China Cutting Reserve Requirement Ratios, or RRRs, for All Banks

Child tax credit payouts start today | Recap of, reaction to, Biden’s executive order

In Today’s Digital Newspaper

Market Focus:
• China takes central bank action as economy slows
• Fed policy to provide ‘powerful support’ until recovery complete
• U.S. inflation focus continues
• Child tax credits of up to $300 per-child each month start today
• Long delays and rising costs rolling across ocean-going supply chains
• Katko: U.S. should go after crypto money trail for hacks
• G20 signs on to a global tax overhaul, but hurdles ahead
• China to add nearly 11 million tonnes in grain storage capacity

Policy Focus:
• Friday’s executive order (EO) targets three industrial sectors, including agriculture
• Reactions to Biden’s latest EO and USDA Friday announcements
• Crunch time for Biden’s legislative initiatives

Energy & Climate Change:
• Kerry holds climate talks in Moscow
• Yellen targets curbs on development bank support for fossil fuel
• Quarles urges global approach on climate-related financial risk

Coronavirus Update:
• Saudi gov’t restricts hajj for a second year
• Los Angeles County recorded more than 2,000 new coronavirus cases in two days
• Tokyo today enters a new state of emergency due to Covid-19
• Pfizer reps to meet with White House officials today re: a third booster shot

Politics & Elections:
• White House focus on accelerating crime in cities
• Texas Republicans advance new voting measure

Other Items of Note:
• Insect experts remove moth’s ‘gypsy’ name, deemed offensive
• Cuba protests

MARKET FOCUS

Equities today: Global stock markets were mixed to weaker overnight. The U.S. stock indexes are pointed toward mixed openings. JPMorgan Chase, Bank of America, Delta Air Lines and Pepsi are among the big firms reporting earnings this week. The flow of news overall was good for banks in the second quarter. The results of the Federal Reserve’s stress test paved the way for big capital returns. Shares of big banks are trading at about 50% of the forward price-to-earnings multiple of the S&P 500, compared with a historical median of 75%, according to analysts at Autonomous Research. In Asia, the MSCI Asia Pacific Index gained 1.2% and Japan’s Topix index closed 2.1% higher as stocks in the region reacted to Friday’s PBOC RRR cut (see details below).

Earnings update. FactSet reports that 66 companies in the S&P 500 have issued second-quarter earnings guidance that’s higher than what analysts were expecting. That’s the most in one quarter since at least 2006, when FactSet started tracking the stats.

U.S. equities Friday: The Dow gained 448.23 points, 1.30%, at 34,870.16. The Nasdaq rose 142.13 points, 0.98%, at 14,701.92. The S&P 500 was up 48.73 points, 1.13%, at 4,369.55.

On tap today:

• USDA Grain Export Inspections report, 11 a.m. ET.
• Federal Reserve: New York Fed President John Williams speaks on inflation at 9:30 a.m. ET, and Minneapolis Fed President Neel Kashkari speaks at a virtual town hall at 12 p.m.
• USDA WASDE, Crop Production reports, noon ET.
• USDA Crop Progress report, 4 p.m. ET.

China is cutting its reserve requirement ratios, or RRRs, for all banks. This means that they can lend more, and so injects more money into the Chinese economy. It is a loosening move that means more liquidity. This is the first RRR cut since the bleakest days of the pandemic last year.

Wei Yao, China economist for SocGen, summarized the China move: “The past history of RRR cuts (of any kind) suggests that this tool is never used when the economy is doing well. So now that the trigger has been pulled, two things are clear. - First, the economy is not doing well, and this will likely be confirmed by next week’s 2Q GDP data…. Second, China’s easing cycle has started... We now expect another RRR cut of 50bp in 4Q. Based on our current economic projection and bearing in mind the PBoC’s dislike of excessive easing, we do not think the economy would warrant an interest rate cut this year yet. Next year looks more likely. However, even without a policy rate cut, the PBoC will probably drive down interbank rates with more generous liquidity injections from here.”

Fed policy to provide ‘powerful support’ until recovery complete. The Federal Reserve said the widening Covid-19 vaccination program has helped the U.S. economy stage a robust rebound, while pledging that monetary policy will continue to provide “powerful support.” The Fed’s semi-annual Monetary Policy Report (link), which provides lawmakers with an update on economic and financial developments and monetary policy, was published on the central bank’s website ahead of Chair Jerome Powell’s testimony before the House Financial Services Committee on Wednesday and the Senate Banking panel a day later.

U.S. inflation focus continues. Economists surveyed by the WSJ expect the Labor Department to report Tuesday that the consumer-price index rose 4.7% in June from a year before. The respondents said Americans should brace themselves for several years of higher inflation than they’ve seen in decades.

Child tax credits of up to $300 per-child each month start today. The IRS will send the first round of payments today. Additional payments will follow each month through the end of the year according to the schedule. As it stands right now, the payments will not carry over into 2022 (although President Biden wants to extend them beyond this year). For most people, the combined total of the six monthly payments will equal 50% of the child tax credit they’re expected to qualify for on their 2021 tax return. They’ll claim the other half when they file their 2021 return next year.

For 2021 only, the child tax credit is increased from $2,000 for each child age 16 or younger to $3,600 per child for kids who are 5 years old or younger and $3,000 per child for kids 6 to 17 years of age. That translates into a maximum monthly payment of up to $300 for each child under age 6 and up to $250 for each child ages 6 through 17. Families with higher incomes won’t receive that much or could be denied the credit altogether. But most eligible parents will see a considerable bump in their child tax credit for the 2021 tax year.

G20 signs on to a global tax overhaul. Finance ministers from the group backed efforts to create a global minimum tax rate of 15 percent and impose new levies on multinationals. But there’s a long road ahead, as lawmakers in the U.S. and elsewhere debate the specifics. U.S. business leaders are urging delay as lawmakers prepare for a complex two-step approval process. Meanwhile, the European Union will delay its proposed digital levy following the G20’s minimum-tax plans.

Market perspectives:

• Outside markets: The U.S. dollar index is firmer amid a mixed tone in foreign currencies versus the greenback. The yield on the 10-year U.S. Treasury note has retreated, trading under 1.35% and tracking a weaker trend in global government bond yields. Gold and silver futures are lower in electronic trading, with gold trading around $1,800 per troy ounce and silver around $25.95 per troy ounce.

• Crude oil futures are under pressure ahead of the U.S. trading start on economic concerns, with U.S. crude under $73.35 per barrel and Brent under $74.40 per barrel. Futures were little changed in Asian action, with U.S. crude down one cent at $74.55 per barrel and Brent down three cents at $75.52 per barrel.

• Long delays and rising costs rolling across ocean-going supply chains are having a particularly big impact on small and medium-size businesses. Retail heavyweights like Walmart and Amazon are rushing to restock ahead of the fall peak shipping season, and the Wall Street Journal reports (link) that is increasingly crowding out smaller shippers who must battle over dwindling container capacity out of Asia. Those who want immediate shipments often must pay about three times the going freight cost (link), part of a “bidding war” that has pushed asking prices for late bookings beyond $20,000 per 40-foot container. Shipping executives say rising freight costs are the result of disruptions across supply chains that triggered delays at ports and inland distribution networks. Things aren’t expected to ease before the end of the year. Operators say retailers started booking cargo space for year-end holiday merchandise in June.

• Katko: U.S. should go after crypto money trail for hacks. House Homeland Security Committee ranking member John Katko (R-N.Y.) said the U.S. should go after cryptocurrency transfers in ransomware attacks, Brody Ford reports. “We need to be very aggressive in going after the money trail and make it more and more difficult for them to get paid,” Katko said in an interview with Bloomberg TV.

• China to add nearly 11 million tonnes in grain storage capacity. China will boost grain storage capacity by some 10.85 million tonnes, with Sinograin set to build 120 storage facility projects in 18 provincial administrations, according to a Reuters report citing huanqiu.com, a website controlled by the state-owned Global Times. Reports indicate the country has 650 million tonnes of grain storage capacity, based on media reports from April.

• CFTC Commitments of Traders report (Source: Barron’s):

• NWS weather outlook: Heavy rain and potential flooding for parts of the Eastern U.S. and the Desert Southwest... ...Heat wave continues for much of the western U.S. through early this week...

POLICY FOCUS

— As expected, Friday’s executive order (EO) targets three industrial sectors in which the White House said consolidation has led to higher prices: agriculture, technology and drugs. Inside the sweeping EO (link) are 72 initiatives affecting everything from restrictive noncompete clauses to drug imports from Canada. “What we’ve seen over the past few decades is less competition and more concentration that holds our economy back,” President Joe Biden said in the White House on Friday, citing the agriculture, technology and pharmaceutical industries. “Rather than competing for consumers, they are consuming their competitors. Rather than competing for workers, they’re finding ways to gain the upper hand on labor.”

Biden’s EO encourages U.S. agencies to push back against corporate consolidation and business practices that might stifle competition across a range of industries, from Big Tech to airline baggage fees. Republicans and some conservative economists, meanwhile, point to studies casting skepticism on the degree of consolidation and showing benefits to consumers from big businesses, and they say government intervention risks making the U.S. economy less productive.

Biden’s EO includes directives on issues long pushed by some farm groups, such as rules that would help farmers and ranchers win claims against poultry and meat packers, and better-defined “Product of the USA” labels. It also encourages regulators to limit equipment makers’ ability to restrict farmers from repairing their own tractors. Among the final actions of the Obama administration were new rules making it easier for farmers and ranchers to sue the companies for anti-competitive behavior under the Packers and Stockyards Act of 1921, measures that were strongly opposed by the meat industry.

Summary of key ag-related provisions:

• Calls for new rules to benefit farmers and ranchers, directing USDA to make it easier for dairy and livestock producers to challenge processors. Includes three rulemakings under the Packers and Stockyards Act (PSA) to “clarify the conduct that USDA considers a violation of the Packers and Stockyards Act, including conduct that is unfair, deceptive, or unjustly discriminatory against farmers and growers.” The second effort will seek to “address oppressive practices in chicken processing.” The third action planned by USDA is to “reinforce the longstanding USDA position that it is not necessary to demonstrate harm or likely harm to competition in order to establish a violation of the Act.” All three were rules put forth by the Obama administration but were revised or withdrawn by the Trump administration.
• Asks USDA to consider issuing new rules defining when meat can bear “Product of USA” labels to restrict companies from labeling food produced outside the country as American-made when it was simply processed domestically.
• Orders USDA to help farmers access markets and receive a fair return on their goods, including supporting alternative food distribution systems like farmers’ markets and developing standards and labels so that consumers can choose to buy products that treat farmers fairly.
• Requires railroad track owners to give right of way for passenger rail and to treat other freight companies equally. The measure also addresses shipping fees, which domestic manufacturers are currently forced to pay to foreign companies.
• Encourages the Federal Trade Commission (FTC) to keep equipment manufacturers from limiting consumers’ ability to repair products at independent shops or on their own — the so-called Right to Repair movement. The move is intended to especially benefit farmers, who face expensive repair costs from tractor manufacturers that use proprietary tools and software to prevent third parties from working on equipment. Proprietary repairs by farm equipment manufacturers such as John Deere can cost thousands for an easy fix. The issue includes designing products with cases welded or glued shut, or with specialized parts and diagnostic tools available only through preferred dealers or repair networks and installing digital locks that cannot be circumvented without violating copyright law, even when it’s done with the sole intention of restoring original function to a broken device. Therefore, opponents note, consumers who need repairs must rely on either the original manufacturer or its authorized outlets, which can charge higher-than-reasonable fees because of the lack of competition. This year there were Right-to-Repair bills in about half the U.S. states, though none has been made into law yet. Biden’s EO follows the release of an FTC report in May (link) that outlined several practices by manufacturers to keep people from tinkering with their products and found “scant evidence to support manufacturers’ justifications for repair restrictions.” The report also noted that the burden of these anticompetitive practices falls heaviest upon communities of color and low-income consumers. John Deere and other manufacturers such as Apple and Microsoft argue that giving consumers control over their products opens the door to unsafe fixes that could bypass federal rules, such as auto emission limits, and open the door to digital piracy.
• Asks the Federal Maritime Commission, an independent agency, to aggressively enforce law against companies that charge exporters high prices to transport their products by sea.
• Advances the administration’s push to step up antitrust enforcement amid widespread criticism that enforcers at the Justice Department and the FTC haven’t gone far enough to police mergers and anticompetitive conduct. The White House Council of Economic Advisers noted several examples of industries in an accompanying research brief on Friday (link), including beef packing and airlines, which are each dominated by four large companies.
• Creates a White House Competition Council, led by Brian Deese, the director of the National Economic Council, which will “coordinate the federal government’s response to the rising power of large corporations in the economy,” administration officials said in a statement. Lina Khan, the FTC chair, and Richard A. Powers, who is serving as the acting assistant attorney general for antitrust, said that their agencies would review the current guidelines “with the goal of updating them to reflect a rigorous” approach toward mergers. “We must ensure that the merger guidelines reflect current economic realities and empirical learning and that they guide enforcers to review mergers with the skepticism the law demands,” the two said in a statement. Separately, Attorney General Merrick Garland said that the Justice Department would work closely on competition questions with officials in other government agencies. That could include weighing in on mergers being vetted by other agencies, which can consider deals using standards that are not related to whether a transaction will decrease competition.
• Asks the Federal Communications Commission to adopt new restrictions on the practices of broadband internet providers like Comcast, AT&T and Verizon. Activists have long said consumers have too few choices, and pay too much money, for internet service. The order also encourages the agency to reinstitute so-called net neutrality rules that barred internet providers from blocking certain content, slowing down its delivery or letting clients pay more to have their content delivered faster. The agency adopted the rules during the Obama administration and then rolled them back under Trump.

• USDA plans to invest $500 million to increase meat-processing capacity, as we alerted, with the aim of giving farmers, ranchers and consumers more choices. “We have got to expand the amount of processing capacity in this country,” Vilsack said during a news conference in Iowa on Friday. “We can no longer rely on a handful of processing companies to do the job, to make the market competitive, to do right by farmers” and “to ensure as well that we have a resilient food supply system,” he said. Link provided by USDA to the version of the RFI that has not yet been filed or published at the Federal Register. Contacts have said the funds are expected to become available in Fiscal Year (FY) 2022 which starts October 1.

  USDA also announced more than $150 million for existing small and “very small” processing facilities to help them contend with the ongoing pandemic and compete. USDA will invest more than $55 million in “strengthening existing small and very small meat processing capacity, benefitting smaller producers and processing plants,” the agency said. They noted there is already $55.2 million available for Meat and Poultry Inspection Readiness Grants to support expanded meat and poultry slaughter and processing capacity and efficiency. USDA will earmark $100 million to help small and very small processing plants “weather the volatility and unexpected costs that COVID imposed.” It will use American Rescue Plan funds to “reduce the financial burden of overtime inspection fees for small and very small poultry, meat and egg processing plants, which provide farmers with local alternatives and greater capacity to process livestock.” Link to a notice expected to be posted soon and released in the Federal Register.

  USDA said it will hold targeted stakeholder meetings and other public engagement to better understand the needs, gaps, and barriers to fair and competitive meat processing markets.

Reactions:

• R-CALF: “We’ve urged administration after administration for the past 20 years to begin proper enforcement of both antitrust laws and the 100-year-old Packers and Stockyards Act and this is the first administration to actually take action,” said Bill Bullard, CEO of rancher group, R-CALF USA, in an emailed statement.
• Farm Bureau: Zippy Duvall, president of the American Farm Bureau Federation, said the group would examine the details of the order, and would work with the administration “to ensure changes are consistent with our grassroots policy, and farmers and ranchers are provided greater flexibility to remain competitive in our growing economy.”
• Meat Institute: The North American Meat Institute, a trade group representing meat and poultry producers, said it remained opposed to changes to the act that Biden was seeking to amend. “Government intervention in the market will increase the cost of food for consumers at a time when many are still suffering from the economic consequences of the pandemic,” said Julie Anna Potts, president and CEO of the Meat Institute.
• National Chicken Council President Mike Brown said his industry is “one of the least consolidated” in U.S. agriculture, and he called the order “surprising,” given Biden’s “long history of support for the chicken industry.”
• Sen. Chuck Grassley (R-Iowa) issued a statement saying he was “glad the Biden administration is particularly beefing up enforcement and expanding transparency in the livestock markets.”
• Senate Minority Leader Mitch McConnell (R-Ky.) vowed that Republicans would front a “hell of a fight” over Democrats’ work to pass a reconciliation package at an event in Kentucky last week. “The era of bipartisanship on this stuff is over… This is not going to be done on a bipartisan basis. This is going to be a hell of a fight over what this country ought to look like in the future and it’s going to unfold here in the next few weeks. I don’t think we’ve had a bigger difference of opinion between the two parties,” McConnell said about Democrats plans to pass an infrastructure along party lines.
• Freight railroad and shipping trade groups expressed opposition to Biden’s order, saying that there’s sufficient competition among their industries and the order would put them at a disadvantage.
• Business groups in Washington quickly criticized the order. The executive order “is built on the flawed belief that our economy is over-concentrated, stagnant and fails to generate private investment needed to spur innovation,” said Neil Bradley, executive vice president of the U.S. Chamber of Commerce. “Such broadsided claims are out of touch with reality, as our economy has proven to be resilient and remains the envy of the world.” The National Association of Manufacturers added, “some of the actions announced today are solutions in search of a problem; they threaten to undo our progress by undermining free markets and are premised on the false notion that our workers are not positioned for success.”

Comments: Biden will need to work with Congress to change federal laws if he hopes to have more success than former President Donald Trump, who also issued competition-focused executive orders and who saw limited results from them. Also, several of the agencies, such as the Federal Trade Commission and the Federal Communications Commission, mentioned in the EO are independent, meaning the White House can only encourage them, not direct them, to take specific steps. But statements from those agencies largely embraced the proposals and promised to act. Meanwhile, several EO proposals are expected to garner court challenges. For example, federal courts have taken a conservative approach to antitrust law in recent decades, underscoring how difficult it may be for the order to have any lasting effect.

— Crunch time for Biden’s legislative initiatives. The Week Ahead in Washington (link) provides the background on the timeline and specifics of two measures that will define the Biden presidency, either in victory or defeat. As noted, over the next three weeks, the Senate probably will vote on the infrastructure deal that Biden reached last month with a group of Republican and Democratic centrist senators — at least 10 Republicans will be needed to pass the bipartisan measure through the Senate, not a sure thing. By early August, both houses probably will vote on a budget resolution, a procedural move that determines the scope of the tax and spending bill that Democrats can advance later in the year using special rules to avoid a Republican filibuster.

The reconciliation process includes complex rules on the measure’s contents. Leading Democrats hope those rules provide enough leeway to include House-passed measures giving legal status to millions of immigrants living in the U.S. without authorization, including young people who came to the country as children, the so-called Dreamers, and close to 1 million long-term farmworkers.

The checklist of items on the coming “social” infrastructure package is still not finally determined as language needs to be written. In a speech last Wednesday at McHenry County College in Illinois, Biden laid out several priorities: extending for at least four more years the current expanded child tax credit, which administration officials believe can cut the child poverty rate in half; “two years of universal, high-quality preschool for 3- and 4-year-olds” and two years of free community college; expanded child care; 12 weeks of paid family leave; money for affordable housing; and tax credits to spur production of renewable energy.

In the House, which will vote on the budget resolution first — probably in the last two weeks of July — Speaker Nancy Pelosi (D-Calif.) must keep far-left Democrats such as Reps. Alexandria Ocasio-Cortez of New York and Pramila Jayapal of Washington happy while not losing the votes of more conservative members like Josh Gottheimer of New Jersey and Abigail Spanberger of Virginia.

ENERGY & CLIMATE CHANGE

— Kerry holds climate talks in Moscow. White House climate envoy John Kerry is in Moscow today for talks with Russian Foreign Minister Sergey Lavrov to align goals between the two powers ahead of November’s United Nations climate change conference. Kerry was the first Biden Cabinet member to visit China — meeting with his counterpart Xie Zhenhu in Shanghai one month after U.S. and Chinese officials clashed at a frosty Alaska summit. He will now the be the first to visit Russia, a journey three of his fellow Cabinet members are banned from making due to tit-for-tat sanctions related to the SolarWinds hack. Today’s meeting brings together two of the world’s top five oil exporters and two of the four largest carbon emitters.

— Yellen targets curbs on development bank support for fossil fuel. U.S. Treasury Secretary Janet Yellen signaled she’ll prod multilateral development banks to rein in their lending for fossil fuels, part of a global effort to make the financial system greener. Yellen said she will convene the heads of such institutions “to articulate our expectations that the MDBs align their portfolios with the Paris Agreement and net-zero goals as urgently as possible,” according to the text of a speech at an international climate conference in Venice, Italy.

— Quarles urges global approach on climate-related financial risk. Federal Reserve Vice Chair for Supervision Randal Quarles is calling for an internationally coordinated approach to understanding and monitoring climate-related financial risks. Speaking on the sidelines of a Group of 20 Finance Ministers meeting in Venice yesterday in his capacity as chair of the Financial Stability Board, Quarles said disclosures and data would be essential. “Globally consistent, comparable, and reliable disclosures, as well as a broader set of high-quality, relevant data, together, can provide the basis to assess climate-related financial risks,” he told the Venice International Conference on Climate Change.

CORONAVIRUS UPDATE

— Summary: Global cases of Covid-19 are at 186,845,482 with 4,032,630 deaths, according to data compiled by the Center for Systems Science and Engineering at Johns Hopkins University. The U.S. case count is at 33,853,971 with 607,156 deaths. The Johns Hopkins University Coronavirus Resource Center said that there have been 334,151,648 doses administered, 159,266,536 have been fully vaccinated, or 48.5% of the U.S. population.

— Saudi government restricts hajj for a second year. The five-day pilgrimage to Mecca, which begins around Saturday, will be limited to 60,000 worshipers already in the country after authorities still grappling with Covid-19 once more barred foreign travelers from taking part in one of Islam’s most important rituals.

— Los Angeles County recorded more than 2,000 new coronavirus cases in two days, part of a troubling rise in cases as viral transmission increases among unvaccinated people. It was the first time since early March that the county has reported two consecutive days when more than 1,000 new coronavirus cases were reported.

— Tokyo today enters a new state of emergency due to Covid-19 which will last through Aug. 22, a period which includes the Olympic Games.

— Representatives from Pfizer are set to meet with White House officials today to make the case for giving the public a third booster shot of the company’s Covid-19 vaccine. The meeting comes after Pfizer’s recent release of early data from a study showing a five- to 10-fold increase in antibody levels after a third dose was administered. Speaking on Sunday, Anthony Fauci — President Biden’s chief medical advisor — said it was too early to consider a further dose: “Right now, given the data and the information we have, we do not need to give people a third shot.”

POLITICS & ELECTIONS

— White House focus on accelerating crime in cities. President Biden today “will meet with local leaders including law enforcement, elected officials, and a community violence intervention advocate” on gun crime and other violent crime, White House press secretary Jen Psaki said. t Biden will meet with Eric Adams, the Democratic nominee for New York City mayor, and a group of local leaders and law-enforcement officials as the White House seeks ways to curb gun violence.

— Texas Republicans advance new voting measure. Lawmakers moved forward with an overhaul of the state’s voting laws at a special legislative session. Democrats, who have criticized the proposals as efforts to disenfranchise minority voters, are preparing to fight but have limited options; all eyes are on Texas-based companies to see if they will make statements about the measures.

OTHER ITEMS OF NOTE

— Insect experts remove moth’s ‘gypsy’ name, deemed offensive. Bug experts are dropping the common name of a destructive insect because it’s considered an ethnic slur: the gypsy moth. The Entomological Society of America, which oversees the common names of bugs, is getting rid of the common name of that critter and the lesser-known gypsy ant. The group announced that for the first time it changed a common name of an insect because it was offensive. In the past they’ve only reassigned names that weren’t scientifically accurate. “It’s an ethnic slur to begin with that’s been rejected by the Romani people a long time ago,” society President Michelle Smith said. “Second, nobody wants to be associated with a harmful invasive pest.” The society is taking a hard look at some of the more than 2,000 common insect names to remove derogatory and geographically inaccurate ones. About 20 years ago, a committee of fish experts renamed the jewfish as the goliath grouper, according to the Associated Press.

— Cuba protests. Thousands of Cubans took to the streets around the country on Sunday in a rare protest against the government and deteriorating living conditions in the country. Cubans continue to face a severe economic crisis amid a U.S. blockade and Trump-era sanctions that remain in place as well as a drop in tourism due to pandemic travel restrictions. Cuban President Miguel Díaz-Canel called the protests a form of “systemic provocation” by U.S.-backed dissidents, alleging Washington was attempting to “provoke a massive social implosion.”