U.S./China deputy-level meetings mid-Sept.; global stocks rise | Dorian regains strength
In today's updates:
* Early October talks in Washington among U.S./China key trade negotiators
Hurricane Dorian regains strength as a Category 3 storm, to turn north-northeast today and pick up speed Friday. Hurricane Dorian is currently moving north at nearly eight miles per hour (mph) this morning, with the National Hurricane Center (NHC) forecasting the storm to take a turn to the north-northeast today, with a turn toward the northeast by tonight. “A northeastward motion at a faster forward speed is forecast on Friday,” according to the NHC. This forecast track is expected to take the center of Dorian close to the coast of South Carolina through the day, and then move near or over the coast of North Carolina tonight and Friday. “The center should move to the southeast of extreme southeastern New England Friday night and Saturday morning, and approach Nova Scotia later on Saturday,” NHC said. The currently category 3 hurricane on the Saffir-Simpson Hurricane Wind Scale has maximum sustained winds near 115 mph. “Some fluctuations in intensity are expected this morning, followed by slow weakening through Saturday,” NHC said. “However, Dorian is expected to remain a hurricane for the next few days.” The storm surge and dangerous winds from Dorian are along portions the coasts of South Carolina and North Carolina, and portions of southeast Virginia and the southern Chesapeake Bay, regardless of the exact track of Dorian's center. Rainfall totals through Friday are expected to be six to 12 inches for the coastal Carolinas, three to eight inches for far southeast Virginia, one to two inches for coastal Georgia and two to four inches for extreme southeastern New England. Retailers in the southeast can expect Dorian to threaten the typical boosts they see from shoppers on the tails of Labor Day weekend and the back-to-school season. Consumer spending is expected to decline as much as $1.5 billion, according to Planalytics, as foot traffic at apparel stores, outlet centers and restaurants falls between 14%-32%.
Markets: President Trump asserted that U.S. stock markets would be “10,000 points higher” if he hadn’t pursued a trade war, but added, “somebody had to do this.” Meanwhile, Germany's recession risk continues to rise as industrial orders dropped significantly. Data today added to Germany's woes, as new factory orders declined in July and construction fell to its lowest level in five years.
Wind turbines are not killing fields for birds. President Trump continues his years' long dispute with wind turbines, claiming that wind turbines diminish home property values, cause cancer, and “kill all the birds.” Wind turbines have not been found to diminish home values of nearby properties or cause cancer. According to numbers aggregated by the United States Fish and Wildlife Service, cats are a bigger scrooge to the overall bird community than wind turbines. The most recent estimate places the number of bird deaths at the paws of cats at 2.4 billion. Collisions from wind turbines on land killed a small fraction of birds in comparison to the damage that cats and glass buildings cause to the general bird population. Land wind turbines were responsible for over 200,000 bird deaths while collisions from building glass are estimated to be responsible for nearly 600 million bird deaths. The U.S. Fish and Wildlife Service did not provide estimates for deaths resulting from offshore wind turbines. (Source: Statista)
But what about wind turbines and their impact on internet strength, satellite TV and home values? Hmmm
— U.S./China trade policy update:
- U.S./China in-person trade talks set for early October; most equities rise. China and the U.S. will hold in-person trade talks in Washington in early October, according to China’s Ministry of Commerce, the first top-level phone call since August 13. The decision was agreed to during a call between U.S. Trade Representative Robert Lighthizer, Treasury Secretary Steve Mnuchin and Chinese Vice Premier Liu He. Other Chinese officials, including Commerce Minister Zhong Shan, central bank governor Yi Gang and Ning Jizhe, deputy head of the National Development and Reform Commission, also joined the phone call. "Both sides agreed that they should work together and take practical actions to create good conditions for consultations," the ministry said. The call was termed “really good” by China Commerce spokesman Gao Feng. "We'll strive to achieve substantial progress during the 13th Sino-U.S. high-level negotiations in early October." China’s state television said the two sides would work together to “create favorable conditions” for negotiations. The Office of the U.S. Trade Representative (USTR) confirmed that there will be talks taking place at the ministerial level in Washington “in the coming weeks,” USTR spokesman Jeff Emerson said in an email statement. "In advance of these discussions, deputy-level meetings will take place in mid-September to lay the ground work for meaningful progress."
- The U.S./China talks' agenda. Wang Yong, a professor of international relations at Peking University, said a slowdown in the U.S. economy along with the president’s unpredictable nature could affect Washington’s demands. “Trump’s habit of sending tweets totally at his personal will add another level of danger,” Wang said. Wang said a wide range of issues would be discussed at the October meeting, including market access for foreign companies in China, U.S. visa restrictions for Chinese applicants and the quantities of American products to be bought by China.
- Taoran Notes, a social media account affiliated with the state-run newspaper Economic Daily, said in a commentary that officials from both countries might address each other’s core concerns in the coming days. China has insisted that a trade deal should be equal and balanced, including removing tariffs and agreeing on reasonable quantities of Chinese purchases of US agricultural and other products. “The upcoming trend, whether it will develop in a positive direction or repeat [previous tensions], will probably be decided by [the Americans’ actions],” it said.
- China boosts financial help for hog production. China will strengthen its fiscal policies for hog production as it seeks to help the industry and provide a stable pork supply, according to the Chinese Ministry of Finance. The country will now pay out subsidies to farms that have culled pigs due to African swine fever (ASF) every six months instead of annually, the Ministry of Finance and Ministry of Agriculture and Rural Affairs said. Local governments will also lift incentives to major hog producing counties, the statement indicated, an effort to build up disease prevention and control. A temporary boost to insurance coverage on hogs and sows was also set in place, rising to 1,500 yuan ($211.6) from 1,200 yuan, while the levels for finishing pigs will rise to 800 yuan from a prior 600 yuan.
- Former USTR Zoellick comments on ongoing U.S./China trade clash. Robert Zoellick, a U.S. trade representative under President George W. Bush, writes in a Wall Street Journal op-ed (link) that the battle has cost the U.S. export markets and raised prices for American consumers. Zoellick is a former World Bank president, U.S. trade representative and deputy secretary of state.
- The U.S. is unfairly targeting Chinese American scholars, and that it would only hurt international exchanges as well as the U.S. economy which relies on technology developments, according to the People’s Daily overseas edition.
- The implications of China’s Belt and Road Initiative (BRI) for the calculations of the People’s Liberation Army and other Chinese security actors is the topic of a report from the National Bureau of Asian Research (NBR). The seven essays in the report present a set of options that are under consideration to secure China’s interests along the BRI routes. Link to report.
- China's thirst for bottled water stirs a backlash. A growing number of Chinese businesses are investing in plants abroad to meet demand, sparking protests and court actions in New Zealand, Australia and elsewhere. Link to WSJ article.
— Reuters: China to inspect four Brazilian beef plants this week. Chinese health inspectors are to be looking at four Brazilian beef plants starting Today (Sept. 5), according to Reuters, with the effort part of China’s bid to boost its meat suppliers from abroad. The report indicated the inspection will take place via video technology and indicated that two sources signaled one of the plants is owned by Marfrig Global Foods.
— Trump promises aid to farmers in Dorian path, using China-related tariff money. President Trump says he’s committed to helping farmers affected by Hurricane Dorian. “We have a lot of money because of the tariffs we’ve taken in,” Trump said. “We’ve taken in many billions of dollars of tariffs from China and we will have a lot of money to be helping our farmers on the coast if they get hit.”
— How Dorian is impacting transportation.
- The Jacksonville Port Authority closed all terminals Monday and they remained closed Tuesday and Wednesday. Link for details.
- The Ports of Miami (link) and the Everglades closed Monday until further notice.
- The Georgia Ports of Savannah (link) and New Brunswick (link) were closed Tuesday and Wednesday, according to the Georgia Port Authority.
- Marine terminals at the Ports of Charleston and Georgetown South Carolina (link) were closed Wednesday and Thursday and reopen Friday, according to an announcement from the Port Authority.
- The Ports of Wilmington and Morehead City in North Carolina (link) closed at noon on Wednesday. Neither port was receiving refrigerated cargo for export as of Tuesday.
- Norfolk Southern (link) is staging repair equipment to expedite repairs if necessary; CSX is warning customers to expect delays in affected areas.
— Judge orders Anheuser-Busch to remove ‘no corn syrup’ labels from Bud Light packaging. U.S. District Court Judge William Conley Wednesday ruled that Anheuser-Busch has to stop using packaging on 12-packs and 24-packs of Bud Light that say “No Corn Syrup” once they run out of the packaging that it has or by March 2020, whichever comes first.
The decision came in the case filed by MillerCoors, which charged the statement on the packaging implies that Miller Lite and Coors Light contain corn syrup. MillerCoors uses corn syrup in the fermentation process but the final product does not contain corn syrup.
"In light of the limited number of beers in the light beer market, with Bud Light, Miller Lite and Coors Light accounting for almost 100% of sales, that same jury could also find a substantial segment of consumers would infer that Bud Light's principal competitors contain corn syrup," Conley said in his decision.
Anheuser-Busch said in a statement that it looked forward to defending its position in court, saying that MillerCoors was “resisting consumer demands for transparency in the ingredients used to brew its beers.”
— Brazilian judge orders Bayer to put more funds into escrow account for soybean patent dispute: Reuters. Germany’s Bayer has been ordered to deposit an additional 286 million reais ($69.4 million) in an escrow account in the patent dispute with Brazilian farmers, according to a court document cited by Reuters. Federal Judge Vanessa Gasques ordered the company to make the deposit within 48 hours.
Bayer in a statement said that it had not been notified of the court decision, but said it would comply even though the firm “remains confident” of the validity of its patents on the Intacta RR2 PRO soybean seed technology. Bayer previously deposited 11.9 million reais in the account, an amount equal to about 4% of the royalties it collects from growers for the product.
Farmers in Brazil challenged the royalties in a 2017 suit that claimed the Intacta soybean seed patent should be cancelled as it was not a meaningful technological innovation.
Meanwhile, Germany’s Environment Ministry Wednesday said it would ban the use of glyphosate after 2023 and systematically reduce use of the chemical from 2020. "Such a ban would ignore the overwhelming scientific assessments of competent authorities around the world that have determined for more than 40 years that glyphosate can be used safely,” Bayer said in a statement.
— Unions take refiner side in RFS dispute. The International Brotherhood of Boilermakers (IBB) joined the American Fuel & Petrochemical Manufacturers and the American Petroleum Institute in opposing increased Renewable Fuel Standard (RFS) blending targets for biofuels. In a letter to President Trump (link), IBB said small refinery exemptions — 31 of which were recently issued by EPA — have not caused a drop in biofuel consumption. “Increasing the volumes of biofuel required above the excessive amount of gallons already mandated … will only result in skyrocketing compliance costs, putting American jobs at risk — jobs hard working Americans, like the Boilermakers, depend on to put food on the table and take care of their families,” IBB President Newton Jones wrote. Meanwhile, North America’s Building Trades Unions (Teamsters, boilermakers, roofers, and other unions) took a similar position via a letter to Trump.
— Changes in U.S. energy production are triggering strains in the Farm Belt. The ethanol industry is suffering from weaker prices and oversupply, the Wall Street Journal reports (link), “as that pillar of the farm economy wrestles with regulatory changes and the trade dispute with China.” Producers of the corn-based fuel additive have closed plants in several Midwestern states and companies including Archer Daniels Midland Co. are scaling back ethanol business. About 38% of corn grown in the U.S. is used to make ethanol, “which is hailed in rural America for helping wean the country from foreign oil.” But exemptions for oil refiners from ethanol-blending requirements and a halt in exports to China have led to increased inventories, diminished shipping volumes, lower prices and rising losses for producers. One result: U.S. ethanol consumption declined last year for the first time in over two decades.
— Near-steady U.S. July ag exports outpaced by import growth. U.S. agricultural trade registered a deficit for July, marking three out of the last four months with trade red ink.
U.S. ag export values held basically steady in July at $10.79 billion against imports that rose to $10.91 billion for the $115 million monthly deficit. With the cumulative ag exports in Fiscal Year (FY) 2019 at $114.0 billion and imports at $110.4 billion, it suggests USDA’s recently updated outlook for FY 2019 ag exports to be close as imports would have to average just under $9.5 billion in August and September and exports would have to average $10.25 billion to meet the export forecast of $134.5 billion and imports at a record $129.3 billion.
Typically, imports register their lowest mark of the fiscal year in September. It would appear the import forecast from USDA is at risk for being too low at $129.3 billion. The value of ag imports has not registered back-to-back months of less than $10 billion since FY 2017.
The current forecast ag trade surplus of $5.2 billion would be the smallest since it was $4.57 billion in FY 2006.
— Other items of note:
After criticizing General Motors on Twitter over the last few weeks, President Trump will sit down today with CEO Mary Barra to discuss trade, ongoing contract talks and revising vehicle fuel efficiency standards. Trump has previously said the automaker "which was once the Giant of Detroit, is now one of the smallest auto manufacturers there," and suggested GM should start moving operations back to the U.S. from China.
Discussions between the United Auto Workers union and Detroit Three automakers are intensifying ahead of a Sept. 14 contract expiration.
Former Vice President Joe Biden appeared to have a blood vessel burst in his left eye while participating in CNN's town hall on climate change.
Ten Democratic candidates promised on Wednesday to take aggressive action to combat global warming during a CNN forum on climate change. Almost all of the candidates have a goal of achieving carbon neutrality across the U.S. economy by 2050, but they differed on how to get there and how to pay for it. Link to NYT article.
“Climate change is one of the most pressing global challenges facing society today,” Christine Lagarde said on Wednesday at a confirmation hearing before a European Parliament committee in Brussels. “My personal view is that any institution has to actually have climate change risk and protection of the environment at the core of their understanding of their mission,” Lagarde told European lawmakers. Link to NYT article.
The rise of pet cloning in China shows how far the country’s genetics capabilities have risen — and the industry there faces fewer barriers than in other nations, according to a NYT article (link). China unveiled its first cloned cat last month, a kitten named Garlic whose DNA was extracted from a deceased feline by a company called Sinogene, at a cost of $35,000. Sinogene has cloned more than 40 dogs, some as pets and others for medical research, at a cost of about $53,000 each. “Sinogene has bigger ambitions than cats and dogs,” the NYT article notes. It’s cloning a horse, and hopes to clone endangered animals like the panda and the South China tiger.
The Trump administration moved to roll back requirements for energy-saving light bulbs, a move that critics said could contribute to greenhouse gas emissions.
Hormel and Kellogg will introduce their own plant-based meat brands, joining the competition against Beyond Meat and Impossible Foods. Link to CNBC article.
Treasury Department today is expected to release its plan for ending Fannie Mae and Freddie Mac’s conservatorships.
— Markets. The Dow on Wednesday rose 237.45 points, 0.91%, at 26,355.47. The Nasdaq gained 102.72 points, 1.30%, at 7,976.88. The S&P 500 moved up 31.51 points, 1.08%, at 2,937.78.
Fed lines up another rate cut. The central bank is gearing up to cut interest rates at its next policy meeting in two weeks, most likely by a quarter-percentage point, as the trade war darkens the global economic outlook, according to the Wall Street Journal (link).
Trade deficit falls less than expected in July. The Commerce Department on Wednesday reported the trade deficit in July was $54 billion, down from $55.5 billion. Economists had expected the deficit to fall to $53.5 billion. The U.S. trade deficit with China, meanwhile, fell $500 million to $29.6 billion.
Apple returns to bond market. Taking advantage of the steep decline in benchmark interest rates, Apple is joining U.S. companies including Deere and Disney by launching its first bond deal since 2017 and selling $7 billion of debt. All three companies issued 30-year bonds with yields below 3%, a first for the corporate debt market. Bonds issued by big-name corporations give investors a relatively safe alternative that still pays more than government bonds.
A Dudley do-right... Bill Dudley, the former president of the New York Fed who suggested that the Federal Reserve openly oppose President Trump, softened his argument after facing criticism. Link to Bloomberg Opinion item.
The European Central Bank is preparing to debate whether to cut its main deposit rate lower than its current level, minus 0.4%, where it has been since 2016 as part of an economic stimulus effort, the Financial Times reports (link). But critics say that negative rates are weakening European banks by discouraging lending and incentivizing savers and financial firms to hoard physical cash.
China’s Unipec said to sell some U.S. crude to India, South Korea in wake of tariffs. China’s trading arm of Sinopec is reselling some of the U.S. crude oil it has purchased to India and South Korea as it seeks to avoid tariffs put on U.S. crude by China, according to Reuters. The Sinopec trading arm Unipec took the move after the five-percent tariffs China put in place on imports of U.S. crude and the sales to South Korea in particular were labeled an “unusual move” by one of the sources quoted by the newswire. The expectation had been that the crude would be stored in bonded tanks, but it was not clear what led to the shift in strategy.
British lawmakers voted in favor of a bill to avert a no-deal Brexit and against Prime Minister Boris Johnson’s request for a snap election, handing him three major losses in two days. The government’s efforts to prepare for a no-deal Brexit will limit some of the economic harm, but such a departure would still cause big damage, according to the Bank of England.