Chinese Officials Squash Rumors of End to Zero-Covid Policy

Midterm election day nears with GOP likely winning House and Senate very close
 

President Biden’s top national-security adviser has engaged in recent months in confidential conversations with top aides to Russian President Vladimir Putin to reduce the risk of a broader conflict over Ukraine and warn Moscow against using nuclear or other weapons of mass destruction, U.S. and allied officials said, the Wall Street Journal reported. The officials said that U.S. national-security adviser Jake Sullivan has been in contact with Yuri Ushakov, a foreign-policy adviser to Mr. Putin. Mr. Sullivan also has spoken with his direct counterpart in the Russian government, Nikolai Patrushev, the officials added. The aim has been to guard against the risk of escalation and keep communications channels open, and not to discuss a settlement of the war in Ukraine, the officials said.

About 4.5 million Ukrainians have been left without power today as Russia steps up its attacks on civilian infrastructure, according to President Volodymyr Zelenskyy. Households across the country have been disconnected from power under an emergency schedule aimed at stabilizing the nation's fragile electric grid. Ukraine's electricity infrastructure has been under severe strain since Russia began attacking power plants on October 10, ushering in fears of a cold, dark winter.

Chinese health officials over the weekend said that China would stick to its zero-Covid strategy as the country reported its highest number of new infections in six months. But the Hang Seng index in Hong Kong climbed 2.7% on Monday, with investors seemingly still betting on a relaxation of restrictions.

Apple warned shipments of its high-end iPhone models would be affected by Covid-19 restrictions at supplier Foxconn’s assembly site in Zhengzhou, China. The Zhengzhou campus of Apple supplier Foxconn, better known as iPhone City, employs around 200,000 people and even includes dormitory accommodations for workers. The company is working to boost production at another factory in Shenzhen to make up for the shortfall before the holiday season, but China's zero-Covid policy may also hamper output elsewhere. Foxconn, which produces 70% of iPhones globally, also builds the device in India, but its Zhengzhou factory assembles the majority of its global output.

An NBC News poll on Sunday showed that Democrats have pulled even with Republicans in enthusiasm, though overall voters are still not satisfied with the economy.

Election Day 2022 is 1 day away. Election Day 2024 is 729 days away.

Equities today: Global stock markets were mostly higher overnight. U.S. stock indexes are headed for higher openings. Chinese stocks rose on Monday despite economic data showing China’s exports shrank unexpectedly, and renewed commitments from Chinese health officials that they will stick to the country’s zero-tolerance approach to Covid (link for details). The Hang Seng index in Hong Kong climbed 2.7% on Monday, with investors seemingly still betting on a relaxation of restrictions. In Asia, Japan +1.2%. Hong Kong +2.7%. China +0.2%. India +0.5%. In Europe, at midday, London -0.3%. Paris flat. Frankfurt +0.8%.

     Walt Disney is expected to extend its lead in the streaming wars, with analysts forecasting it to add 10 million net new subscribers in the September quarter when it reports on Tuesday. That would put even more distance between it and Netflix, which added 2.4 million subscribers in the third quarter.

     Key market question: What falls first, Treasury yields or earnings? According to the Sevens Report: “The net result of Powell’s dismissal of the Fed pivot has now left the near-term fate of the markets up to two independent influences: Treasury yields and earnings. If Treasury yields fall first, stocks can rally. If earnings fall first, we’ll likely hit new lows.

     U.S. equities Friday: Trading was volatile in U.S. indices Friday with markets shifting from losses and gains during the trading session, registering losses for the week of 1.4% for the Dow, 5.7% for the Nasdaq and 3.4% for the S&P 500. On Friday, the Dow rose 401.97 points, 1.26%, at 32,403.22. The Nasdaq ended up 132.31 points, 1.28%, at 10,475.25. The S&P 500 gained 50.66 points, /136%, at 3,770.55.

Agriculture markets Friday:

• Corn: December corn futures rose 1 3/4 cents to $6.81, a gain of 1/4 cent for the week.
• Soy complex: January soybeans surged 25 1/4 cents to $14.62 1/4, a gain of 62 cents for the week and the contract’s highest close since Sept. 22. December soymeal rose $6.10 to $420.40. December soyoil rallied 188 points to 77.17 cents, near a five-month high.
• Wheat: December SRW wheat rose 7 1/4 cents to $8.47 3/4, up 18 1/2 cents for the week. December HRW wheat gained 12 cents to $9.53 1/4, up 28 1/4 cents for the week. December spring wheat rallied 11 1/2 cents to $9.54 1/2.
• Cotton: December cotton rose 405 points to 87.05 cents, the contract’s highest close since Oct. 11, a gain of 1,494 points, or 21%, for the week and the largest weekly gain in nearly 12 years.  
• Cattle: December live cattle fell 30 cents to $151.65, a drop of $1.35 for the week. January feeder cattle rose 20 cents to $179.625. Live steers averaged $151.79 through Thursday morning, down 16 cents from last week's average.
• Hogs: December lean hogs fell 40 cents to $82.975, the contract’s lowest close since Oct. 14 and a weekly decline of $3.175.
   

Ag markets today: Corn, soybeans and wheat traded mildly lower overnight amid a pullback from last Friday’s gains. As of 7:30 a.m. ET, corn futures were trading 1 to 2 cents lower, soybeans were mostly 4 to 5 cents lower and wheat futures were 4 to 6 cents lower. Front-month crude oil futures were nearly $1 lower and the U.S. dollar index was around 250 points lower this morning.

Technical viewpoints from Jim Wyckoff:

On tap today:

     • USDA Grain Export Inspections report, 11 a.m. ET.
     • Bank of England Chief Economist Huw Pill hosts virtual Q&A at 12 p.m. ET.
     • Federal Reserve releases consumer credit data for September at 3 p.m. ET.
     • Fed speakers: Boston's Susan Collins and Cleveland's Loretta Mester at a symposium on women in economics at 3:30 p.m. ET, and Richmond's Thomas Barkin on inflation at 6 p.m. ET.
     • USDA Crop Progress report 4:00 p.m. ET.

Domestic box office sales for cinemas this year still are running about 35% below prepandemic levels, though the summer movie season was off by only 22%, according to Box Office Mojo.

Market perspectives:

     • Outside markets: The U.S. dollar index was weaker. The yield on the 10-year US Treasury note has firmed, trading around 4.13%, Crude was under pressure, with U.S. crude trading around $91.70 per barrel and Brent around $97.75 per barrel. Gold and silver futures were narrowly, with gold firmer around $1,678 per troy ounce and silver weaker around $20.70 per troy ounce.

     • Machinists union approves rail deal. Members of the International Association of Machinists voted Saturday to approve a second tentative labor agreement with freight rail carriers, potentially putting off a complete rail shutdown in the next several weeks. The two largest rail unions — the Brotherhood of Locomotive Engineers and the SMART Transportation Division — are scheduled to vote on the rail deal later this month. Shipper groups have called for the White House to broker another deal between the two sides if needed to prevent rail-service disruptions. The White House says the onus is on the companies and unions to negotiate an agreement. The unions have agreed to standstill agreements that would delay any strike until other unions have cast their votes.

        Meanwhile, Department of Labor Secretary Marty Walsh said that he’s communicating with railway companies and unions daily after two other unions rejected the deal forged with help from Biden’s administration.

     • Oil production slowing in shale patch. U.S. shale companies are slowing their oil-field activity, keeping U.S. oil production roughly flat and offering little relief for tight global markets, the WSJ reports (link). What was expected to be a banner year for U.S. oil production has failed to materialize as creeping inflation-related costs, supply-chain snarls and disappointing well performance for some companies have coalesced to limit domestic output.

       

     • Canadian National Railway says October was the best month ever for western Canadian grain movements.

     • 94,773: Shipments of motor vehicles and parts carried by North American railroads in October, a 12.8% increase over October 2021 and up 30.8% from September, according to the Association of American Railroads.

     • Iron-ore prices have slumped to a three-year low, the WSJ reports (link) as a sharp slowdown in Chinese homebuilding combines with Beijing’s zero-Covid strategy to sap demand for the steelmaking commodity. The benchmark price of iron ore fell by 17% in October from September, leaving it more than 50% below the 2022 high. Other commodity prices have fallen, but not by nearly as much as iron ore, largely because of China’s economy. The Chinese property market accounts for roughly a third of global demand for iron ore that is shipped by sea. U.S. home sales have also been sagging this year, and transport of construction materials is also down. The Association of American Railroads says loads of primary metals products carried by U.S. railroads have fallen by double digits for six straight months.

     • Ag trade: Egypt tendered to buy an unspecified amount of wheat from multiple sources, with results expected later this morning.

     • NWS weather: Moderate to Heavy coastal rain and mountain snow expected across the West... ...Above normal temperatures continue in the East today, cooler air expands across the West.

Items in Pro Farmer's First Thing Today include:

     • Mild price pressure to open the week
     • China soybean imports fall to lowest in eight years in October (details in China section)
     • China again sells all wheat put up for auction
     • China’s forex reserves unexpectedly rise
     • Steady/firmer cash cattle expectations
     • Hog slaughter building

— Summary: Kyiv and six other regions in northern and central Ukraine face additional emergency blackouts today because of a power shortage following Russian missile and drone attacks on energy infrastructure. Ukrainian President Volodymyr Zelenskyy said Iran must be punished for helping Russia, adding that “if it was not for the Iranian supply of weapons to the aggressor, we would be closer to peace now.”

• The Group of Seven will not impose a price cap on the resale of Russian oil supplies, leaving the new sanctions applicable only when the seaborne crude is first sold to a buyer on land, according to reports.
• Prison escape? Russian President Vladimir Putin has signed a law to conscript citizens with unexpunged or outstanding convictions for murder, robbery, larceny, drug trafficking and other serious crimes under the Criminal Code of the Russian Federation to be called up for military service to mobilize for the war in Ukraine.
• Biden administration privately encourages Zelensky to show Russia that Ukraine is open to negotiating an end to war. The request by American officials is not aimed at pushing Ukraine to the negotiating table, according to people familiar with the matter. Rather, it's a calculated attempt to ensure the government in Kyiv maintains the support of other nations.
• Dozens of natural gas tankers are lining up off Europe’s coast rather than unloading their cargoes in countries anxious for the supplies. Each of those tanker holds enough liquefied natural gas to heat a million homes a month, and a WSJ video (link) looks at why they’re standing by rather than unloading, at least for now.
• Ukraine grain exports total 14.3 million tonnes so far in the 2022-23 marketing year (July/June), down from 20.6 million tonnes at this point in 2021-22, or 30.7% lower. While exports have risen since the Black Sea grain deal was put in place in July. Shipments so far in 2022-23 include 5.4 million tonnes of wheat, 7.7 million tonnes of corn and 1.2 million tonnes of barley.
• Iran’s weapons supply. Iranian Foreign Minister Hossein Amirabdollahian publicly confirmed on Saturday that Tehran had shipped drones to Russia, although he said it happened before the war in Ukraine began. Robert Malley, the U.S. Special Envoy for Iran, refuted his claims, tweeting: “Iran didn’t give a limited number of drones before the war. They transferred dozens just this summer & have military personnel in occupied Ukraine helping Russia use them against Ukrainian civilians.”
   

— Lawmakers criticize shipping law implementation. Two lawmakers are warning the Federal Maritime Commission that foreign-flagged ocean carriers will continue to wreak “havoc” on U.S. ports if the agency doesn’t change its requirements to prevent unfair business practices. The Ocean Shipping Reform Act was designed to help alleviate supply-chain woes by preventing ocean carriers from unreasonably refusing space on ships. But the agency’s definition of “unreasonable” doesn’t align with congressional intent, the bill’s co-sponsors Reps. Dusty Johnson (R-S.D.) and John Garamendi (D-Calif.) said in a statement Friday.

— China’s growth in exports fell for the first time in more than two years in October, as demand declines on rising risks of a global recession. The weakness in exports adds to the pressure on the economy, which is struggling due to the property market slump, persistent disruptions from Covid-19 controls, and weak consumer spending. Data set for release on Tuesday may show Taiwan’s exports fell 6% in October, according to economists' estimates.

— Negotiations are underway for a potential meeting between Xi Jinping and Joe Biden at the G20 summit in mid-November, with the hope of improving U.S./China relations, which could benefit the global economy. U.S. midterm election results could complicate the picture if Republicans make gains and press for a harder line on China, especially in access to advanced technology.

— China soybean imports fall to lowest in eight years in October. China imported 4.14 MMT of soybeans in October, matching the lowest for any month since October 2014. Chinese soybean imports plunged 46.4% from September and were 19.0% below year-ago as weak crush margins reduced demand. Through the first 10 months of this year, China imported 73.18 MMT of soybeans, down 7.4% from the same period last year.

— China’s meat imports slowed in October. China imported 630,000 MT of meat last month, down 20,000 MT (3.1%) from September and 30,000 MT (5.1%) less than last year. China doesn’t break down meat imports by class in its preliminary data, though the reduction was due to fewer pork imports. Through the first 10 months of the year, China imported 6.03 MMT of meat, down 25.0% from the same period last year.

— The European Union called on the U.S. to amend new green legislation given what it called the law’s discriminatory subsidies, warning of potential retaliation. The head of the WTO called for talks to avoid a “subsidy war.”

     Japan joined the EU in calling planned U.S. aid for local electric-vehicle manufacturers “discriminatory” and demanded equal treatment for the nation’s car makers.

     Background. Provisions in the recently enacted Inflation Reduction Act included tax credits for electricity from certain renewable resources, sustainable aviation, production of hydrogen, clean vehicles, advanced manufacturing production, and clean fuel production.

     Japanese automakers may hesitate to invest in the electrification of vehicles in the world’s largest economy if the U.S. offers “discriminatory incentives” to local manufacturers, Japan’s government said in a statement dated Friday. “This could cause negative impacts on the expansion of investment and employment in the U.S.,” it said in the statement.

     Car giants such as Ford and Toyota say the government should loosen the terms of the climate and tax law to allow manufacturers to source EV components from more places.

     The EU also submitted document to the U.S. late on Friday after officials met in a bid to head off a potential trade war. EU officials had said that the bloc wants to resolve the dispute in an amicable manner, but that Europe should use all tools available to address what it calls unfair subsidies, including by bringing a case to the World Trade Organization.

— A subsidiary of T. Rowe Price Group Inc., a major corporate debt investor, made one of the largest purchases of timberland in the United States in recent years, paying around $1.8 billion for 1.7 million acres of forest in what is the latest sign that carbon markets are still booming.

— Russia’s invasion of Ukraine is weighing on the United Nations climate summit. The attack upended global energy markets, increased the use of fossil fuels–including coal–and underscored the case for energy security.

    

— Many world leaders convene for COP27. More than 100 world leaders will convene in Sharm el-Sheikh, Egypt, this week for the latest U.N. climate summit, or COP27. During the summit, which runs from Nov. 6 to Nov. 18, heads of governments will take part in negotiations covering everything from emissions targets to climate funding.

     Not participating: Chinese President Xi Jinping, Russian President Vladimir Putin, Indian Prime Minister Narendra Modi, and Canadian Prime Minister Justin Trudeau are not participating.

     “Global and national climate commitments are falling pitifully short,” said U.N. Secretary-General António Guterres. “We are headed for a global catastrophe. The emissions gap is a byproduct of a commitments gap. A promises gap. An action gap.”

     At COP27, one of the central issues being debated is how to address the challenges facing developing countries, many of whom are on the front lines of the climate crisis despite being responsible for a comparatively smaller percentage of global emissions. At COP27, these nations are pushing for a “loss and damage” fund for already-suffered losses.

— USDA confirms HPAI in Mississippi commercial flock. USDA’s Animal and Plant Health Inspection Service (APHIS) confirmed highly pathogenic avian influenza (HPAI) in a commercial breeder chicken flock in Lawrence County, Mississippi, with state and federal officials quarantining the affected premises and an unspecified number of birds have been depopulated. This is the first commercial find in Mississippi after the state reported a case in wild American blue-winged teal in Issaquena County in October.

— Summary:

• Global Covid-19 cases at 632,678,404 with 6,600,787 deaths.
• U.S. case count is at 97,741,796 with 1,072,594 deaths.
• Johns Hopkins University Coronavirus Resource Center says there have been 640,913,400 doses administered, 266,401,911 have received at least one vaccine, or 80.85% of the U.S. population.

— Democrats closed the gap with Republicans in voter enthusiasm during the final days before the U.S. midterm elections, which remain “highly competitive,” according to an NBC News poll. But a Washington Post-ABC News survey suggests Republicans are more certain about actually casting a vote tomorrow and that their party looks likely to take control of the House. We have lots more on midterm elections in The Week Ahead (link).

— GOP gaining support among Black and Latino Voters: WSJ poll. The Republican Party is winning support from a larger share of Black voters than in other recent elections and has improved its standing in recent months among Latino voters, the latest Wall Street Journal poll finds, adding to evidence of the party’s increasing appeal among groups that have overwhelmingly favored Democratic candidates.

— The fourth quarter and the next two quarters following a midterm election have historically been the stock market’s strongest stretch in a four-year presidential election cycle, returning average S&P 500 gains of 6.6%, 7.4% and 4.8%, respectively, Bloomberg reported, citing Carson Investment Research.
 

— Iranian lawmakers have demanded that their state officials "show no leniency" to protesters as thousands of people continue to rally on the streets despite the threat of arrest. In a letter cited by state-run Press TV on Sunday, the lawmakers call for protesters to be taught a "good lesson" to deter others who threaten the authority of the Iranian government.

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