Massive Russian Convoy Near Ukraine's Capital as Oil Prices Surge

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SOTU address | Russian exports | U.S. trade deficit in goods hits fresh record

 

                                                In Today’s Digital Newspaper

 

Although tonight is President Joe Biden’s first official State of the Union address, the major focus is on Russia’s invasion and war with Ukraine. Russia is now launching large-scale operations against Ukraine. U.S. oil jumped to a 7-year high above $101 a barrel as the Russian assault prompts supply oil shortage fears. The U.S. and other countries are discussing releasing around 70 million barrels of strategic oil reserves, but the major unknown is whether OPEC will boost production, with an important meeting on the topic tomorrow. Pressure continues on Biden and U.S. allies to include oil trade in sanctions on Russia. Grain markets continue their surge higher on logistic issues in both Russia and Ukraine. Estimates of Brazil’s soybean crop keep getting lowered, with spillover effects for U.S. soybean sales. USDA this morning announced a daily export sale of 264,000 metric tons of soybeans for delivery to China during the 2022-2023 marketing year. As for the SOTU address, besides Ukraine, inflation, climate change and a historic Supreme Court nominee, Biden will focus on supply chain management and other economic goals, including tackling concentration in meatpacking and preventing wildfires and pointing fingers at ocean shipping costs — Biden will roll out some details around new ocean shipping reforms. Despite port congestion in 2021, ocean carriers made huge profits that are estimated to drive up consumer prices by 1% this year, said the White House on Monday. “This is especially difficult to our farmers, who have spent decades building relationships internationally only to find that now they can’t transport their agricultural products overseas with any reliability or predictability,” said the White House in a preview of tonight’s State of the Union speech. On farm policy, the House Ag Committee holds a hearing today on Title I of the farm bill.

 

MARKET FOCUS

 

Equities today: Global stocks markets were mixed to lower overnight, and the U.S. stock indexes are pointed toward lower openings. Investors have been seeking safety in bonds, pushing down yields to where they were about a month ago. Asian equities ended mostly higher as the talks between Russia and Ukraine provided some optimism despite Russia continuing its attacks on locations in Ukraine. The Nikkei gained 317.90 points, 1.20%, at 26,844.72. The Hang Seng Index was up 48.69 points, 0.21%, at 22,761.71. European equities are posting losses in early trading after most markets opened briefly into positive territory. The Stoxx 600 was down The Stoxx 600 was down 1.7% with regional markets declining 1.1% to 2.9%.

     U.S. equities yesterday: The Dow ended down 166.15 points, 0.49%, at 33,892.60. The Nasdaq rose 56.77 points, 0.41%, at 13,751.40. The S&P 500 fell 10.71 points, 0.24%, at 4,373.94.

     Stocks 022822

     What do geopolitical shocks mean for markets? Strategists at Deutsche Bank recently studied 30 geopolitical and domestic political events over the last 80 years. They found that the S&P 500 Index of U.S. stocks fell by a median of 5.7% over the first three weeks before reversing some of the losses over the next three weeks. The average loss has been nearer 6%-8% at the peak.

     Geopolitical risks

     Shipping stocks forecast to outperform… again. J Mintzmyer, founder of Value Investor’s Edge, is an expert on shipping stocks. Despite massively outperforming the broader market in 2021 and into 2022, he believes the rally in containerships and tankers is still in its early stages — due to the far-reaching and protracted economic fallout from the conflict.

On tap today:

     • Germany's consumer-price index for February is expected to rise 5.1% from one year earlier. (8 a.m. ET)
     • IHS Markit's U.S. manufacturing index is expected to hold at 57.5 in February, unchanged from a preliminary reading. (9:45 a.m. ET)
     • Institute for Supply Management's manufacturing index is expected to tick up to 58.0 in February from 57.6 one month earlier. (10 a.m. ET)
     • U.S. construction spending for January is expected to rise 0.2% from the prior month. (10 a.m. ET)
     • Federal Reserve Bank of Atlanta President Raphael Bostic speaks on business uncertainty at 2 p.m. ET.
     • President Biden delivers his first State of the Union address at 9 p.m. ET.

Toyota resumed production at most of its 14 plants in Japan following a cyberattack at a big supplier. It hopes to resume all operations on Wednesday.

Some car dealerships have been selling cars for more than the sticker price. Others are quoting higher prices for cash sales or refusing to sell if they couldn’t arrange the financing. Financing is a key profit center for dealerships, which collect a portion of the interest rate or a fee when they arrange a loan on behalf of a bank, auto company or other financial firm.

     Car shock

The U.S. trade deficit in goods hit a fresh record in January. The gap widened to $107.6 billion from $100.5 billion one month earlier, the Commerce Department said in a preliminary report. Exports slipped while imports — led by food and vehicles — hit a new high. The latest figures underscore several pandemic trends, including strong U.S. consumer demand for goods, businesses working to replenish inventories, rising prices and, while supply chains might not be working perfectly, they are transporting tremendous amounts of product.

     Trade deficit in goods

Who would have thought this: Brazil’s inflation rate is slowing and may end the year below that of the U.S. after the nation pulled monetary and fiscal incentives last year, Economy Minister Paulo Guedes told Bloomberg.

Market perspectives:

     • Outside markets: The U.S. dollar index is again firmer against most foreign currencies ahead of U.S. trading. The yield on the 10-year U.S. Treasury note has fallen to trade around 1.75% with a mostly weaker tone in global government bond yields. Gold and silver futures continue to see buying interest ahead of U.S. trading, with gold above $1,920 per troy ounce and silver above $24.65 per troy ounce.

     • Interest-rate markets are no longer pricing in any chance of the Federal Reserve raising its policy benchmark by more than a quarter percentage point in March, as Russia’s invasion of Ukraine sparked doubts over the tightening outlook. Similarly, traders bet the ECB will put off raising rates until next year.

     • Crude oil futures are advancing ahead of U.S. market activity, with US crude over $101 per barrel and Brent nearing $104 per barrel. Prices were firming in Asian trading, with U.S. crude above $96 per barrel and Brent above $98 per barrel.

     • The International Energy Agency meantime is holding an “extraordinary” meeting today to discuss “the impact of Russia’s invasion of Ukraine on oil supply and how IEA members can play a role in stabilizing energy markets,” IEA’s executive director Fatih Birol said Monday in a tweet.

     • $4.104 is the average price per gallon for diesel fuel across the U.S. the week ending Feb. 28, up 4.9 cents from the week before and the highest level since March 4, 2013, according to the Energy Information Administration.

     • Bitcoin surged the most since July amid speculation cryptocurrencies will gain favor in the wake of sanctions against Russia. Trading volumes in Bitcoin using Russia’s ruble and Ukraine’s hryvnia soared. Bitcoin rose as much 12%, while Ether gained about 8.7%.

     •  The Suez Canal is raising transit fees by up to 10%, with the steepest increases hitting high-earning container ships.

     • USDA daily export sale: 264,000 metric tons of soybeans for delivery to China during the 2022-2023 marketing year.

     • Ag demand: Taiwan tendered to buy 65,000 MT of corn to be sourced from the U.S., Brazil, Argentina or South America. Japan is seeking 83,136 MT of U.S. wheat in its weekly tender. Tunisia tendered to buy 75,000 MT of optional origin durum wheat.

     • NWS weather: Heavy precipitation across portions of the Pacific Northwest is forecast to become less intense but will linger across the area through midweek... ...Mountain snow and lower elevation rain will linger over northern Rockies while rain and mountain snow linger across western Oregon... ...Above normal temperatures will expand eastward into the eastern U.S. but cold conditions with periods of light snow remain across the northern tier.

        NWS 030122
        Wx 030122

Items in Pro Farmer's First Thing Today include:

     • Winter wheat futures surge to contract highs
     • Consultant leaves South American crop estimates unchanged
     • Soy crush, corn ethanol use expected to be down from December
     • Futures, cash cattle headed in opposite directions
     • Pork cutout unable to hold morning gains, cash index continues to climb

 

RUSSIA/UKRAINE


— Russia/Ukraine update: Delegations from Russia and Ukraine agreed to continue negotiations after a meeting on the border with Belarus ended with few signs of progress. Russian shelling pounded civilian targets in Ukraine’s second-largest city again today and a 40-mile convoy of tanks and other vehicles threatened the capital — tactics Ukraine’s embattled president said were designed to force him into concessions in Europe’s largest ground war in generations, according to the Associated Press.

     Convoy Russia

  • First round of Russia/Ukraine peace talks end with no clear resolution. The first round of high-stakes peace talks between Russia and Ukraine ended Monday with no clear resolution after the Ukrainian president’s office called for an immediate ceasefire and the withdrawal of Russian forces. Officials from both countries held the face-to-face talks at the Belarusian-Ukrainian border as Moscow’s assault entered its fifth day. They were pictured sitting at a long table surrounded by both the Ukrainian and Russian flags. The delegations will hold a second round of negotiations later, a top adviser to Ukrainian President Volodymyr Zelensky said, according to the Russian RIA news agency.
  • Russian forces are getting in position to encircle the Ukrainian capital Kyiv, U.S. officials warned on Monday. Kharkiv, Ukraine’s second-largest city came under intense missile fire on Monday, killing nine and injuring 37, according to the city’s mayor — attacks Ukrainian President Volodymyr Zelenskyy has called a war crime. The strategic city of Mariupol in Ukraine’s south has been surrounded by Russian troops. Should that city fall, Russia will have gained control over essentially all the Ukrainian territory on the Sea of Azov, from Crimea in the south to the Donbass region in the east.

    The biggest problem for Russia appears to be logistics. Russian tanks and other vehicles have been seen abandoned on the roadside, either broken down or out of fuel. Nor has Russia secured the skies. In recent days, Ukraine has used its Turkish-made TB2 drones to conduct deadly strikes on unsuspecting Russian forces. The war may now be entering an uglier stage, as Russia makes up for its slow start with more firepower.
  • Russia issues warning to countries supplying weapons to Ukraine. Russia’s Foreign Ministry on Monday issued an apparent warning to European Union countries providing weapons to Ukrainian defense forces after Russia’s invasion last week. “There will be a harsh response to the EU actions. Russia will continue to ensure the achievement of vital national interests irrespective of the sanctions or their threat. It is time Western nations realized that their complete dominance in the global economy is long gone,” the Foreign Ministry told Interfax. It then warned that “EU citizens and entities involved in the delivery of lethal weapons, fuel, and lubricants to Ukraine will bear responsibility for any consequences of such actions to manifest themselves during the ongoing special military operation.”
  • Impact of U.S., allies’ sanctions: Elina Ribakova, the deputy chief economist at the Institute of International Finance, called the sanctions “serious” and predicted Russia’s economy could contract by double digits. Others were more skeptical, saying that carve-outs for oil and gas exports would prop up Russia’s economy. “The devil is in the details of how sanctions are enforced,” Juan Zarate, a former assistant secretary of the Treasury for terrorist financing and financial crimes. Still, the sanctions will have a noticeable impact on commodities where Russia is a key producer, including wheat, corn and metals like palladium and nickel.
  • Congress is eyeing a humanitarian and military aid package to Ukraine. The leading option is to include it in the massive omnibus spending bill that Congress needs to pass by March 11. The White House is seeking as much as $6.4 billion, according to a request sent to Congress on Friday evening. $2.9 billion would be for humanitarian assistance, including for border nations facing a wave of Ukrainian refugees. The remaining $3.5 billion is for military aid via the Pentagon. President Biden has already authorized hundreds of millions of dollars in new weapons for Ukraine, including Javelin anti-tank missiles and Stinger anti-aircraft missiles. Some lawmakers, include Sen. Chris Coons (D-Del.), have called for a $10 billion Ukraine package.
  • China would potentially be hit by punitive economic measures imposed on Russia if its businesses and banks try to help Moscow. China is treading cautiously for now, with two major state-owned banks restricting financing for purchasing Russian commodities. The People’s Bank of China has a multi-billion dollar currency swap with Russia’s central bank, allowing the two nations to provide liquidity to businesses so they can continue trading, Bloomberg reports (link). Of yuan assets held in Russia’s foreign exchange reserves, about 13% of the reserves, or an estimated $77 billion, were in Chinese assets as of June 2021, according to the Bank of Russia. Selling those holdings would give Moscow much-needed liquidity. China has also signed Russian banks onto its homegrown payments settlement system, seen as an alternative to the SWIFT network, which many Russian lenders will be banned from using.

    Bottom line: Murky. China’s stance is uncertain, with President Xi Jinping calling for negotiations over Russia’s invasion of Ukraine.

    Russia Reserves
  • British Defense Secretary Ben Wallace made clear that a no-fly zone would mean putting “British fighter jets directly against Russian fighter jets,” and “NATO would have to effectively declare war on Russia.” Unlike the no-fly zone that protected vulnerable populations from Serbian forces during the Balkan Wars in the 1990s, Russia has a massive fleet of fighter jets, batteries of anti-aircraft missiles and thousands of nuclear weapons.

    White House Press Secretary Jen Psaki said: President Biden “has been very clear that he is not intending to send U.S. troops to fight a war with Russia, and I think what's important to note here is that is essentially what this would be… a step toward."
  • Roughly $400 billion of Russian government money is held in the G7 and is now blocked from being exchanged or used to prop up the ruble.
  • Belarus is now being hit with the same sanctions as Russia as it begins to deploy troops against its neighbor Ukraine. The U.S. has suspended its embassy operations in Belarus, and all American personnel have left the country, according to Special Envoy for Belarus Ambassador Julie Fisher. "Belarus' complicity in Russia's war against Ukraine has shown the regime's loss of sovereign decision-making," Fisher said.

    Senate Foreign Relations Committee Chair Robert Menendez (D-N.J.) says the U.S. should sanction Belarus for helping Russia in its invasion of Ukraine.

Belarus responds. Despite hosting many of the Russian troops now invading Ukraine, Alexander Lukashenko, the president of Belarus, insisted that his country’s forces would not take part in the fighting. Just on Monday Lukashenko suggested the country could host Russian nuclear weapons. Earlier, American intelligence had warned that Belarus was poised to attack and called the capital, Minsk, “an extension of the Kremlin.”

  • Switzerland will freeze Russian assets, setting aside its long tradition of neutrality. The country is a favorite destination for Russian money. Swiss national bank data showed that Russian companies and individuals held assets worth more than $11 billion in Swiss banks in 2020.
  • The Kremlin's pre-invasion research into Ukraine was badly misleading, analysts at Britain's Royal United Services Institute reported Friday after reviewing material provided by Ukrainian officials.
  • About 500,000 people have fled Ukraine in recent days, according to the United Nations refugee agency, making it the most intense week of human flight within Europe’s borders since at least the Balkan wars of the 1990s.

    Refugees
  • European energy prices have risen 335% over the last year and 26% over the last five days, White House press secretary Jen Psaki said Monday, which is a major reason that major energy sanctions haven't been imposed against Russia so far. "As we look at steps to take, even if you look at the impact on the energy sector, we have not taken some steps on energy sanctions," Psaki said. "They remain on the table, but Europeans, for example, are very concerned about further price spikes on gas." While sanctioning energy would certainly affect Russia's income, it would also have "extreme consequences on the world's energy markets, particularly for our allies in Europe," Psaki argued.
  • If Russia halts gas to Europe, the region should still be able to make it through next winter. But it won't be easy or cheap. That's the conclusion from a report (link) published Monday by Bruegel. The Brussels-based think tank warned that preparations "must be made for a complete termination of all Russian gas flows to Europe."

    If the EU is forced or willing to bear the cost, it should be possible to replace Russian gas already for next winter without economic activity being devastated, people freezing, or electricity supply being disrupted," Bruegel's researchers said. "But on the ground, dozens of regulations will have to be revised, usual procedures and operations revisited, a lot of money quickly spent and hard decisions taken." Thanks to record imports of liquified natural gas from countries such as the United States in recent months, Europe should be able to last through the summer without severe energy shortages even if Russia intentionally cuts off its supplies of gas -— or if key infrastructure is damaged amid fighting in Ukraine.

Europe imports about 40% of its natural gas from Russia. Germany, the bloc's biggest economy, is particularly exposed: Russia supplies about half of its natural gas. Austria, Hungary, Slovenia and Slovakia get about 60% of their natural gas from Russia, while Poland sources 80%.

If Russian imports cease, Europe will need to reduce demand for gas by at least 400 terawatt-hours, or about 10% to 15% of annual demand, according to Bruegel. The group said this is "possible," but would require policy shifts. Some options include ramping up the use of alternative fuels such as coal, delaying the phase-out of nuclear plants or reducing demand from industrial players.

German Chancellor Olaf Scholz, who made the decision to halt certification of the Nord Stream 2 gas pipeline from Russia last week, said the country will construct two new LNG terminals. "We need to do more in order to protect [the] energy supply of our country," Scholz said. Germany is also reportedly considering whether to extend the life of its three remaining nuclear power plants, which are due to be shuttered this year.

  • The mindset of Putin. Sen. Marco Rubio (R-Fla.), vice-chair of the Senate Intelligence Committee, told CNN’s Jake Tapper Putin “appears to have some neuro/physiological health issues.” He did not elaborate on what informed that diagnosis. Condoleezza Rice, who served President George W. Bush as national security adviser and Secretary of State and attended many meetings with the Russian leader, told Fox News Sunday she saw “a different Putin” who “seems erratic” and has “an ever-deepening delusional rendering of history.” Speaking on CBS’s Face The Nation, retired general H.R. McMaster, who served President Donald Trump as national security adviser, said “I don’t think he’s a rational actor” and that “everybody around him is telling him what he wants to hear. He's living in a bubble.” Asked Sunday whether Putin might be “mentally imbalanced in some way,” White House press secretary Jen Psaki told ABC’s This Week: “I'm not going to make an assessment of his mental stability. But I will tell you, certainly the rhetoric, the actions, the justification that he is making for his actions are certainly deeply concerning to us.” British Prime Minister Boris Johnson warned last week Putin may be “an irrational actor” and cautioned “we have to accept at the moment that Vladimir Putin is possibly thinking illogically about this and doesn't see the disaster ahead.”

— Market impacts:  

  • Market recap from Pro Farmer: Winter wheat futures surge to contract highs. Winter wheat futures surged overnight, taking out last week’s highs amid disruptions to wheat exports from the Black Sea region. May corn futures traded near their highs, while soybeans and spring wheat remained well below last week’s peaks. As of 7:30 a.m. ET, winter wheat futures are trading mostly 42 to 48 cents higher, spring wheat is 23 to 28 cents higher, corn is 16 to 24 cents higher and soybeans are mostly 39 to 44 cents higher. Front-month U.S. crude oil futures are more than $4 higher, and the U.S. dollar index is around 250 points higher this morning.

    U.S. crude oil rose 4.5% yesterday and is up 27% this year.
    Wheat futures were up 8.7% and are up 21.4% so far in 2022.
    Corn was up 5.4%, and 16.5% for the year.
    Palladium, a metal used in electronics that is mined in Russia, was up 5.4% yesterday and 30% this year.

     
  • Britain told ports not to service Russian-flagged vessels.
     
  • Russia closed its stock market on Monday, and it will remain closed today with no indication yet on when it'll reopen. The Kremlin barred Russians from transferring foreign currency overseas or servicing foreign-currency debt outside the country to stem the damage from Western sanctions. The central bank reportedly ordered financial institutions to block foreign clients from selling Russian securities.
     
  • Sanctions and other actions stun Russia/Putin. Western banks and businesses added to the governments’ actions by halting operations in Russia and sales to Russian companies. Many cited the risks of potentially violating sanctions.
     
  • Black Sea trade has stalled even with exemptions from sanctions, as Black Sea wheat sales froze. Buyers also paused purchases of Russian liquefied natural gas as they awaited clarity on restrictions against banks and companies. Black Sea trade includes millions of barrels of oil a day and about a quarter of the world’s grain exports. While Russian raw materials were so far exempted from sanctions, the threat of a severe dislocation to flows will increase as the conflict escalates. Even before the expulsion of some Russian banks from the SWIFT messaging, several lenders were halting the finance of commodities trading from Russia — Societe Generale SA and Credit Suisse Group AG have stopped providing trade finance for Russian raw materials flows. Dutch banking giants ING Groep NV and Rabobank are restricting lending to deals involving movement of commodities from Russia and Ukraine, and Chinese banks are also pulling back, Bloomberg reports. Also, Insurers are either refusing to offer cover for vessels sailing into the Black Sea or demanding huge premiums to do so. “Commodity markets need to reflect not only these difficulties in paying for Russia’s exports but, with little left to sanction, the risk that Russian commodities eventually fall under Western restrictions,” Goldman analysts said in a note dated Feb. 27.

    Grain loading in Ukraine has been halted with ports closed. More than two dozen vessels in the midst of loading have been held up at Ukrainian ports, according to Nabil Mseddi, chief executive officer of AgFlow.

     
  • Link to analysis of what avoiding Russian airspace means for airlines.
     
  • Shell joined the list of firms moving to limit their exposure to Russia, saying it would get rid of its stake in joint ventures with Gazprom, including its 28% share in a big offshore gas project. Earlier BP, another oil major, said that it was selling its 20% stake in Rosneft, Russia’s state-backed oil giant.

    Citigroup had nearly $10 billion in total exposures to Russia at the end of 2021, some of which sit in a consumer bank it has been trying to sell and may now be stuck with.

     
  • Russia is still pumping and exporting vast amounts of oil and natural gas to the rest of the world, delivering cash in the face of Western sanctions and a financial cushion for President Vladimir Putin. At the heart of it lie two London-listed energy giants. Gas exporter Gazprom PJSC and oil company Rosneft PJSC fund a large chunk of the Russian state and are among the country’s largest employers. Neither have been targeted by major Western sanctions, a sign of their importance in the global energy markets, the Wall Street Journal reports (link). Many observers say sanctions against Vladimir Putin’s war machine won’t really bite until they include energy.

    Oil bite
  • Manchin at it again: On the eve of Biden's SOTU address, centrist Sen. Joe Manchin (D-W.Va.) urged the administration to boost domestic energy production, saying he was planning weeks of hearings on energy independence — for both the U.S. and to support NATO allies. "We produce energy cleaner than anybody in the world. We're buying 650,000 barrels a day from Russia. It's ridiculous. Totally ridiculous." Sen. Lindsey Graham (R-S.C.) also related that Ukraine's ambassador to the U.S., Oksana Markarova, has asked for Russian oil and gas to be sanctioned. "We're not using the energy sector as a weapon. We're not hitting Putin where it hurts most."
  • Strategic oil reserves. The U.S. and other major oil-consuming nations are considering releasing around 70 million barrels of oil from their emergency stockpiles as crude prices surge — about half from the U.S. and half from other countries.

 

POLICY FOCUS


— Biden’s first State of the Union address tonight. President Joe Biden will grasp a chance to pivot on several areas tonight when he delivers his first State of the Union address to U.S. lawmakers. The speech has already seen a substantial rewrite since Russia’s invasion and will include a rebranding of his Build Back Better initiatives after they ran aground in Congress. The pandemic, inflation, and Ukraine will all feature prominently in Biden’s speech to a joint session of Congress.

     Iowa Gov. Kim Reynolds will deliver the Republican party response following Biden’s address, and in a signal of Biden’s domestic troubles, Democratic Rep. Rashida Tlaib (D-Mich.) will also respond to the speech on behalf of the progressive wing under the umbrella of the Working Families Party. Reynolds ordered Iowa's Alcoholic Beverages Division (ABD) yesterday to remove Russian-made booze from its wholesale purchase list.

     Bottom line: Biden will focus on Ukraine and inflation.

— House Agriculture Committee today is focusing on farm bill commodity title. The House Agriculture Committee will hold a hearing on the commodity title of the farm bill as it continues work toward crafting a new bill. Representatives from corn, soybean, wheat, sugar, cotton, sorghum, sunflower, barley, canola, dry pea rice and peanut organizations are all slated to testify. 

 

PERSONNEL


— Wednesday vote on Raskin, Powell and other Fed nominees. Senate Banking Committee Chair Sherrod Brown (D-Ohio) is scheduling a Wednesday vote to advance Sarah Bloom Raskin, Jay Powell, Lael Brainard, Lisa Cook, Phillip Jefferson and Sandra Thompson out of the panel. Sen. Pat Toomey (R-Pa.) previously led a boycott of Raskin’s nomination in committee, denying a quorum in the committee in a successful effort to hold up Raskin’s nomination.

 

CHINA UPDATE


— Biden sends delegation of former defense officials to Taiwan.  Reuters reports that President Biden is sending “a delegation of former senior defense and security officials to Taiwan” as “sign of support for the island claimed by China after Russia’s invasion of Ukraine.” According to Reuters, “The visit, led by one-time chairman of the Joint Chiefs of Staff Mike Mullen, comes at a time when Taiwan has stepped up its alert level, wary of China taking advantage of a distracted West to move against it.” Reuters reports that Mullen, “a retired Navy admiral who served as the top U.S. military officer under former presidents George W. Bush and Barack Obama, will be accompanied by Meghan O’Sullivan, a former deputy national security advisor under Bush, and Michele Flournoy, a former undersecretary of defense under Obama. ... Two former National Security Council senior directors for Asia, Mike Green and Evan Medeiros, will also make the trip.”

— A former economic adviser to President Donald Trump urged the Biden administration to lift tariffs on Chinese goods to help ease inflation. Gary Cohn, now vice-chairman at IBM, quit his role in 2018 as the Trump administration began slapping tariffs on a broad range of Chinese products. Joe Biden has left those duties in place as leverage in talks to persuade China to abide by commitments in the trade deal Trump signed in early 2020.

     Comments: Some officials in the Biden administration, especially National Security Adviser Jake Sullivan, want to increase tariffs on China, but the push in part was halted by U.S. Trade Representative Katherine Tai in recent months as she successfully argued for eventual talks with China relative to the Phase 1 trade agreement made during the Trump administration.

— China economic activity expands in February. An official gauge of China’s factory activity registered its fourth straight month of expansion in February, defying expectations of economic slowdown. The official manufacturing purchasing managers index rose to 50.2 from 50.1 in January, the National Bureau of Statistics said today. Economists had expected the index to retreat below the 50 mark that separates contraction from expansion. The nonmanufacturing PMI, which includes both service and construction activity, increased to 51.6 last month from 51.1 in January as consumption recovered after the country lifted strict lockdown policies to battle Covid.

    China Business

 

TRADE POLICY


— Biden to host ASEAN summit March 28, 29.  The White House announced on Monday that President Biden will host an Association of Southeast Asian Nations (ASEAN) summit in Washington on March 28 and 29. The Associated Press reports (link) that that the summit is “billed by the White House as an opportunity to demonstrate the U.S. commitment to the bloc. ... ‘It is a top priority for the Biden-Harris Administration to serve as a strong, reliable partner and to strengthen an empowered and unified ASEAN to address the challenges of our time,’ White House press secretary Jen Psaki said in a statement.” The AP notes that Biden “participated in [an] October summit, where he announced more than $100 million in new U.S. spending in ASEAN countries on health programs, a new climate initiative, programs to assist with the economic recovery from the coronavirus pandemic and education programs.”

 

ENERGY & CLIMATE CHANGE


— White House energy strategy. White House press secretary Jen Psaki laid out the administration’s response to the Republican argument for boosting fossil fuel production to counter Russian aggression, saying that the crisis instead shows the necessity of President Joe Biden’s plans to massively increase clean energy. Psaki said on ABC News’ This Week that calls to lift restrictions on oil drilling on federal lands or reopen the Keystone XL pipeline are a “misdiagnosis.”

     "The Keystone Pipeline was not processing oil through the system,” Psaki responded. “That does not solve any problems. That's a misdiagnosis, or maybe a misdiagnosis of what needs to happen.”

     "I would also note that on oil leases, what this actually justifies in President Biden's view is the fact that we need to reduce our dependence on foreign oil, on oil in general ... and we need to look at other ways of having energy in our country and others,” Psaki added.

     Asked whether Biden would be open to lifting such restrictions on U.S. production, Psaki demurred — saying only that Biden hopes to use “carefully crafted sanctions” that “maximize the impact” and consequences for Putin, while “minimizing the impact” on Americans and the rest of the world.

— Interior will not join industry appeal of ruling against November oil/gas lease sales. The Department of Interior (DOI) will not join an appeal by the oil industry of a court ruling which struck down the results of a November oil and gas lease sale in the Gulf of Mexico, according to filings with the U.S. District Court of Appeals for the District of Columbia by the Department of Justice. “The United States has decided not to appeal the district court’s decision,” the DOJ said in the filing. The American Petroleum Institute (API) has filed an appeal of the ruling that found fault with the environmental review used to make Lease Sale 257 which generated $191 million. DOI said if the appeal succeeded it would award the leases to winning bidders in the sale. However, the agency said that it would re-do the lease sale as the five-year plan under which the sale took place would expire June 30 — before DOI could complete a new environmental review and go through the rulemaking process. 

— Chevron is buying biofuels company Renewable Energy Group for $3.15 billion. The company makes diesel and other fuels from sources such as corn or cooking oil as the fossil-fuel giant faces investor pressure to invest in green energy. Iowa-based Renewable Energy Group Inc has 11 refineries that source mainly from waste products such as tallow or used cooking oil. Chevron plans to continue making acquisitions in the area, and will spend money to convert existing refineries so they can process low-carbon fuel sources, Chief Executive Mike Wirth said. Chevron said REG’s president and chief executive, Cynthia J. Warner, is expected to join Chevron’s board, and Chevron’s renewable-fuels business will move its headquarters to Iowa.

     Part of Chevron’s strategy is to boost production of renewable fuels: gas, diesel and oil typically made from organic or waste materials that generate less carbon dioxide over the course of their manufacturing and consumption than fossil fuels. The company said last year that it hopes to produce 100,000 barrels of renewable diesel by 2030. That is a volume big enough to supply California-based Chevron’s current diesel customers on the U.S. West Coast, which is implementing some of the country’s most aggressive clean-fuel programs.

REG has a renewable-diesel facility that it is expanding to a capacity of 20,000 barrels a day, said Mark Nelson, Chevron’s executive vice president in charge of its downstream and chemicals business, who is overseeing the renewable-fuels push. Chevron is also pouring money into renewable gas, initially by tying up with companies that produce the fuel from dairy-cow manure.

 

CORONAVIRUS UPDATE


Summary: Global cases of Covid-19 are at 437,212,938 with 5,958,004 deaths, according to data compiled by the Center for Systems Science and Engineering at Johns Hopkins University. The U.S. case count is at 79,045,719 with 950,521 deaths. The Johns Hopkins University Coronavirus Resource Center said that there have been 553,079,296 doses administered, 215,602,728 have been fully vaccinated, or 65.68% of the U.S. population.

— The effectiveness of the Pfizer/BioNTech Covid-19 vaccine for young children waned quickly during the Omicron surge, according to new data from the New York State Department of Health. Within one month of being fully vaccinated, the effectiveness of the Pfizer shots against infection caused by the Omicron variant fell from 68% to just 12% in children ages 5 to 11 years old.

— California to lift school mask mandate after March 11. Indoor masking will no longer be mandatory at California schools and childcare facilities after March 11, a long-debated and much-anticipated move that comes as the state continues its steady emergence from the Omicron wave of Covid-19. Local officials retain the option of keeping mask rules in place if they think doing so is warranted. Los Angeles Unified appears bound by an agreement with its teachers union to require masking at least through the end of the current school year. California officials also said masks will be strongly recommended, but no longer required, for unvaccinated people in most indoor settings starting Tuesday.

 

POLITICS & ELECTIONS


— Rep. Ted Deutch (D-Fla.) is retiring and will join the American Jewish Committee. Jewish Insider reported Deutch will serve as the group’s CEO. The last CEO, David Harris, made $737,267 in 2019, according to public non-profit data. Deutch was elected to the House in 2010 and has represented a heavily Jewish district in southeastern Florida that includes Boca Raton and Fort Lauderdale. Deutch is also the chair of the House Ethics Committee. Deutch is the 31st Democrat to retire this cycle.

— Rep. Fred Keller (R-Pa.) has reversed his previous decision and announced Monday he would not seek re-election in November after his congressional district was split between two Republican-held districts after reapportionment. Keller previously said he would challenge Rep. Dan Meuser (R-Pa.) in the redrawn district but said Monday he would not challenge another member of the party. The announcement brings the number of Republicans not running or seeking another office in November to 14

— Texas is holding the first House primaries of the 2022 elections — and the first contests held with lines redrawn as part of the decennial redistricting process. Today may be the highlight of the state’s congressional election action this year, Bloomberg reports, as Texas is poised for a third straight cycle of significant turnover in its congressional delegation. What’s different is that most of the changes will be decided in the primaries and any necessary runoffs on May 24, thanks to nearly all of the new districts being drawn to greatly favor one party or the other.

— Arizona voters will decide whether to require extra identification to cast a ballot under a proposal Republican lawmakers approved yesterday. The measure, which voters will consider in the November general election, takes particular aim at the mail-in system used to cast about 89% of ballots in 2020. Voters would be required to provide a signed affidavit including their date of birth and identification such as a driver’s license number with their early ballot, if the measure passes.

 

CONGRESS


— Sen. Dianne Feinstein (D-Calif.) announced the death of her husband, 86, after a lengthy battle with cancer. Link for details. Feinstein, 88, is up for re-election in 2024. She was replaced as the top Democrat on the Senate Judiciary Committee in 2020.

— The Senate Judiciary Committee will likely begin Judge Ketanji Brown Jackson’s Supreme Court confirmation hearings March 21. Jackson is meeting this week with Senate leaders from both political parties.

 

OTHER ITEMS OF NOTE

 

— Iran: U.S. must roll back sanctions to secure nuclear deal. Reuters reports (link) that Iran “said on Monday efforts to revive a 2015 nuclear deal could succeed if the United States took a political decision to meet Tehran’s remaining demands, as months of negotiations enter what one Iranian diplomat called a ‘now or never’ stage.” According to Reuters, the Iranian Foreign Ministry “identified the remaining outstanding issues as: the extent to which sanctions would be rolled back, providing guarantees that the United States will not quit the pact again, and resolving questions over uranium traces found at several old but undeclared sites in Iran.” Reuters adds that “all parties involved in the talks say progress has been made toward the restoration of the pact to curb Tehran’s nuclear program in exchange for sanctions relief, which the U.S. abandoned in 2018. But both Tehran and Washington have cautioned there are still some significant differences to overcome.”

— Supreme Court justices appear skeptical of the EPA’s climate authority. At a hearing yesterday, several of the court’s six conservatives questioned the extent of the agency’s ability to regulate emissions from power plants. Limiting the EPA’ss powers could curb the Biden administration’s ability to fulfill its climate pledges.


 

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