimate. (8:30 a.m. ET)
     • U.S. consumer credit for October is out at 3 p.m. ET.
     • WSJ CEO Council reconvenes in Washington, D.C.

What should the Federal Reserve do next? "We see grounds for monetary policy in the United States — with gross domestic product close to pre-pandemic trends, tight labor markets, and now broad-based inflationary pressures — to place greater weight on inflation risks as compared to some other advanced economies including the euro area. It would be appropriate for the Federal Reserve to accelerate the taper of asset purchases and bring forward the path for policy rate increases," the International Monetary Fund's Tobias Adrian and Gita Gopinath write in a blog post (link).

Eurostat, the European Union’s statistics agency, published official figures for GDP growth in the euro area and all of the EU in the third quarter of 2021, as well as unemployment figures. Seasonally adjusted GDP increased by 2.2% in the euro area and by 2.1% in the EU, compared with the previous quarter. Year-on-year GDP increased by 3.9% in the euro area, which is a bit higher than its earlier estimate of 3.7% GDP growth. The number of those in employment increased by 0.9% in both the euro area and the EU in the third quarter of 2021, compared with the previous quarter.

     EU econ

Market perspectives:

     • Outside markets: The U.S. dollar index was slightly higher ahead of U.S. trading with a mostly weaker tone in foreign currencies versus the greenback. The yield on the 10-year U.S. Treasury note has firmed to trade around 1.43% with a positive tone in global government bond yields. Gold and silver futures are rising ahead of U.S. economic updates, with gold around $1,784 per troy ounce and silver around $22.45 per troy ounce.

    • Crude oil futures are posting strong gains ahead of U.S. market action, with US crude around $71.75 per barrel and Brent around $75.05 per barrel. Futures were firmer in in Asian trade, with U.S. crude up 59 cents at $70.08 per barrel and Brent up 38 cents at $73.46 per barrel.

     • Unusually warm weather pushed U.S. natural gas futures down 11.5% on Monday to $3.657 per million British thermal units. That is down more than 40% from October’s peak, erasing a run-up that stoked fears of exorbitant heating bills biting into household budgets and manufacturers’ balance sheets already stressed by broad inflation.

        NG drop

     • ILWU initiated strike at one Portland port terminal. The International Longshore and Warehouse Union (ILWU) has initiated an unfair labor practice (ULP) strike at Terminal 5 in a bid to get Columbia Grain Export Terminal to drop a suit against 150 dockworkers, the union announced Monday. The strike is limited to Terminal 5 and operations are continuing at all other Portland terminals, the union said. Japan-based Pacificor operates at the terminal as Columbia Export Terminal and sued in U.S. federal court that rest and meal break practices were fraudulent and part of a criminal conspiracy. Lower courts have rejected the suit but the firm has sought a rehearing of the case by the full Ninth Circuit Court of Appeals.

     • NWS weather: Below average temperatures and light snow showers forecast throughout the Midwest, Great Lakes, and Northeast over the next few days... ...Heavy snow possible across parts of the Sierra Nevada and Intermountain West starting Wednesday night.

        Wx Today


— Major issue in farm country may get lawmaker attention: the surge in fertilizer prices and supply issues. Attending and participating at this week’s annual rice industry confab, taking place in New Orleans, it is easy to cite some key industry issues and they both involve surging prices for fertilizer, if a producer can obtain the input. But another angle is that while corn, soybean, wheat, sorghum, cotton and other commodities have increased, thereby at least tempering the impact of rising input prices, the price of rice has held relatively steady due to what many say is dumping of rice by India and via its various subsidies to the industry.

     What can be done about the price of fertilizer? Is a frequent query farmers are asking. Some farmers who said they booked nitrogen early are now being told transportation snafus made delivery delayed at best.

     Ag sector stakeholders wonder what, if anything, the government can do. Some mention the crop insurance program but this is not an approved peril and besides it’s now past Dec. 1 deadline for major changes. Another suggestion is a “WHIP+-like program” but that will likely need congressional authorization. Thus the push is on farm -state lawmakers to come up with some assistance.

     USDA Secretary Tom Vilsack was recently briefed about this topic, but no details of that briefing have surfaced.

     Texas A&M Univ. economists have been tasked to do a report on the topic.

     Comments: Some observers think Democrats should provide some funding or language via the pending Build Back Better (BBB) proposal now in the Senate.

— Announcement detailing supplemental DMC payments expected soon. USDA should soon announce details of supplemental Dairy Margin Coverage (DMC) payments as the Office of Management and Budget (OMB) has completed its review of the payment effort that was approved in December 2021 and forwarded to the White House for review Sept. 30.

     Some details emerge. “Eligible dairy operations with less than 5 million pounds of established production history may enroll supplemental pounds based upon a formula using 2019 actual milk marketing,” according to a summary of the information sent to OMB. “Supplemental DMC coverage is applicable to calendar years 2021, 2022, and 2023. Participating dairy operations with supplemental production may receive supplemental payments besides payments based on their established production history.”

     Other changes coming. Beyond the DMC payments, the package also includes changes to the Marketing Assistance Loan (MAL) and Loan Deficiency Payment (LDP) regulations to make them consistent with the 2018 Farm Bill. The rule also covers the $9 million in assistance that was in the Consolidated Appropriations Act of 2019 to make payments to producers impacted by an Oriental Fruit Fly Quarantine in Florida. There was $9 million appropriated for the payments that may cover crops intended to be harvested in the 2015 and/or 2016 crop growing seasons.

— EPA formally publishes proposed rule to revert WOTUS definition mostly to pre-2015 rules. EPA today (Dec. 7) formally published the notice in the Federal Register (link) that would replace the definition of Waters of the US (WOTUS) established in the Trump-era Navigable Waters Protection Rule (NWPR) with a definition that is mostly the one that was in place prior to the 2015 Obama version of WOTUS. EPA announced it would propose setting the WOTUS definition back to the pre-2015 version as it seeks to develop a new definition.

     EPA is expected to announce a series of 10 regional meetings to gather more input from the public and interested parties on what that new definition should be. The agency asked for groups to nominate a slate of participants for the regional roundtables with those nominations due Dec. 1. The agency expects to hold those meetings in early 2022. Comments on the proposed rule to reset the definition to mostly the pre-2015 version of WOTUS are due Feb. 7.

— Slight uptick in CFAP 2 payouts. Payments approved under the Coronavirus Food Assistance Program 2 (CFAP 2) have moved up to $19.04 billion as of Dec. 5, including $14.22 billion in original CFAP 2 and $4.81 billion in top-up payments. As of November 28, the total CFAP 2 payments were at $19.03 billion. There was no major change to CFAP 1 payments as they are at $11.77 billion for total payments, including $10.58 billion for CFAP 1 and $1.19 billion for top-up payments.


— Evergrande debacle may be forcing China into a policy shift. The latest news on Evergrande suggests that the property developer is very close to default, and the shares of the super-indebted group say pretty clearly that it is going to happen. The shares fell 20% on Monday. The first signal was the People’s Bank of China cutting the required reserves ratio (RRR) by 50 basis points on Monday, the second cut this year. This will release credit into the economy. China watchers say the country is moving from regulatory tightening to supporting economic growth. They also say it’s just a mater of time before a currency devaluation of some sort.

     The Wall Street Journal’s editorial board has also caught notice, writing today: “Maybe China has to follow the usual economic rules after all. After many years pursuing an economic strategy dependent on a real-estate boom, Beijing is discovering it’s no easier to unwind those excesses in a state-dominated economy than it would be anywhere else.”


— U.S. gov’t officials as expected will boycott the Beijing Winter Olympics in February due to concerns about “crimes against humanity” and other human rights abuses, opening a new flashpoint between the world’s two biggest economies.   Jen Psaki, White House press secretary, said the administration would boycott the Games, which start in February, because of the “ongoing genocide and crimes against humanity” in Xinjiang. But she said the U.S. Olympic team had the “full support” of the president and his administration. In 1980, in the midst of the Cold War, President Carter kept U.S. athletes home from the 1980 Summer Olympics in Moscow to protest the Soviet invasion of Afghanistan.

     China reacts. China’s foreign ministry denounced the decision as “a serious violation of the principle of political neutrality in sport established by the Olympic Charter,” and reiterated its threat to take unspecified countermeasures against the U.S. “The crimes committed against Native Americans in the history of the U.S. are the real genocide,” a foreign ministry spokesman added. “The U.S. will pay a price for its wrong practices. Stay tuned for follow-up.”

     Antony Blinken, U.S. secretary of State, has described China’s repression of the Uyghurs as “genocide.” President Biden also raised the issue of Xinjiang and human rights during a virtual meeting with President Xi Jinping last month. Beijing has denied that it is persecuting Uyghurs and said the detention centers were education camps.

     U.S. seeks support of allies. Gregory Meeks (D-N.Y., the top Democrat on the House of Representatives foreign affairs committee, called on other countries to join the Biden administration’s diplomatic boycott. “We need to speak with one voice and make clear that silence is not an option when any country, no matter how powerful, grossly undermines universal human rights,” Meeks said.

     The announcement came as Biden prepares to host a White House Summit for Democracy, a virtual gathering of leaders and civil society experts from more than 100 countries that is set to take place Thursday and Friday. The administration has said Biden intends to use the summit “to announce both individual and collective commitments, reforms and initiatives to defend democracy and human rights at home and abroad.”

— China’s exports stayed strong in November. Outbound shipments rose 22% from a year earlier, slower than October's gain but well ahead of market expectations. Buoyed by robust global demand, exports have been China’s single biggest growth driver since the recovery from the pandemic began. Economists had expected exports to lose steam, but the resurgence of coronavirus in Southeast Asia and other parts of the world drove demand back to China, where stringent prevention measures kept production coming.

     China trade

— China’s soybean imports rise in November, but down from last year. China imported 8.57 MMT of soybeans in November, up 67.7% from October as more cargoes arrived from the U.S, though that was down 10.6% from last year. During the first 11 months of this year, China imported 87.65 MMT of soybeans, down 5.5% from the same period last year.

— China’s meat imports weaken. China brought in 677,000 MT of meat last month, up 2% from October but down 12.6% from last year. Cheaper domestic pork prices amid a surge in production cut demand for overseas supplies. Through the first 11 months of this year, China imported 8.7 MMT of meat, down 2.5% from the same period last year.


— USDA’s Vilsack pushes back against calls for halt to imports of Brazilian beef. USDA Secretary Tom Vilsack said it would not be appropriate for the U.S. to halt imports of Brazilian beef even though the country was late in reporting two atypical cases of BSE earlier this year. “At this point in time, there isn't a scientific reason or basis” to halt trade, Vilsack told Politico. He also noted there is a “misunderstanding” about the issues with Brazil. “There's the belief that there is something a bit more serious than in fact is,” Vilsack said.

     Several lawmakers, including Democrats, have called for the halt of imports of Brazilian beef, calling on USDA to act. “If we were to do that, then we would expose our own beef industry to significant restrictions worldwide under similar circumstances, which we don’t want to do,” Vilsack noted. While the atypical cases are not an indicator of major issues with BSE in Brazil, some lawmakers contend the delay by Brazil in notifying on the cases raises questions on how they would respond to a BSE outbreak or outbreaks of other animal diseases.

     Vilsack is relying on guidance from the World Animal Health Organization (OIE) which does not call for such a ban from atypical cases of BSE — ones that spontaneously occur at a low rate and do not pose a risk to other animals.


— Carbon price surge triggers U.K. ‘cost containment’ market mechanism. U.S. carbon price watchers take note because an energy crunch in Europe is driving the price paid by polluters to new highs and could mean the U.K. gov’t must act. Under the scheme, governments set a cap on the maximum level of emissions and create permits, or allowances, for each unit of emissions issued under the cap. Heavy polluting companies are obliged to buy credits granting them permission to emit one tonne of carbon. A gas shortage has led some energy producers to switch over to cheaper but dirtier coal. Since coal is more carbon intensive than gas, demand for allowances has increased. In the U.K., credits have surged and last week came near a record of more than £75 a tonne. Meanwhile the price under the EU system hit a high of more than €81 on Monday. This compares with about €32 a tonne at the start of the year. High prices triggered the UK’s “cost containment mechanism” (CCM) for the first time, which obliges policymakers to consider whether to intervene in the market. The government said it would announce whether to take action by Dec. 14.

— DOE official calls on oil companies to boost energy transition efforts. Oil companies need to increase their efforts as the US transitions to a clean energy economy, David Turk, deputy secretary of Energy, told the World Petroleum Congress in Houston, Texas. “I don’t think we’re going to be successful unless major companies step up to the plate and are part of the solution,” Turk said. “I’m sure there will be some companies who step up and are leaders in this transition and make a whole lot of money in the process, and I’m sure that there are some companies who don’t and will fail as part of this transition.” While companies such as Exxon Mobil and Chevron have put forth strategies to reduce emissions and bolster low-carbon projects, Turk said that energy firms need to act. “We can’t just have a press releases saying we’re going to do” carbon capture, Turk said. “We actually need to do it in the world, and frankly show the world that this is possible at scale, an environmentally friendly way that gives people confidence that this technology can and should be a part of the solution going forward.” CEOs from both Exxon Mobil and Chevron also addressed the meeting, urging an orderly transition needs to be made toward cleaner fuels. Carbon capture technology is among the areas oil and gas companies are talking about relative to lowering emissions. but it is clear that DOE wants them to speed up their activities.

— At least two companies said to submit offers for SPR crude. At least two international oil refiners expressed an interest in the exchange of up to 32 million barrels of crude oil in the Strategic Petroleum Reserve (SPR), according to Bloomberg. Bids were due Dec. 6 and the Department of Energy (DOE) is to award contracts no later than December 14. Deliveries are expected to take place January-April 2022 and early deliveries will be accepted later this month, DOE said when it announced the swap as part of tapping 50 million barrels of crude from the SPR in a bid to bring down gasoline prices.


— Michigan firm recalls over 230,000 pounds of pork. Alexander & Hornung, a St. Clare Shores, Michigan company that is a unit of Perdue Premium Meat Company, is recalling approximately 234,391 pounds of fully cooked ham and pepperoni products that may be contaminated with Listeria monocytogenes, according to USDA’s Food Safety and Inspection Service (FSIS). The products were produced on various dates and bear establishment number “EST. M10125” inside the USDA mark of inspection. These items were shipped to retail locations nationwide. The company notified FSIS that product sampling reported positive Listeria monocytogenes results, FSIS said, but there have been no confirmed reports of adverse reactions due to consumption of these products.


Summary: Global cases of Covid-19 are at 266,553,059 with 5,265,191 deaths, according to data compiled by the Center for Systems Science and Engineering at Johns Hopkins University. The U.S. case count is at 49,278,724 with 789,745 deaths. The Johns Hopkins University Coronavirus Resource Center said that there have been 471,700,443 doses administered, 199,313,022 have been fully vaccinated, or 60.72% of the U.S. population.

— New York City sets vaccine mandate. New York City will require all private-sector workers be fully vaccinated against Covid-19, in what Mayor Bill de Blasio described as a first in the nation measure. The surprise announcement Monday drew immediate pushback from some business leaders, as employment experts predicted the rule would face legal challenges. The mandate, which applies to employees working in person, will go into effect Dec. 27 — days before a new mayor takes office and as a federal vaccine requirement for many private-sector employees remains entangled in a court battle. About 184,000 businesses in the city will be affected.


— Nunes to resign and join Trump social media company. Rep. Devin Nunes (R-Calif.) is leaving Congress by the end of the month to head a social media company created by the former president. “I will deeply miss being your congressman,” Nunes said in a message to his constituents on Monday. Shortly after he sent the note, the Trump Media & Technology Group announced that Nunes, 48, would be its chief executive beginning in January. “Devin understands that we must stop the liberal media and Big Tech from destroying the freedoms that make America great,” Trump said. Trump started the social media company after he was banned on Twitter and Facebook in January after the Capitol riot. Nunes said he was “humbled” that Trump asked him to lead his new company, which is planning on launching a social media platform called TRUTH Social. “The time has come to reopen the internet and allow for the free flow of ideas and expression without censorship,” Nunes said. Nunes was very likely to become the chair of the Ways and Means Committee if Republicans take the majority after 2022 elections. Nunes had $11.8 million in his campaign account as of the end of September.



— U.S. mulls Russia sanctions. U.S. and European allies are reportedly weighing sanctions targeting Russia’s biggest banks along with the country’s ability to convert rubles for dollars and other foreign currencies should President Vladimir Putin invade Ukraine. Secretary of State Antony Blinken said the U.S. is preparing “high-impact economic measures that we’ve refrained from using in the past.” Biden administration officials are briefing that Russia is planning an invasion of Ukraine “as soon as early 2022.”

     A video call today between President Biden and Putin is described as one of the most difficult and consequential encounters between the two country’s leaders since the cold war. After positioning 90,000 troops (as well as tanks and artillery) near Ukraine’s borders, Russia has begun to signal what it aims to achieve. Last week, Putin made a threatening speech, warning the west not to cross Russia’s “red lines.” The Kremlin has said Putin will demand an agreement to “exclude any further NATO expansion eastward” to encompass Ukraine. Biden has said he cannot provide such a guarantee. Observers note it is the Kremlin’s actions since the 2014 pro-democracy uprising that toppled Russian-leaning president Viktor Yanukovich that have left a majority of Ukrainians now in favor of joining NATO. Russia’s annexation of Crimea and fomenting of a separatist conflict in east Ukraine convinced many previously agnostic citizens that they need the alliance’s protection.

     Putin insists that Ukraine is a failed state being led astray by scheming foreigners. The west, he suggests, is playing a “dangerous geopolitical game” and is intent on using Ukraine as a “springboard against Russia.” Thus, Russian motives for an invasion have been made.

     Ian Bremmer, the president of the Eurasia Group, a global risk assessment firm, insisted a Russian invasion of Ukraine by uniformed troops is unlikely given the certainty of harsh economic sanctions against Moscow as a result. He said Putin could escalate the conflict in other, more subtle ways through cyberattacks or hybrid warfare. “The Kremlin is highly incentivized to create ambiguity about what exactly they are doing,” Bremmer said. “It’s not at all clear how the Americans would respond to [hybrid warfare or armed conflict involving insurgents backed by Moscow]. The more Biden is able to spell that out in this phone call, the better.”

     But Ben Hodges, a retired three-star general who previously commanded U.S. Army forces in Europe, told the Los Angles Times that Russia’s military buildup since April makes it impossible to rule out an invasion. “It’s not inevitable, but all the pieces are in place,” said Hodges, who now holds the Pershing chair in Strategic Studies at the Center for European Policy Analysis. He said Russia’s rhetoric about Ukraine appears designed to send a message to the West and a domestic audience to prepare the public for military action.

     The timing of Putin’s pressure campaign makes sense because as winter approaches, Putin has additional leverage over Europe through the supply of natural gas after the completion of the Nord Stream 2 pipeline. “It’s the threat that they would turn it off if the West decides to act very strongly,” Hodges said. “There will be great reluctance for European nations to do something when they see President Putin has his hand on the gas meter.”

— Indonesia law would establish levy on palm plantations for environmental protection. Indonesia’s parliament has approved a law that would allow a new levy on palm plantations to protect the environment, with Sri Mulyani, Indonesia’s finance minister telling parliament it would be established in the next two years. There was no mention of how much the new levy would be, but it is aimed at boosting finances for provinces and cities. "The law provides an option to introduce a new levy to support regional fiscal capacity in order to provide quality services to the community ... in the context of public interest and environmental sustainability, such as a levy for the management of palm plantations," the minister said. The law would also allow for raising of some tax rates including on land and buildings, noting it would potentially boost revenues by about 50% after taking effect. The ability to issue municipal bonds to fund development projects is also part of the legislation. Timing and size of the new levy on palm plantations will be key to assessing the potential impact.


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