China Q3 GDP Weaker Than Expected
WSJ survey: High inflation will grip U.S. economy well into 2022 | Shipping snags continue
In Today’s Digital Newspaper
Market Focus:
• High inflation will grip the U.S. economy well into 2022: WSJ survey
• Shipping snags continue
• Inflation is surging worldwide
• Christmas shopping early this year
• Hollywood shutdown averted
• Traders betting U.S. oil benchmark will surge above $100 a barrel
• Energy crunch in California?
• Globally, there are now 584 container ships stuck outside ports
• U.S. soft red winter wheat producers asking about prevent plant
• Fertilizer contacts signal farmers keeping options open until next year
• Brazil’s safrinha (winter) corn crop could be impacted by fertilizer issues
• If new-crop cotton prices hit 92-cents-plus, boost planting intentions for 2022
• Ag demand update
• Beans weaker, corn and wheat near unchanged
• China’s Q3 GDP weaker than expected
• China’s wheat imports plunge in September
• China’s Q3 pork production highest in three years
• Watching for a low in wholesale beef market
• Cash hog prices continue to decline
Policy Focus:
• Biden concedes economic plan to fall short of $3.5 trillion
• White House losing patience as reconciliation talks linger
• Likely tax changes in reconciliation measure
Afghanistan:
• U.S. pledges to pay relatives of innocent Afghans killed in drone strike
China Update:
• China’s economic growth slowed sharply in the third quarter
• China’s wheat imports plunge in September
• China’s Q3 pork production highest in three years
Trade Policy:
• USTR Tai requesting two-part investigation by ITC
Energy & Climate Change:
• Some Democrats mulling new carbon tax, sensing an opportunity
Coronavirus Update:
• FDA advisors recommend booster shot for J&J vaccine
• From Nov. 8, foreign travelers may enter America
• German state allows food stores to ban the unvaccinated
Politics & Elections:
• Group cites Biden administration official for violating federal ethics law
• 2020 census count handed Texas two additional seats in Congress
Other Items of Note:
• Biden administration will revive Trump’s ‘Remain in Mexico’ policy
• Russia says warship intercepted U.S. destroyer; U.S. denies
MARKET FOCUS
Equities today: Global stock markets were mostly lower in overnight trading. The U.S. stock indexes are pointed to lower openings. Asian equities were mixed, with pressure in several markets from disappointing China GDP data (see details below). The Nikkei fell 43.17 points, 0.15%, at 29,025.46. The Hang Seng Index rose 78.79 points, 0.31%, to finish at 25,409.75 in a late push from its session lows. European equity markets are mostly lower in early action with China GDP data providing pressure. The Stoxx 600 was down 0.4% with regional markets down 0.3% to 0.7%.
U.S. equities Friday: The Dow finished up 382.20 points, 1.09%, at 35,294.76. The Nasdaq gained 73.91 points, 0.50%, at 14,897.34. The S&P 500 rose 33.11 points, 0.89%, at 4,471.37.
For the week, the S&P 500 wrapped up its best week since July, closing at its highest level in a month, as a series of upside earnings reports from Wall Street's biggest banks outweighed negative macro sentiment. U.S. Treasuries fell as the 10-year yield inched above 1.57%, but more telling was the two-year yield climbing to its highest since February 2020.
On tap today:
• U.S. industrial production for September is expected to increase 0.2% from the prior month. (9:15 a.m. ET)
• National Association of Home Builders housing market index is expected to hold at 76 in October, unchanged from the prior month. (10 a.m. ET)
• USDA Grain Export Inspections, 11 a.m. ET.
• Minneapolis Fed President Neel Kashkari speaks at a forum on minorities in banking at 1:15 p.m. ET.
• USDA Crop Progress, 4 p.m. ET.
High inflation will linger for the U.S. economy well into 2022, as constrained supply chains keep upward pressure on prices and curb output, according to economists surveyed this month by the Wall Street Journal (link). The economists’ inflation projections are up dramatically from July, while short-term growth outlooks are lower. Economists on average see inflation at 5.25% in December, just slightly less than the rate that has prevailed since June. Assuming a similar level in October and November, that would mark the longest inflation has been above 5% since early 1991.
Economists slashed GDP growth forecasts this year, to an average 3.1% annualized in the third quarter from 7% in the July WSJ survey. They also lowered projected fourth-quarter growth to 4.8% from 5.4%. Around half of respondents cited supply-chain bottlenecks as the biggest threat to growth in the next 12 to 18 months, while nearly one-fifth pointed to labor shortages.
Inflation is surging worldwide. The sharpest consumer-price increases in years in many countries have evoked different responses from central banks. More than a dozen have raised interest rates but two that haven’t are those that loom largest over the global economy: the U.S. Federal Reserve and the European Central Bank. Their differing responses reflect differences in views about whether the pickup in prices will feed further cycles of inflation or will instead peter out. The WSJ notes which view is right will do much to shape the trajectory of the global economy over the next few years.
Early Christmas shopping. According to a RetailMeNot survey of almost 1,100 consumers, 37% of shoppers began their holiday shopping between August and September (if not earlier). Another 22% said they would start shopping in October, while 24% planned to begin in November ahead of Thanksgiving. Americans are expected to spend about $1.3 trillion this holiday season, per the latest forecast from Deloitte, marking a 7% to 9% increase over last year.
Hollywood shutdown averted. A strike that would have disrupted TV and movie production nationwide has been avoided at the eleventh hour. Over the weekend, a three-year deal was struck between the International Alliance of Theatrical Stage Employees (IATSE), which includes film crews across the country, and the Alliance of Motion Picture and Television Producers (AMPTP), which represents major Hollywood studios. "This is a Hollywood ending," IATSE International President Matthew Loeb said in a statement. "Our members stood firm. They're tough and united. We went toe to toe with some of the richest and most powerful entertainment and tech companies in the world, and we have now reached an agreement with the AMPTP that meets our members’ needs."
Market perspectives:
• Outside markets: The U.S. dollar index was slightly higher ahead of U.S. trading, with weakness in the euro and British pound against the U.S. currency. The yield on the 10-year U.S. Treasury note is higher, trading around 1.61%, with a firmer tone in global government bond yields. Gold and silver futures are under pressure ahead of U.S. trading, with gold around $1,762 per troy ounce and silver around $23.35 per troy ounce.
• Traders are betting that the U.S. oil benchmark will surge above $100 a barrel, from a recent $82, as early as December. U.S. crude, known as West Texas Intermediate or WTI, is up 10% this month, and 70% this year, but it hasn’t hit $100 since the oil crash of 2014.
• Crude oil futures have mostly maintained advances as U.S. trading nears. U.S. crude was trading around $83.55 per barrel and Brent around $85.70 per barrel. Futures were stronger in Asian action, with U.S. crude up $1.19 at $83.47 per barrel while Brent crude rose 89 cents at $85.75 per barrel.
• Energy crunch in California? The impending closure of California’s fossil-fuel power plants and a nuclear facility has the state racing to secure large amounts of power. State energy officials are concerned that purchases may not be enough to prevent power shortages in coming summers.
• Globally, there are now 584 container ships stuck outside ports, nearly double the number at the start of the year, according to real-time data from Kuehne+Nagel, one of the world’s largest freight forwarders. The backlog off southern China is currently the world’s worst. A typhoon closed the ports for two days recently — but although weather often disrupts shipping, this just added to the problems from previous jams since the pandemic began. Meanwhile, the average global price of shipping a 40 foot container is now close to $10,000, three times higher than at the start of 2021 and almost 10 times pre-pandemic levels, according to Freightos.
• U.S. soft red winter wheat producers are asking their crop insurance agents about prevent plant. So much so that several agents told Pro Farmer that the expected boost in acres for the 2022 crop may not be as high as initially thought.
• Fertilizer contacts signal a growing number of farmers are keeping their options open until next year relative to prices and availability of fertilizer, etc. “The U.S. market is going to have to bid up the price of corn to make sure plantings do not go down significantly,” one analyst told us at an industry confab. Sources also note that the nitrogen price and availability issues may impact Brazil’s safrinha (winter) corn crop.
• If new-crop cotton prices hit 92-cents-plus, boost planting intentions for 2022, a cotton industry official told Pro Farmer. The source expects a boost in plantings next year, but stressed the price-trigger as a motivating factor. Demand has been so good for U.S. cotton that the industry source frets that logistical snafus could impact shipments ahead.
• Ag demand: Ethiopia tendered to buy around 400,000 MT of milling wheat in an international tender.
• This winter, La Niña could have a particularly devastating effect on the Southwest if dry weather prolongs severe drought conditions that have strained the region.
• NWS weather: Upper level low to generate accumulating mountain snowfall from the Sierra Nevada to the Intermountain West... ...Below normal temperatures to persist in the West; seasonally cool temperatures along the East and Gulf Coasts to moderate by mid-week; warmest temperatures versus normal in the Midwest & Great Lakes.
Items in Pro Farmer's First Thing Today include:
• Beans weaker, corn and wheat near unchanged
• China’s Q3 GDP weaker than expected
• China’s wheat imports plunge in September
• China’s Q3 pork production highest in three years
• Watching for a low in wholesale beef market
• Cash hog prices continue to decline
POLICY FOCUS
— Biden concedes economic plan to fall short of $3.5 trillion. President Joe Biden conceded Friay that his economic plan won’t pass Congress with $3.5 trillion in new spending over a decade, the level sought by progressives, but again declared that the legislation will become law. “I’m convinced we’re going to get this done,” he said at a childcare center in Hartford, Conn. “We’re not going to get $3.5 trillion. We’ll get less than that. But we’re going to get it and we’re going to come back and get the rest.”
The White House and Democratic congressional leaders are discussing how to scale back the larger, social-spending measure to win the votes of two holdout Senate Democrats, Arizona’s Kyrsten Sinema and West Virginia’s Joe Manchin. Manchin has said he wants a topline of no more than $1.5 trillion over 10 years for the legislation, though Biden has said he thinks a compromise might be found around $2 trillion.
Biden sizes up the debate. “They’re not about left versus right. They’re not about moderate versus progressive, or anything else that pits one American against another,” Biden said. “These bills in my view are literally about competitiveness versus complacency, about opportunity versus decay, about leading the world or continuing to let the world move by us.”
— White House losing patience as reconciliation talks linger. President Biden’s team believes it’s time for the negotiations to wrap up soon. Transportation Secretary Buttigieg said on CNN’s State Of The Union, “If you care about inflation, you ought to care about not just the supply chain issues, not just the infrastructure things I work on, but also the provisions in Build Back Better like paid family leave, like making it easier to afford childcare, like community college, that are going to give us a stronger labor force and help us deal with that major constraint on economic growth.” Meanwhile, The Hill says Democrats are facing “tortuous choices in how to potentially pick and choose from proposals to invest in child care and promote women’s participation in the workforce as they look for ways to scale back” the legislation. The “interconnectedness of the child and family support measures makes it particularly difficult for Democrats to pick and choose which ones to keep.”
— Likely tax changes in budget reconciliation package: The most recent version calls for raising taxes on corporations’ domestic and foreign income, on closely held businesses, capital gains, high-income individuals and estates. It also would nearly double the size of the Internal Revenue Service. Of note, ag tax specialist Paul Neiffer says he still thinks that while there will be no transfer tax, there will be changes to stepped-up basis. He also predicts a big reduction in the estate tax exemption. He doesn’t think Congress will alter 1031 land exchanges.
AFGHANISTAN
— U.S. pledges to pay relatives of innocent Afghans killed in drone strike. The U.S. Defense Department said Friday that it was working to provide condolence payments to relatives of 10 innocent Afghans killed in a mistaken drone strike and to help relocate some of them to the United States. The payments were discussed in a virtual meeting between Dr. Colin Kahl, undersecretary of Defense for policy, and Steven Kwon, founder and president of the nonprofit group Nutrition & Education International. The Pasadena charity had employed Zemari Ahmadi, who was mistaken for a terrorist and killed along with nine others, including seven children, in the Aug. 29 strike on the family compound.
CHINA UPDATE
— China’s economic growth slowed sharply in the third quarter. Gross domestic product grew 4.9% from a year earlier, versus a 7.9% gain in the second quarter. The weaker-than-expected GDP growth reflects several factors, including policy makers’ decision to pare back stimulus enacted in the immediate aftermath of the pandemic; a crackdown on the technology, private education and real-estate sectors; power shortages caused in part by soaring coal prices and more aggressive energy targets; and disruptions to the supply chain caused by Covid-19 outbreaks, semiconductor shortages and port shutdowns.
Comments: China’s economic growth is the slowest pace since 1990, excluding the pandemic. Chinese officials asserted that the embattled real estate developer Evergrande wasn’t a factor and its troubles could be contained. "The domestic economic recovery is still unstable and uneven," National Bureau of Statistics spokesperson Fu Linghui said at a news briefing. China is targeting a full-year GDP target of 6% or more for 2021 and estimates even stretch to growth of more than 8%. What will China do? "We expect more measures to shore up growth, including ensuring ample liquidity in the interbank market, accelerating infrastructure development and relaxing some aspects of credit and real estate policies," said Tommy Wu, lead economist at Oxford Economics.
— China’s wheat imports plunge in September. China imported 640,000 MT of wheat in September, down 40.4% from year-ago, as elevated international prices and falling domestic corn prices curbed demand. But for the first nine months of the year, China’s wheat imports rose 25.3% from the same period last year. China’s imports of barley and sorghum increased 12.1% and 14.4%, respectively, in September. Through September, barley arrivals jumped 85.5% and sorghum imports surged 110.2% versus year-ago levels.
— China’s Q3 pork production highest in three years. China produced 12 MMT of pork in the third quarter, which was up 43% from last year and the highest output for that quarter in three years. But pork production unexpectedly declined from the second quarter. Through September, China’s pork production stood at 39.2 MMT, up 38% from the same period last year, as slaughter in the first nine months of the year rose 35.9%. China’s pig herd at 437.6 million head was down 0.3% from the previous quarter but up 18.2% from last year. Its sow herd expanded 16.7% from last year to 44.6 million head at the end of September. Given the rise in domestic production and a switch to other proteins, China imported only 210,000 MT of pork in September, down 44.8% from last year. For the first nine months of 2021, China’s pork imports fell 4.3% compared with last year to 3.1 MMT.
TRADE POLICY
— U.S. Trade Representative (USTR) Katherine Tai is requesting a two-part investigation by the International Trade Commission into the potential effects of trade on workers and communities, especially those underserved and underrepresented, to aid in developing "trade policy that contributes to our nation’s competitiveness, advances strong labor rights and protects our environment."
ENERGY & CLIMATE CHANGE
— Some Democrats are mulling a new carbon tax, sensing an opportunity. Why? Centrist Sen. Joe Manchin (D-W.Va.) has told the White House that he strongly opposes the $150 billion clean electricity program in the administration’s $3.5 trillion social policy plan. “I’ve had a carbon pricing bill in my desk for the last three years just waiting for the time,” said Sen. Ron Wyden, the Oregon Democrat who chairs the Senate Finance Committee. But a carbon tax is politically touchy: Industries could pass along higher costs, making Democrats vulnerable to claims that they are raising taxes on the middle class; climate campaigners say a tax allows companies to continue polluting, albeit at a higher cost; and, crucially, it is also unclear if Manchin would support a such a tax, the New York Times notes. White House staff members are now rewriting legislation without the clean electricity provision, trying to cobble together a mix of other measures. The alternatives are unlikely to lead to the same kind of rapid reduction in emissions. They may include:
- About $300 billion to extend existing tax credits for utilities, commercial businesses and homeowners that use or generate electricity from zero-carbon sources.
- $32 billion in tax credits for individuals who purchase electric vehicles.
- $13.5 billion for electric car charging stations and $9 billion to update the electric grid.
- $17.5 billion to reduce carbon dioxide emissions from federal buildings and vehicles.
CORONAVIRUS UPDATE
— Summary: Global cases of Covid-19 are at 240,754,836 with 4,900,140 deaths, according to data compiled by the Center for Systems Science and Engineering at Johns Hopkins University. The U.S. case count is at 44,934,620 with 724,323 deaths. The Johns Hopkins University Coronavirus Resource Center said that there have been 408,265,959 doses administered, 189,141,481 have been fully vaccinated, or 57.6% of the U.S. population.
— U.S. is now averaging about 85,000 new Covid-19 infections a day, which is down by more than 8,000 from the week before. Covid-19 deaths are also down.
— FDA advisors recommend booster shot for J&J vaccine. U.S. health advisors on Friday voted to shore up protection for more than 15 million Americans who have relied on Johnson & Johnson’s Covi-19 vaccine for protection against the coronavirus, urging the Food and Drug Administration to green-light a booster dose for those who got their jab at least two months earlier. The unanimous vote came a day after the FDA’s independent advisory panel on vaccines recommended boosters be made available to virtually any adult vaccinated at least six months earlier with the Covid-19 vaccine made by Moderna. The CDC could adopt narrower recommendations or leave it to vaccinated adults and their doctors to decide whether a booster shot would make sense. That decision could be made more complex with the unveiling of new findings on mixing and matching vaccines of different design and formulation.
— From Nov. 8, foreign travelers may enter America, a White House spokesman said, removing bans instituted at the start of the pandemic. Air travelers will need to show proof of vaccination and a negative Covid-19 test result from the previous three days; those arriving by land just the former.
— German state allows food stores to ban the unvaccinated. German newspaper BILD reports that the state of Hesse has passed a motion that will allow food stores to decide whether they want to BAN unvaccinated people from entering.
POLITICS & ELECTIONS
— Group cites Biden administration official for violating federal ethics law, alleging Press Secretary Jen Psaki wrongly endorsed Virginia gubernatorial candidate Terry McAuliffe (D). Citizens for Responsibility and Ethics in Washington said Psaki broke the Hatch Act at a press briefing yesterday, when she said that “we’re going to do everything we can to help former Governor McAuliffe, and we believe in the agenda he’s representing.” For her part, Psaki seemed to shrug off the complaint and said that she should probably "choose my words more carefully ….”
— 2020 census count handed Texas two additional seats in Congress. Its new congressional maps are raising debate over whether minority groups, which account for most of the state’s population growth, will gain voting influence.
OTHER ITEMS OF NOTE
— Biden administration will revive Trump’s ‘Remain in Mexico’ policy. The practice of returning migrants to Mexico while their requests for U.S. asylum are considered will be resumed in mid-November to comply with a federal court order. The program effectively hasn’t been in use during the pandemic, as a CDC order requires migrants to be turned back without being able to request asylum.
— Russia says warship intercepted U.S. destroyer; U.S. denies. Russia said one of its warships intercepted a U.S. destroyer in the Sea of Japan that was encroaching on its territorial waters, claiming that the vessels came within 60 meters of each other during the confrontation, something Washington said was false. The Russian Defense Ministry posted a video of the Admiral Tributs sailing near the USS Chafee, a guided-missile destroyer, and said it prevented the American vessel from violating Russia’s territorial waters. The U.S. military said the guided missile destroyer Chafee was conducting routine operations in international waters in the Sea of Japan when a Russian destroyer came within 65 yards of the American ship, though all interactions were safe and professional. "The statement from the Russian Defense Ministry about the interaction between our two Navy ships is false," the U.S. military statement said. "At all times, USS Chafee conducted operations in accordance with international law and custom," it added.
