How EPA altered the 2019 RVO | Subdued Japan economic update | Congress returns
In today's updates:
* China’s exports were down 1% in August from last year, surprising analysts
Markets: Private data shows slowdown for China. Beneath the stable headline numbers, there is a growing belief the real picture is worse. Link to WSJ article.
— U.S./China trade policy update:
- So much for front-loading Chinese exports ahead of new sanctions. On Sunday, we detailed China's latest trade statistics (link). China’s exports decreased 1% last month vs a year earlier, according to the customs administration, despite the majority of economists forecasting an increase. The decline compares with a 3.3% rise in exports year on year in July. China's exports to the U.S. tumbled 16% in August. The decline in exports was accompanied by a 5.6% drop in imports in August, unchanged from July. The export figures for August also showed that China’s trade surplus, a measure of how much its exports exceed its imports by value, fell to $34.8 billion, far below analysts’ expectations. The country’s surplus was $45 billion in July.
- Unrest in Hong Kong entered a 14th week, as police and protesters clashed. Protesters’ demands include greater democracy, to which end some sang the “Star-Spangled Banner” and called upon Donald Trump to help.
- Australia seizes trade opportunities. The country needed an economic pick-me-up and it got one after U.S./China trade relations soured, but how long it will last is another question. Link to Wall Street Journal article on the topic.
- Canada’s lobster industry is booming — in part due to the U.S./China trade war. Prices have skyrocketed since China announced new tariffs on live lobsters from the U.S. in July, the Guardian reports (link). Already the world’s biggest supplier of lobster, Canada is expecting a surge in demand — much of it from Asia.
- China continues efforts to bolster hog production. China said it would issue subsidies of up to five million yuan ($700,000) to help in the construction of large-scale hog farms as the country seeks to bolster pork supplies. The National Development and Reform Commission (NDRC) said the subsidies would be at least 500,000 yuan but would cover no more than 30% of the total project and have to be issued by the end of 2020. Those seeking to expand their operations can also get access to the funds, the NDRC said, to help cover equipment for disease prevention, waste treatment, environmental controls and automated feeding. The NDRC also plans to subsidize efforts in 100 counties to set up facilities to take in manure from pork and poultry farms that would be treated and used.
— See how EPA altered the 2019 RVO. Below is the revision EPA made to ‘project’ small refinery waivers in the 2019 RVO text before taking it back out. They made a few other changes besides to the ‘projected’ volumes in the formula to implement it in the text.
— Those hoped-for U.S. corn shipments to Japan may not be loaded up anytime soon. Agriculture specialists say a pest infestation problem in Japan’s crop isn’t severe enough to affect import demand, the Wall Street Journal reports (link), undercutting hopes that a pact with Japanese buyers would help cut into the big U.S. stockpile of corn. The conflicting signals over the grain are among the complications U.S. farm exporters face as they adjust to diminished agriculture purchases from China. Corn is one of many commodities at the heart of restructuring supply chains as a result of the U.S./China trade dispute, and the search for new markets shows how tough it will be for farmers to match production to demand in foreign markets, the article notes. “Farmers turned to more corn production after China stopped buying U.S. soybeans, creating an inventory surplus that has sent prices tumbling.”
— Other items of note:
U.S. wine duties still on table re: French digital tax. The Trump administration is moving ahead with an investigation into a new French digital tax that could lead to tariffs on the country’s wine, despite signals otherwise at August’s G7 summit. The probe could clear the way for targeting billions in French exports to the U.S., including several French farm and food products.
Details on the latest disaster program were provided in a special Sunday report on profarmer.com. Link
Vote on Brexit deal. Legislation that would require Britain to seek another extension if there is no withdrawal agreement by Oct. 31 is expected to be approved today, a move that Prime Minister Boris Johnson has bitterly opposed.
After President Donald Trump abruptly and unexpectedly canceled the ongoing peace talks with the Taliban, the group responded on Sunday by threatening to take more American lives. The U.S., for its part, has promised to maintain military pressure on the Taliban. The president said that he nixed the meeting after the Taliban claimed credit for last week’s deadly attack in Kabul, which killed 11 civilians and a U.S. service member. The Taliban also claimed a suicide bombing on Tuesday in Kabul that killed at least 16 people and wounded more than 100.
The U.S. Congress returns from its summer recess today with a big agenda ahead, including negotiations over the government budget and U.S. President Donald Trump’s plan to fund a wall along the border with Mexico — which Democrats oppose. The 2020 fiscal year begins on Oct. 1. Link for details.
— Markets. Debt owed by governments, businesses and households around the globe is up nearly 50% since before the financial crisis to $246.6 trillion at the beginning of March, according to the Institute of International Finance, an association of global financial firms.
Japan’s second quarter GDP not as strong as first reading. Japan’s economy expanded at a 1.3% pace in the second quarter, down from an initial second quarter reading of 1.8%, according to the Cabinet Office update released today. That also marked a downturn from the first quarter GDP result of 2.2%. Capital spending posted a rise of just 0.2%, a sharp downward revision from the month-ago estimate of 1.5%. This is raising expectations that the Japanese economy could slip into recession yet this year even though there are expectations the government will deploy stimulus measures to prevent a major downturn. But the country also has a planned increase in its consumption tax set for October – to 10% from the current 8%.
The British economy saw the immediate threat of recession recede with this morning’s GDP data for June showing it expanded 0.3%, faster than economists had expected. The pound reversed earlier declines to climb higher.
Big tech crackdown. On Friday, a group of seven states led by New York Attorney General Letitia James launched an antitrust investigation into Facebook, focused on the company's dominance in the industry. A second probe today will likely be announced by Texas and include up to 40 other states, examining Google's impact on digital advertising and information markets.
JPMorgan is close to winning the lead advisory role for the initial public offering of Saudi Aramco (ARMCO), the world's most profitable corporation, edging out rivals for the plum assignment, CNBC and Reuters reports. Saudi officials, who are large owners of Uber through the country's sovereign wealth fund, were said to be displeased with Morgan Stanley after its bankers misjudged demand for the ride-sharing giant's stock in May. Shares tumbled 18% in the first two days of trading and are still well below the IPO price of $45.
Looking to quantify the impact of Trump's tweets on the bond market, JPMorgan has created the "Volfefe Index" — named after the mysterious 'covfefe' tweet — which analyzes how the president's messaging is influencing volatility in U.S. interest rates. Analysts found that the index can account for a "measurable fraction" of moves in implied volatility, seen in interest rate derivatives known as swaptions. It's particularly apparent at the shorter end of the curve, with two- and five-year rates more impacted than 10-year securities.