China producer prices in deflation | U.K. economy contracts | Japan economy upbeat
In today's updates:
* China’s producer prices fell into deflation for the first time in three years.
— U.S./China trade policy update:
- It has been relatively quiet on the U.S./China front, as President Donald Trump is expected to leave Washington, D.C. Meanwhile, China watchers are closely following the two-week meeting of top communist party officials at the Chinese resort area of Beidaihe.
- U.S./China stalemate continues: China sees Trump as posturing ahead of the 2020 election, while U.S. officials think Chinese leader Xi Jinping wants to wait him out for a better deal.
- “The alternation of fights and talks is likely to become a normal status quo,” Wang Yiming, the deputy director of a Chinese state-linked think tank, said in an interview published by the state news media. “We need to be prepared for the trade war to last a long time.”
- China's central bank today set the official midpoint reference for the yuan at 7.0136 per dollar, the weakest level since April 3, 2008 but stronger than what analysts were expecting. It's the second time this week that the People's Bank of China set the daily benchmark at a weaker level than the psychologically important 7-yuan-per-dollar.
- U.S. calls China a ‘thuggish regime’ for actions on U.S. diplomat. The U.S. has responded to China’s actions relative to releasing photographs and personal details about a U.S. diplomat identified as Julie Eadeh of the U.S. consulate in Hong Kong as she talked with student leaders of protests in Hong Kong. The photo appeared in the Ta Kung Pao newspaper. "I don't think that leaking an American diplomat's private information, pictures, names of their children, I don't think that is a formal protest, that is what a thuggish regime would do," State Department spokeswoman Morgan Ortagus told a briefing Thursday. "That is not how a responsible nation would behave." She noted that the U.S. and other diplomats often meet with various people, including those with the opposition. The situation adds more to the already rising tensions between the U.S. and China. China's foreign ministry commissioner’s office in Hong Kong called the comments “blatant slander against China.”
- Iowa Farm Bureau: Farmers are beginning to focus on an immediate future without the massive Chinese market. “We have other opportunities. The U.K. announced they want a deal; they want to do something with the U.S. soon and before October 31 consummate some kind of a trade arrangement. We have opportunities with Japan, other places around the world, so we'll concentrate and focus on those. But that won’t move the volume of soybeans we've moved in the past,” said Craig Hill, President of the Iowa Farm Bureau.
- China inflation data shows fall at wholesale level, but sharp rise for consumers. China’s Producer Price Index in July fell 0.3% versus a year ago, the first fall on an annualized basis since August 2016 and the second consecutive monthly fall. The decline is being taken as a sign of waning demand within China. The Consumer Price Index rose 2.8% versus year-ago levels, hitting a 17-month high as pork prices continued their climb. Food prices were up 9.1% on an annualized basis, a faster rise than the 8.3% pace registered in June and the fastest pace since January 2012. Pork prices rose 18.2%. Core CPI was up 1.3%. Combined, the wholesale and consumer inflation data could raise caution flags for the Chinese economy as an acceleration in consumer prices could dampen consumer confidence and income growth while the return of lower price pressures at the wholesale level could negatively impact manufacturing profits.
- Chinese exporters appear to be finding new markets as the conflict with the U.S. upends global trade flows. China’s 3.3% rise in exports in July from a year earlier marks a surprising turnaround after stagnant demand throughout this year. Increased shipments to Europe and Southeast Asia led July’s bounceback, the Wall Street journal reports (link), and some economists suggest the strength in exports to Southeast Asia is being partly boosted through transshipment, in which Chinese exports are minimally processed or altered during a brief stop in a third country and then re-exported to the U.S. The trade showdown appears to be taking a toll on American imports: The Global Port Tracker says inbound flows to major U.S. ports fell in June and July, and the report by the National Retail Federation and Hackett Associates projects much steeper year-over-year declines in the fall.
- Bloomberg: White House holds off decisions on Huawei licenses in response to China halt in ag purchases. The White House is delaying a decision on licenses for U.S. companies to do business with China’s Huawei Technologies in the wake of China stating it had halted purchases of US ag products, according to people quoted by Bloomberg (link). U.S. technology firms had made their arguments to the Trump administration for licenses that would allow them to resume shipping some components to Huawei, with Commerce Secretary Wilbur Ross last week indicating there were 50 requests received by his agency and a decision on those requests was spending. Bloomberg said neither the White House nor the Commerce Department commented on the situation.
- Tea-ed off. Weibo users in mainland China are calling for a boycott against Taiwanese bubble tea after a Yifang Fruit Tea franchise in Hong Kong put up a sign of solidarity for the city’s protesters. The controversy now has other tea brands expressing their support for the mainland.
— Bayer soars on report the German company is proposing a $8 billion Roundup settlement. Bayer shares soared as much as 11% today on a Bloomberg report that the German company has proposed to pay $8 billion to settle more than 18,000 U.S. lawsuits centered on its glyphosate-based weedkiller Roundup. Link to Bloomberg article.
— Judge dismisses antitrust suits against U.S. pork companies. Antitrust lawsuits filed against several U.S. pork companies that alleged they conspired to limit supplies in order to boost prices and their own profits have been dismissed by a federal judge in Minneapolis.
Chief Judge John Tunheim said that plaintiffs in the case did not show there was “parallel conduct” among the companies that indicated they conspired to rig prices. The dismissal of cases against Hormel Foods, JBS USA, Smithfield Foods and Tyson Foods and data provider Agri Stats was without prejudice, meaning the plaintiffs would be able to amend their complaints.
Background. The suits contended the companies had reduced production in the years following 2009. But Tunheim said the allegations focused on industry data and public statements but did not have any specific allegations of action to cut production besides Smithfield. "It may be true that some of these defendants cut production in the years following 2009. It may also be true that all of these defendants cut production," he wrote. "The fact that the complaints contain this ambiguity is exactly the problem."
At least one of the attorneys involved said they would amend their complaints.
— Former Senate Majority Leader Harry Reid (D-Nev.) sees Democrats pushing end of filibuster for regular legislation. Reid offered his thoughts about what his party should do should it return to power. Speaking to The Daily Beast, Reid said the Democrats should tackle climate change first and if it requires eliminating the filibuster to do it... well, so be it. Link for details.
“The answer is yes,” Reid said, when asked if he would scrap the Senate rule requiring 60 votes for legislation if it allowed the party to pass a bill addressing the climate crisis. “[T]he No. 1 priority is climate change. There’s nothing that affects my children, grandchildren, and their children, right now, more than climate.”
“It is not a question of if,” he told The Daily Beast in an interview from his office at the University of Las Vegas. “It is a question of when we get rid of the filibuster. It’s gone. It’s gone.”
But even if the Democrats were to regain control of the Senate, some observers say it could be difficult to find 50 of those senators comfortable in changing the rules of their chamber to get rid of the filibuster.
— Cotton AWP falls closer to loan rate. The cotton Adjusted World Price (AWP) fell to 52.67 cents per pound, effective today (Aug. 9), bringing it closer to the 52-cent-per-pound national average loan rate. This marks the lowest AWP since it was 51.50 cents per pound the week of May 27, 2016. USDA also reminded that the “costs to market” adjustment for the 2019-20 crop year is 15.20 cents per pound and is included in the calculation of the AWP beginning with the rate effective Aug. 9.
— Other items of note:
Senate Majority Leader Mitch McConnell (R-Ky.) said gun legislation will be at the top of the agenda when lawmakers return from their August break, including expanded background checks and so-called red flag laws to keep firearms out of the hands of dangerous individuals. Pressure for new gun restrictions has intensified after two mass shootings last weekend in El Paso, Texas, and Dayton, Ohio, that left 31 people dead and dozens of others wounded. McConnell made clear Thursday he won’t ask senators to return to Washington before then, arguing it would be a political exercise. "If we did that, we would just have people scoring points and nothing would happen. There has to be a bipartisan discussion here of what we can agree on,” McConnell told Kentucky radio station WHAS. "If we do it prematurely it will just be another frustrating experience. ... I think this is the best way to get a result."
Dr. Bart Fischer, Deputy Staff Director for the House Ag Committee, will leave the minority committee after eight years of service. Fischer joined the panel in 2011 and went on to help craft both the 2014 and 2018 Farm Bills. The Agricultural and Food Policy Center, or AFPC, at Texas A&M University, College Station, named Fischer as co-director beginning Sept. 1. “Bart has worked tirelessly on behalf of Texas farmers for many years, and his extensive knowledge and understanding of farm policy ensures that he is the perfect fit for this role as co-director alongside (Dr.) Joe Outlaw,” said Steve Verett, executive vice president for Plains Cotton Growers, Inc., Lubbock. “D.C.’s loss is our gain here in Texas, and we offer our sincerest congratulations to Bart and welcome him and his family to the Lone Star State.” Fischer hails from Chattanooga, Oklahoma, where he still farms with his family. He and his wife Karalyn, along with their three children, will reside in College Station.
Trump announced that Joseph Maguire, a U.S. navy veteran, will step in as acting national intelligence director after chief Dan Coats retires and deputy chief Sue Gordon, who butted heads with Trump, steps down on Aug 15. Sue Gordon, the nation’s No. 2 intelligence official — who by law had been next in line — will depart along with Coats.
Nine candidates have now qualified for the fall Democratic-primary debates. The latest to do so: Andrew Yang, after polling at 2% in a Monmouth University poll in Iowa.
Twenty-two candidates plan to speak at the Des Moines Register Political Soapbox over the next four days — former Rep. Beto O’Rourke canceled relative to recent killings in El Paso. Former vice president Joe Biden and Montano governor Steve Bullock were the first to arrive. Meanwhile, the Democratic presidential candidates will get five minutes each to make their case to voters at tonight’s Iowa Wing Ding dinner. This year’s fair will be a chance for candidates to woo rural voters. Three of them — Amy Klobuchar, Kirsten Gillibrand and Elizabeth Warren — recently released major and in some cases retrograde rural programs, including revamped farm subsidies, a grain reserve, grants for infrastructure and health care, and expanded broadband.
Iowa Poll: Biden 28%; Warren 19%; Harris 11%; Sanders 9%; Buttigieg 8%. A Monmouth University poll of 401 likely Democratic Iowa caucus-goers, taken Aug. 1-4, shows former Vice President Joe Biden (D) leading the race for the 2020 Democratic presidential nomination with 28%, followed by Sen. Elizabeth Warren (D-Mass.) at 18%, Sen. Kamala Harris (D-Calif.) at 11%, Sen. Bernie Sanders (I-Vt.) at 9%, and South Bend Mayor Pete Buttigieg (D) at 8%; no other contender topped 3%.
Beyond Meat abandoned plans to enter the Japanese market, according to Reuters quoting Japan trading house Mitsui & Co, although a future expansion is possible. Mitsui has a small stake in the plant-based burger maker, but said a joint venture plan is no longer in the works. Hunting for an Impossible Burger? Here’s where you can buy one: Link to Bloomberg item.
Make Russia profitable again? Real incomes in Russia are about 10% lower than in 2013, according to the Financial Times. Russia’s economy minister warned last month that the country is facing a recession in 2021 that could see gross domestic product shrink by 3% on a surge in loan defaults. Meanwhile, activists are pressing ahead with more demonstrations in Moscow and 40 other cities in protest of Kremlin critics being disqualified from standing in local elections. Almost 3,000 demonstrators have been detained in recent rallies in Moscow alone so far.
Argentina’s presidential primary is also set for Sunday. The mandatory vote is like a nationwide opinion poll as the outcome could be predictive for the country’s Oct. 27 election.
— Markets. The Dow on Thursday rose 371.12 points, 1.43%, at 26,378.19. The Nasdaq moved up 176.33 points, 2.34%, at 8,039.16. The S&P 500 gained 54.11 points, 1.88%, at 2,938.09. The rise was enough to pull the S&P 500 and Nasdaq into positive territory for the week and trim the Dow's weekly decline to 0.4% with one more trading session left.
In an August survey of economists conducted by Bloomberg, odds of a U.S. recession in the next 12 months is now pegged at 35%, compared the previous survey’s 31%, as global trade tensions fuel economic uncertainty. Growth in the world’s biggest economy will average 2.3% this year, down from 2.5% seen in a July survey. Gross domestic product expansion is forecast to slow to a 1.8% annualized pace in the third quarter, from 3.1% in the first three months of the year and 2.1% in the second quarter. A separate poll conducted by Reuters shows a median 45% probability of the U.S. economy slipping into a recession in the next two years, up from 35% in the previous poll.
A New York Times analysis (link) showed the Federal Reserve and Congress have given President Trump the most growth-friendly climate in decades. The central bank has kept interest rates lower than under any other president since Jimmy Carter, when adjusted for the economy’s output and inflation.
U.S./China trade battle negatively impacts oil demand. The International Energy Agency (IEA) downgraded its forecast for global oil-demand growth for the third time in four months, warning of further pressure from worries about the world's economy. The IEA warned that it may cut those estimates further should the U.S./China trade war drag on, with data showing global oil consumption increased at the slowest pace since 2008 in the first five months of this year. A barrel of West Texas Intermediate for September delivery was slightly higher at $52.78, while still being down more than 5% for the week. "Growing evidence of an economic slowdown" has caused global oil demand to grow at its slowest pace since the financial crisis, according to the IEA. It now expects oil demand growth to reach 1.1 million barrels per day in 2019 and 1.3 million bpd in 2020 (a downward revision of 100K bpd for this year and 50K bpd for next year). "Meanwhile, the prospects for a political agreement between China and the United States on trade have worsened. This could lead to reduced trade activity and less oil demand growth."
Iran’s economy depends on oil, but U.S. sanctions are estimated to have reduced sales to about 500,000 barrels a day, down from 2.5 million barrels in 2018.
Falling bond yields are reviving the U.S. mortgage market. Current rates, at their lowest level in almost three years, are prompting borrowers to flood lenders with calls to refinance. Output fell 0.2% in the second quarter, worse than the flat performance expected by economists and down from a 0.5% expansion recorded in the first quarter, according to data from the Office for National Statistics. Britain’s economy has not contracted since the final three months of 2012.
U.K. economy shrank. Brexit uncertainty and a slowdown in global growth weighed on the world’s fifth-largest economy in the second quarter, resulting in its first fall in GDP in six-and-a-half years.
Japan economy grew faster than expected in second quarter. Japanese GDP in the second quarter expanded 1.8% on an annualized basis, faster than expectations for a 0.4% rise, but slower than the upwardly revised pace from the first quarter of 2.8%. Private consumption rose, partly spurred by a coming increase in the national consumption tax in October and that could further boost consumer spending in the third quarter as the October increase gets closer. Global uncertainties are also a potential drag ahead on the Japanese economy. “Although external demand is negative due to the slowdown in overseas economies, private consumption and capital investment have increased steadily, thus showing a domestic demand-spurred gradual recovery,” Economy Minister Toshimitsu Motegi said.
Chase Bank, operated by JPMorgan Chase, has agreed to "forgive" the outstanding credit card debt of its Canadian cardholders as part of the U.S. bank's move to exit the Canadian credit card market. An alternative would have been to sell the debt to a third party, but the company felt that simply cancelling the debt entirely "was a better decision for all parties," said Chase Card's Maria Martinez.