USTR Tai to Unveil China Trade Agenda

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Evergrande’s shares suspended pending ‘major transaction’


In Today’s Digital Newspaper


Market Focus:
• Biden to speak this morning about debt limit
• U.S. house prices rising at record pace but incomes lagging
• OPEC+ meets 

• Federal Reserve plans review of potential benefits and risks of U.S. digital currency
• Two private industry U.S. crop reports this week
• Ag demand update

Soybeans drop to a six-month low
• Dry weather holding back winter wheat planting in Russia
• Canadian canola exports down sharply from YA on short crop, strong domestic demand
• Beef demand construction concerns continue to weigh on futures
• Momentum to the upside for lean hog futures 

Policy Focus:
• Nine centrist House Dems vs 96 progressives (liberals). Guess who “won”?
• Pelosi gives another deadline: Oct. 31
• Grueling spending choices ahead 

Afghanistan:
• Bomb attack Sunday in Kabul killed several people outside a mosque
• Kabul facing threat of blackout  

Biden Administration Personnel:
• Antony Blinken leads fence-mending mission to France 

China Update:
• Beijing flew 93 military sorties near Taiwan over three days
• Evergrande’s shares suspended pending ‘major transaction’ 

Trade Policy:
• Biden administration to lay out China trade policy
• WTO TRIPS agreement remains elusive 

Energy & Climate Change:
• One of largest oil spills in recent S. California history occurred over weekend 


Livestock, Food & Beverage Industry Update:
• Details coming on expanding meat processing capacity 


Coronavirus Update:
• U.S. marked 700,000 deaths due to Covid-19
• Vaccine antibodies decline 7 months after second shot: U.S. study  
• National Guard activated to assist beleaguered hospitals in rural California 

Congress:
• Transportation funding measure clears Congress, signed by Biden 


Other Items of Note:
• Supreme Court today begins another term
• Iran wants $10 billion unfrozen to start talking again
• South Pole endured its coldest winter since records began in 1957


MARKET FOCUS


Equities today: U.S. Dow equity futures signal a lower opening. Asian equities were mixed to mostly lower amid a trading halt of Evergrande shares in Hong Kong. China’s Shanghai market was closed for a holiday. The Nikkei fell 326.18 points, 1.13%, at 28,444.89. The Hang Seng Index was down 539.27 points, 2.19%, at 24,036.37. European equities are narrowly mixed in early action, chopping between losses and gains in several markets. The Stoxx 600 was recently down 0.1% with other markets up 0.2% to down 0.2%.

     U.S. equities Friday: The Dow rose 482.54 points, 1.4%, to 34,326.46. The S&P 500 rose 49.50 points, 1.1%, to 4,357.04. The Nasdaq rose 118.12 points, 0.8%, to 14,566.70.

     For the week, the S&P 500 lost 2.2%, and the Nasdaq fell 3.2%, their largest drops since the week ended Feb. 26, 2021. The Dow lost 1.4%, its largest drop since the week ended Sept. 10.

     Stocks

On tap today (see detailed list of events and reports below):

     • U.S. factory orders for August are expected to rise 1.1% from the prior month. (10 a.m. ET)
     • U.S. Trade Representative Katherine Tai is scheduled to speak on the Biden administration's China trade policy at 10 a.m. ET.
     • St. Louis Fed President James Bullard speaks on the economic recovery at 10 a.m. ET.
     • USDA Grain Export Inspections report, 11 a.m. ET.
     • Reserve Bank of Australia releases a policy statement at 11:30 p.m. ET.
     • USDA Crop Progress report, 4 p.m. ET.

U.S. house prices are rising at a record pace but incomes are lagging, which is making home ownership less and less affordable. The median American household would need 32.1% of its income to cover mortgage payments on a median-priced home, according to the Federal Reserve Bank of Atlanta. That is the most since November 2008, when the same outlays would eat up 34.2% of income.

     Lagging

Market perspectives:

     • Outside markets: The U.S. dollar index is weaker amid gains in the euro, yen and British pound against the greenback. The yield on the 10-year U.S. Treasury note is slightly higher, trading around 1.49% amid a mixed tone in global government bond yields. Gold and silver futures are under pressure ahead of U.S. trading, with gold around $1,752 per troy ounce and silver around $22.39 per troy ounce.

     • Crude oil futures are nearly unchanged ahead of U.S. trading, with U.S. crude around $75.85 per barrel and Brent around $79.35 per barrel. Futures were weaker in Asian action, with U.S. crude down 21 cents at $75.67 per barrel and Brent down 16 cents at $79.12 per barrel.

     • OPEC+ meets. OPEC+ countries will decide whether to increase oil production levels or keep them steady as oil ministers meet both virtually and in Vienna today. The price of oil hit a three-year-high last week and could rise further if OPEC+ fails to agree a supply increase. The topic has attracted the White House, with National Security Adviser Jake Sullivan reportedly broaching the subject with Saudi Crown Prince Mohammed bin Salman on his visit to the kingdom last week.

     In July, the group led by Saudi Arabia and Russia agreed to boost monthly output by 400,000 barrels per day until at least April 2022, phasing out 5.8 million bpd in cuts. There is some chatter that the production boost could grow. The nearest month any increase could occur is November since OPEC+'s last meeting decided the October volumes.

     • Federal Reserve plans as early as this week to launch a review of the potential benefits and risks of issuing a U.S. digital currency, as central banks around the world experiment with the potential new form of money. Fed officials are divided on the matter, making it unlikely they will decide any time soon on whether to create a digital dollar.

     • Two private industry U.S. crop reports will come this week.  Stone X is today, IHS Markit report comes Tuesday. 

     • Ag demand: Pakistan bought 550,000 MT of wheat in an international tender. Jordan’s state grains buyer issued a new tender to buy 120,000 MT of feed barley. The country has recently canceled several barley tenders due to low participation. Jordan also issued a separate tender to buy 120,000 MT of milling wheat. The Taiwan Flour Millers’ Association issued an international tender to buy 48,000 MT of grade 1 milling wheat from the United States. Egypt’s state grains buyer is seeking to buy 30,000 MT of soyoil and 10,000 MT of sunflower oil. Turkey tendered to buy 310,000 MT of animal feed barley.

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

        CFTC

     • NWS weather: There is a light risk of excessive rainfall over parts of the Southeast through Tuesday morning... ...Air quality alerts over the San Joaquin Valley through today... ...Temperatures will be 10 to 25 degrees above average over parts of the Northern/Central High Plains.

        NWS
        Wx Today

Items in Pro Farmer's First Thing Today include:

     • Soybeans drop to a six-month low
     • Dry weather holding back winter wheat planting in Russia
     • Canadian canola exports down sharply from YA on short crop, strong domestic demand
     • Beef demand construction concerns continue to weigh on futures
     • Momentum to the upside for lean hog futures


POLICY FOCUS


— Nine centrist House Dems vs 96 progressives (liberals). Guess who “won” the latest battle and which group President Biden favored? The losers were the meager number of lawmakers who had tried to force an infrastructure vote. The winners of no funding were the liberals. The partial losers were House Speaker Nancy Pelosi (D-Calif.) who now can’t follow through on her vote pledges, and in a sense, President Biden.

— Pelosi gives another deadline: Oct. 31. In a "Dear Colleague" letter released on Saturday, Pelosi said that “more time was needed” to pass the bipartisan infrastructure (BIF ) bill along with the larger social and climate change package (Build Back Better/BBB). The Speaker said she wants to pass the bipartisan bill by Oct. 31, when the 30-day recently extended reauthorization of federal highway programs expires. “There is an October 31st Surface Transportation Authorization deadline, after passage of a critical 30-day extension,” Pelosi wrote. “We must pass well before then — the sooner the better, to get the jobs out there.” Centrist Sen. Krysten Sinema (D-Ariz.) released a blistering statement Saturday, slamming the delayed BIF vote as “inexcusable” and “deeply disappointing,” and saying it will reduce trust within the party.

     Artificial deadlines? Asked whether the deadlines to pass both spending measures were artificial, socialist Sen. Bernie Sanders (I-Vt.) told Meet the Press: "Of course they are."

     Tax deadline. President Biden said he believed the legislation would be signed into law with “plenty of time to change the tax code for people next year.”

     Grueling spending choices ahead. Democrats and White House officials must now decide how much and where to shave the BBB — whether to axe certain plans entirely, or just shrink initiatives across the board. Even spending around $2 trillion will displease some. Sen. Sanders was realistic regarding the eventual price tag of any completed BBB, telling ABC’s This Week: “What the president has said is that there's going to have to be some give and take, and I think that that's right. I think if anything, when we especially talk about the crisis of climate change and the need to transform our energy system away from fossil fuel, the $6 trillion that I originally proposed was probably too little. Three and a half trillion should be a minimum, but I accept that there's gonna have to be give and take.” “There’s no number on the table yet that everyone has agreed to,” Rep. Pramila Jayapal (D-Wash.), the chairwoman of the Congressional Progressive Caucus, said on CNN’s State of the Union. She later said, “This is the beginning of a negotiation.”

     Rep. Jayapal on the prospect of a $1.5 trillion reconciliation bill, on CNN’s State of the Union: “Well, that’s not going to happen… Because that’s too small to get our priorities in. So, it’s going to be somewhere between $1.5 and $3.5, and I think the White House is working on that right now, because remember, what we want to deliver is childcare, paid leave, climate change, housing.”

— President Biden will speak about the debt limit this morning at 11:15 a.m. ET in the State Dining Room. Latest word is that the Senate parliamentarian’s office recently provided both Democrats and Republicans with guidance about raising the debt limit via reconciliation — a separate budget resolution and reconciliation, perhaps as little as a one-sentence document. Disagreement on how long that would take, with most signaling around two weeks. Recall that Treasury Secretary Janet Yellen has said that on Oct. 18 the U.S. government will hit the debt limit. Others have a later timeframe.


AFGHANISTAN


— Bomb attack Sunday in Kabul killed several people outside a mosque, in the first major militant strike on the Afghan capital since U.S. forces withdrew in August.

— Kabul is facing the threat of a blackout because Afghanistan’s new Taliban rulers haven’t paid Central Asian electricity suppliers or resumed collecting money from consumers.


BIDEN ADMINISTRATION PERSONNEL


— Antony Blinken leads fence-mending mission to France. The secretary of State will meet his French counterpart, who has sharply criticized a new security partnership among the U.S., U.K. and Australia in the Indo-Pacific that coincided with the cancellation of a French-Australian submarine contract, on a visit to Paris from Monday to Wednesday.


CHINA UPDATE


— Beijing flew 93 military sorties near Taiwan over three days as China celebrated its National Day holiday, its largest such prodding in the past year. Taiwan responded to the PLA deployment with combat aircraft to keep the intruders at bay, issued radio warnings and deployed missile systems to track their activity. The U.S. on Sunday reiterated its commitment to Taiwan and warned against what it called provocative military activity.
 

— Evergrande’s shares are suspended pending a “major transaction.” Trading in shares of Evergrande and Hopson Development, a real estate firm, was suspended on the Hong Kong stock exchange as Chinese state-backed media suggested that the latter was considering taking a 51% stake in the embattled group’s property services unit. Evergrande has $300 billion of liabilities, mostly short-term. Uncertainty about its future has sparked fears of a wider financial crisis.


TRADE POLICY


— Biden administration to lay out China trade policy. U.S. Trade Representative Katherine Tai is scheduled to speak on the administration’s trade policy in a speech to a Washington think tank this, in a first step toward addressing unresolved issues between the U.S. and China, nearly nine months into the Biden presidency.

     The session will lay out the Biden administration’s broad approach to the Sino/U.S. trade relationship, with a senior administration official telling reporters Sunday that the administration will not seek to “escalate trade tensions or double down on the previous administration’s flawed strategy.” The Biden administration plans to keep some provisions of the Phase 1 deal intact, including those that have benefitted agriculture. “There’s real world evidence that some businesses covered by the Phase 1 trade deal have done better,” an official said. “So, for American industries like agriculture that have benefited from Phase 1, President Biden is going to continue doing things that work.”

     The U.S. plans to launch new trade talks with China, but will maintain tariffs on Chinese imports — and consider imposing additional levies — as leverage to get China to fulfill terms of the 2020 trade deal with the U.S., according to Biden administration officials. U.S. companies will again be allowed to seek exemptions from tariffs as Biden administration pushes Beijing to fulfill the Phase 1 trade deal. “We do not want to take any options off the table or pre-emptively box ourselves into a set course of action,” a senior administration official said.

     Doubts about any Phase 2 deal. The senior Biden administration officials said that while they intend to press China on issues that were left out of the Phase 1 deal, they doubt China will be willing to consider serious negotiations over a second phase. Tai has said there were "serious concerns" about the country's "state-centered and non-market trade practices" —which were not addressed under the current framework — but would "raise these broader policy concerns with Beijing."

     Meanwhile, on a call with reporters previewing Tai's speech, a senior administration official said: "We recognize that China simply may not change, and that we have to have a strategy that deals with China as it is, rather than as we might wish it to be."

     The White House has previously said that China isn’t keeping pace with trade commitments it made in a Phase 1 deal struck with former U.S. President Donald Trump. Joe Biden has maintained tariffs that Trump ordered on hundreds of billions of dollars of Chinese imports.

     Tai intends to speak with her counterparts in China soon, the officials said, but didn’t give an exact date.

— WTO TRIPS agreement remains elusive. An informal meeting of the WTO TRIPS (Trade-Related Aspects of Intellectual Property Rights) Council once again failed to find agreement on an IP response to the Covid-19 pandemic relative to Covid vaccines. The TRIPS Council has worked for the last year on a proposal put forth by South Africa and India for a waiver of certain TRIPS Agreement provisions relative to Covid vaccines. The next scheduled formal meeting of the TRIPS Council is Oct. 13, the last one prior to the November WTO Ministerial meeting. But it seems unlikely that any breakthrough will be achieved as recaps of the informal session indicated that all sides remain relatively entrenched in their respective positions.


ENERGY & CLIMATE CHANGE


— One of the largest oil spills in recent Southern California history occurred over the weekend, with at least 126,000 gallons of oil leaking into the waters off Orange County. Local officials are calling it an environmental catastrophe as black globules along with dead birds and fish wash ashore. The spill was caused by a breach connected to the Elly oil rig, which was operated by a California subsidiary of Houston-based Amplify Energy Corporation.

     Leak


LIVESTOCK, FOOD & BEVERAGE INDUSTRY


— Details coming on expanding meat processing capacity. USDA Secretary Tom Vilsack today will announce details of a loan guarantee program to expand meat processing capacity and reducing the impact of plant disruptions that depress livestock prices and cause spikes in retail meat prices.


CORONAVIRUS UPDATE


Summary: Global cases of Covid-19 are at 234,977,037 with 4,803,145 deaths, according to data compiled by the Center for Systems Science and Engineering at Johns Hopkins University. The U.S. case count is at 43,683,764 with 701,178 deaths. The Johns Hopkins University Coronavirus Resource Center said that there have been 395,934,825 doses administered, 185,492,579 have been fully vaccinated, or 56.5% of the U.S. population.

— U.S. marked 700,000 deaths due to Covid-19. So far 65% of Americans aged 12 or over have been fully vaccinated. California’s governor, Gavin Newsom, took measures to raise his own state’s vaccination rate (just over 70%) by ordering the country’s first statewide vaccine mandate for schoolchildren. As early as next autumn — provided the Food and Drug Administration approves — Californian youngsters will need the jabs before enrolling in public or private schools.

— Vaccine antibodies decline 7 months after second shot: U.S. study. Antibody levels generated by two shots of the Pfizer-BioNTech vaccine can undergo up to a 10-fold decrease seven months following the second vaccination, research suggests. The drop in antibody levels will compromise the body’s ability to defend itself against Covi-19 if the individual becomes infected. In a recent BioRxiv study published ahead of peer-review, many recipients of the vaccine displayed substantial waning of antibodies to the virus and its variants including Delta, Beta, and Mu.

— National Guard activated to assist beleaguered hospitals in rural California. Medical teams were dispatched to three hospitals in Northern California and the Central Valley where exhausted staffers are weathering another surge of Covid-19 cases and deaths. The deployments come as rural areas of Northern and Central California face their most intense Covid-19 surge yet. The population's vaccination rate lags far behind the rest of the state, despite highly effective and free vaccines being available for months.


CONGRESS  


— Transportation funding measure clears Congress, signed by Biden. The House on Friday night passed a 30-day measure to keep transportation programs running during the stalemate on other issues (BIF/BBB), essentially setting a new deadline for talks of Oct. 31. The Senate approved it without debate during a brief Saturday session, keeping federal transportation workers on the job who faced furlough because of the political impasse. President Biden quickly signed the measure into law.


OTHER ITEMS OF NOTE     


— Supreme Court today begins another term. During the new session, its first in-person arguments since March 2020, the court will consider some blockbuster topics, including eliminating the constitutional right to abortion, vastly expanding gun rights and further chipping away at the wall separating church and state. The court said Justice Brett Kavanaugh, who tested positive for Covid-19 last week, would dial in.

     Details: The opening session includes a review of the death sentence of Dzhokhar Tsarnaev, one of the Boston Marathon bombers. On Nov. 3, the justices will consider bolstering the Second Amendment right to “keep and bear arms” in a case challenging New York’s restrictions on carrying a firearm outside the home. Abortion rights teeter in the balance in a conflict over Mississippi’s 15-week abortion ban — a direct challenge to Roe v Wade—to be heard on Dec. 1. Later that month the court will consider what the First Amendment says about state funding for religious schooling.

— Iran wants $10 billion unfrozen to start talking again. Iran said the U.S. tried to make contact with them last month on restarting nuclear talks, but Iran refused without getting $10 billion in funds unfrozen first, Reuters reports (link).

— South Pole endured its coldest winter since records began in 1957. Between April and September temperatures at the Amundsen-Scott South Pole Station averaged -61°C (-78°F), offering a stark contrast to a northern summer in which heat records were smashed in the Pacific Northwest. Scientists ascribed the iciness to a strong polar vortex — a stratospheric ring of cold wind encircling Antarctica.


EVENTS AND REPORTS


Monday, Oct. 4

· Federal Reserve. Boston Fed President Eric Rosengren, St. Louis Fed President James Bullard to speak.
· Biden trade agenda. Center for Strategic and International Studies virtual discussion with U.S. Trade Representative Katherine Tai on the Biden administration's trade agenda.
· EPA and climate issues. EPA Administrator Michael Regan participates in the virtual Climate Mayors Summit Series to discuss "the importance of investing in solutions to the climate crisis, including through infrastructure that achieves emissions reductions, increases resilience of vulnerable communities across the country, and is rooted in equity and sustainability."
· Cybersecurity and infrastructure. Center for Strategic and International Studies and the Polish Embassy virtual discussion on "Cybersecurity for Critical Infrastructure: American and European Perspectives."
· Global hydrogen situation. International Energy Agency (IEA) virtual media briefing to discuss the key findings of a new report, "Global Hydrogen Review."
· Global food security and energy transitions. Business Council for International Understanding New York Dialogues forum that is closed to the press highlighting "global solutions in healthcare, food security and energy transitions."
· Climate policy. Breakthrough Institute conference on "Ecomodernism 2021: Quiet Climate Policy,” the first of two days.
· Taiwan issues. Hudson Institute virtual discussion on "Preserving Peace in the Taiwan Strait."
· Global economic recovery. U.S. Chamber of Commerce Coalition for the Rule of Law in Global Markets virtual launch of the 2021 Global Business Rule of Law Dashboard, a report titled "Building Blocks for Economic Recovery.”
· Democrats’ agenda. Washington Diplomat virtual discussion on "The Democrats' To-Do List."
· China issues. Brookings Institution virtual discussion on "Engaging China: Reconsidering the Strategy and Practice."
· North Korea situation. U.S./Asia Institute and the National Committee on North Korea virtual briefing on "Outlook on North Korea: Policy Options, Negotiations, and the Humanitarian Situation."
· Trump book. National Press Club holds an in-person "Headliners" book event with Washington Post reporter and National Press Club member Robert Costa on the soon-to-be released book he wrote with Bob Woodward. The book covers "President Trump's final year in office, his management of the coronavirus pandemic, attempts to overturn the 2020 election and the riot at the Capitol on Jan. 6."
· Climate change. Woodrow Wilson Center's Polar Institute virtual discussion on "Mapping the Changing Climate in the Polar Regions."
· North American cybersecurity. Center for Strategic and International Studies (virtual discussion on "Establishing a Cybersecure North America," focusing on the U.S., Canada and Mexico's shared economic and digital future.
· Cybersecurity and energy. Atlantic Council virtual discussion on "Artificial Intelligence-based Monitoring for Securing Industrial Internet of Everything (IoT) and the Energy Transition from Cyberattacks," as part of the EnergySource Innovation Stream series.

· Economic reports.  Motor Vehicle Sales | Factory Orders

· USDA reports. AMS. Export Inspections NASS: Dairy Products | Crop Progress


 

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