Mideast tension | USMCA in Senate | No Senate run for Pompeo | Sugarbeet aid
In today's updates:
* China watchers can't confirm Trump coming to Beijing later this year re: Phase 2
Markets: A Persian shrug... Despite all the Mideast tension, oil prices declined, paving the way for equities to gain around the world. The price of a barrel of Brent crude fell below $68.50, down from yesterday’s high over $70. "Oil traders have been unwinding their hedges, thinking that Iran's economic hardships would deter an attack that puts the economy into an even deeper hole," said Stephen Innes, chief Asia market strategist at AxiTrader. “It is unlikely that oil prices will soar to levels that will cause yet another global recession, as has happened in the past when chaos spread in the Middle East,” economist Ed Yardeni wrote on Monday. “If Middle Eastern oil supplies are disrupted, ample strategic petroleum reserves are available to mute any oil price shock. Higher oil prices would also stimulate even more oil production by U.S. frackers.”
Australia bushfires to hit the economy. Killing 25 people and leaving thousands homeless, Australia's huge bushfires have already burned through more than 25.5 million acres of land and the economic costs are adding up. Prime Minister Scott Morrison has pledged at least $2 billion in investment over the next two years for a "bushfire recovery fund" to help rebuild devastated regions.
Impossible Foods and Beyond Meat impossible in China? U.S. firms want to expand to the Chinese market but face significant governmental and cultural hurdles in China. The New York Times took a look at the hurdles (link).
Impossible pork. The meatless wars are heating up as plant-based food makers target new product lines after biting into the U.S. burger business. Impossible Foods will introduce imitation ground pork and sausage later this month, including a patty for a new sandwich at dozens of Burger King restaurants, as the company turns its focus to international expansion in 2020. Rival Beyond Meat already began supplying plant-based sausage to Dunkin' Brands and Tim Hortons restaurants last year, mainly for breakfast sandwiches. Link to Washington Post article.
What's a workaholic to do: Finland targets four-day workweek. Calling it the "next step for us in working life," Finland's newly installed prime minister, Sanna Marin, has proposed putting the entire country on a four-day workweek that consists of six-hour workdays. Neighboring Sweden tested out six-hour work days a couple of years ago, and in France, the standard work week was reduced to 35 hours (from 39 hours) in 2000. The corporate world is also experimenting with the idea. In November 2019, Microsoft Japan ) revealed that a trial four-day workweek had boosted productivity by 40%.
— U.S./China trade policy update:
- Report: China will not boost grain import quotas under Phase 1 trade deal. China will not increase the tariff-rate quotas on corn, wheat and rice under the Phase 1 trade deal, according to Han Jun, a vice minister of agriculture, as quoted by Caixin media. The TRQ is available to global markets and "we won't adjust it for one country,” Han said. Reuters reported there was no comment from the Chinese Ag Ministry on the matter. An increase was not expected, but U.S. trade officials have pressed China to fulfill the TRQs, unlike in recent years. China has previously set the TRQs at 9.64 million tonnes of wheat, 7.2 million tonnes of corn and 5.32 million tonnes of rice. The U.S. challenged China’s operation of the TRQs at the WTO and won the case, and China said they would comply with the WTO ruling.
- China watchers say Beijing officials cannot confirm President Trump coming to Beijing later this year re: Phase 2 talks.
- China continues to release pork from state reserves. China will release another 20,000 tonnes of frozen pork Jan. 9 from state-owned reserves, according to a January 6 notice from the China Merchandise Reserve Management Center. The country has released more than 100,000 tonnes of pork from reserves as it seeks to bolster supplies ahead of the Lunar New Year holiday at the end of this month. They have also stepped up imports of pork as they seek to assure supplies for what is typically a holiday where pork consumption peaks.
- U.S. consumers are paying for Trump’s trade war. President Trump repeatedly alleges China is bearing the cost of his trade battle with Beijing. A new research paper says that claim isn’t true. “U.S. tariffs continue to be almost entirely borne by U.S. firms and consumers,” according to the working paper by Mary Amiti of the New York Fed, David Weinstein of Columbia University and Stephen Redding of Princeton. For details, link to NYT article.
- Goldman Sachs expects the negative impact of the trade war on China's real GDP to ease over the coming quarters.
- China’s foreign-exchange reserves rose to a six-month high at the end of December, as the yuan rebounded against the U.S. dollar, official data showed today. The country’s hoard of foreign exchange increased $12.3 billion from a month earlier to $3.108 trillion in December, reversing a $9.6 billion drop in November, according to data released by the People’s Bank of China.
— Mideast tension update:
- U.S. adds troops as Iran vows revenge. The Pentagon said it plans to send B-52 bombers and more troops to the Middle East as anger mounted in Baghdad and Tehran over the U.S.’s targeted killing of Iranian Maj. Gen. Qassem Soleimani in Iraq.
- At least 35 people were killed and 48 injured in a stampede at the funeral for Soleimani in his home town of Kerman in southeastern Iran, Iranian state TV reported. The burial has been postponed.
- Oil infrastructure at risk. Energy infrastructure around the Persian Gulf could be among the targets for Iran in seeking retaliation for the U.S. killing of Gen. Qassem Soleimani. Oil markets withstood attacks last year by Iran against Saudi Arabian oil facilities and tankers near the Strait of Hormuz. Energy analysts expect that the regime will take some time before deciding on how to avenge Soleimani’s death, gaming out how the U.S. would respond.
- Tehran is assessing 13 scenarios to respond to the U.S. killing of Soleimani, the head of its national security council was quoted as saying by Iran’s semi-official Fars news agency. In a departure for Tehran, which has often used proxies in its attacks, Iran’s supreme leader Ayatollah Khamenei said a response should be openly carried out by Iranian forces.
- The Pentagon denied reports that it is imminently withdrawing troops from Iraq after the Iraqi parliament asked the government to eject the U.S. military. Top U.S. military officials say a leaked letter was a “draft” that should never have been revealed.
- Iranian Foreign Minister Javad Zarif had requested to attend a United Nations Security Council meeting on Thursday, but the United States denied his visa. Observers note that barring Zarif violates the terms of a 1947 U.N. headquarters agreement, but the U.S. has indicated it can deny visas for “security, terrorism and foreign policy” reasons.
- Defense Secretary Mark Esper acknowledged that attacking antiquities in Iran would be a war crime, after President Trump said such places would be legitimate targets if the conflict with Tehran escalated.
- The great question hanging over the dangerous new confrontation between the U.S. and Iran is simple and profound, writes the WSJ’s Gerald F. Seib: Will this clash deepen America’s entanglement in the Mideast — or will it be a watershed event that actually will begin drawing it to a close? Link for his commentary.
- Rising tensions in the Middle East are reaching grain farms in the U.S. Midwest. Fears of retaliation for a U.S. airstrike that killed top Iranian General Qassem Soleimani have sparked concern that U.S. wheat growers will lose access to Middle Eastern markets. The Wall Street Journal reports (link) the Middle East has been a growing destination for U.S. grain exports, particularly as American wheat farmers have sought alternate markets to make up for the impact of the U.S./China trade war. Wheat futures have been sliding since the U.S. airstrike, and the Jefferies Shipping Index tracking maritime companies has been rising on a forecast that freight carriers will get “hazard pay” for operating in the region. Middle Eastern nations are projected to import 17.3 million metric tons of wheat in the 2019-20 marketing year. But the U.S. claims only a small share of that trade, suggesting countries could easily turn to other sources.
— USDA's FSA orders no payments to be made on 2018, 2019 sugarbeet losses under WHIP+. USDA’s Farm Service Agency (FSA) is instructing state and county offices to not approve any sugarbeet pay groups on any application under the Wildfire and Hurricane Indemnity Program Plus (WHIP+) application, advising them that “additional guidance for processing sugarbeet losses will be forthcoming.”
The agency cited the fiscal year 2020 government funding package which provided new legislation for paying sugarbeet losses under WHIP+ that require USDA to pay 2019 and 2019 losses through cooperative processors. “Due to the new legislation, 2018 and 2019 sugarbeet loss payments may be paid outside of WHIP+,” FSA said. It is not clear what the new guidance referenced by FSA will be.
— Surface transportation bill pay-fors under review. Senate Environment and Public Works Chairman John Barrasso (R-Wyo.) met yesterday with staff to strategize on the next steps needed to enable his panel’s $287 billion, five-year surface transportation bill — which will replace the FAST Act — to come to the Senate floor within the next several weeks. Barrasso revealed the focus is on the financing title of the rewrite of the highway law and the pay-fors needed before Majority Leader Mitch McConnell (R-Ky.) can bring up the measure. Barrasso declined to discuss specifics, including proposals his committee suggested, such as taxing electric vehicles and raising more revenues by indexing the federal gas tax to inflation.
— India asks importers to stop buying Malaysian palm oil: Reuters. India has asked palm oil refiners and traders to stop purchases of Malaysian palm oil, Reuters reports, citing government and industry sources. The apparent action follows criticism by Malaysia of India’s actions in the Kashmir region and a new citizenship law put in place. The Indian government asked importers in a meeting Monday in New Delhi to boycott Malaysian palm oil, Reuters said, saying there have been several meetings with the Indian government and the vegoil industry relative to reducing their purchases from Malaysia.
Malaysian Prime Industries Minister Teresa Kok told Reuters on the sidelines of an industry event they had not received any formal statement or notice from India advising them of any action to cut imports of palm oil from Malaysia.
The report indicated that any halt in imports would not be immediate as Indian buyers are said to have booked Malaysian palm oil shipments for January and some for February, so the impact of any action would not be seen until March.
— Other items of note:
USMCA could be in focus this week in Senate. If the House doesn’t send over articles of impeachment, then the U.S.-Mexico-Canada (USMCA) trade agreement could come to the Senate floor for a vote later this week, Senate Republican Whip John Thune (R-S.D.) told reporters yesterday. Members of the Senate Finance Committee will discuss the USMCA at a markup this morning.
As of January 6, FSA has paid $10.769 billion in MFP 2 payments to farmers. The top five states were Iowa, Illinois, Texas, Minnesota, and Kansas.
No Senate run for Mike Pompeo. The secretary of State told the Republican leadership that he does not plan to run this year in Kansas, his home state, according to several people briefed on the discussions. Pompeo was considered a safe bet to win the seat left vacant by Pat Roberts. Some Republicans believe Kris Kobach, the state’s former secretary of state who has announced his candidacy for the post, may be too radical to win over independent and moderate voters in a deeply conservative state because of his hard right, anti-immigrant views.
Trump administration forwards several nominations to the Senate. The Trump White House has opened 2020 by sending several nominations to the Senate, including some that had been made in 2019 but were not acted on by the chamber before they departed in December. Among the nominations are Brandon Lipps to be Undersecretary of Agriculture for Food, Nutrition, and Consumer Services; Katharine MacGregor to be Deputy Secretary of the Interior; and David Wright to be a Member of the Nuclear Regulatory Commission. Absent from the list was James Danly who was nominated to be a commissioner on the Federal Energy Regulatory Commission (FERC).
EPA unveiled the first step toward setting new air pollution standards for heavy-duty trucks on Monday, an action that once completed would be the agency’s first update to the nitrogen oxides standards in nearly two decades. EPA Administrator Andrew Wheeler announced the move in rural Virginia, and the agency expects to release a full proposal later in the year. Link to proposed rule. The change was sought by the trucking industry that could override potentially tighter state rules.
Roundup has a challenger. Bayer’s herbicide is the world’s most heavily used, but resistant weeds and lawsuits left it vulnerable. The race to make up for its failings is a clash of corporate rivals, the Wall Street Journal reports (link). Corteva Inc. is touting its new Enlist weedkiller as a challenger to Roundup.
U.S. could deport Mexican nationals to Guatemala. The U.S. could soon send Mexicans seeking asylum in the United States to Guatemala under an agreement signed with the Central American country in July 2019. U.S. asylum officers received instruction in recent days that Mexican nationals should be considered part of the agreement, Reuters reports (link).
Milk shakeup... Borden Dairy, a 163-year-old milk producer known for its cow Elsie, has filed for bankruptcy. The Dallas-based company in its chapter 11 petition blamed falling milk consumption, rising raw-milk costs, increasing freight costs due to driver shortages pressuring wages, and the growing clout of retailers consolidating with other merchants or beginning to develop their own milk-processing operations. Borden, with $1.18 billion in 2018 sales, is one of the U.S.’s largest milk producers. The nation’s largest, Dean Foods, filed for bankruptcy in November. Link for more from the WSJ. Link to how the NYT covered the development.
Tax enforcement by the Internal Revenue Service fell to the lowest level in at least four decades last year. The IRS audited 0.45% of personal income-tax returns in fiscal 2019, down from 0.59% in 2018 and marking the eighth straight year of decline. The steady erosion has been driven by years of cuts in the agency’s budget along with a heavier workload.
— Markets. The Dow on Monday rose 68.50 points, 0.24%, at 28,703.38. The Nasdaq gained 50.70 points, 0.56%, at 9,071.46. The S&P 500 was up 11.43 points, 0.35%, at 3,246.28.