U.S. does ‘not have high confidence in the information coming out of China’ re: virus cases
In today's updates:
* Phase 1 of U.S./China trade accord begins today
Markets: Stocks were mixed in Europe and Asia amid contrasting data from China on how quickly the coronavirus is spreading. The dollar and gold held steady. Futures signal a slightly higher open for U.S. equities.
Trading activity in China's currency has tumbled.
U.S. Trade Representative Bob Lighthizer is now unlikely to visit India ahead of the official visit to the country by President Donald Trump Feb. 24-25. The Press Trust of India reported that an unnamed official said, "Lighthizer was supposed to hold discussions with [a] commerce ministry team but as of now, he is not coming." The official said there was no indication yet that a trade deal will be signed by Trump during his visit.
Kellogg's Incogmeato unveils plant-based burger, bratwurst and Italian sausage. The MorningStar Farms brand is launching the products in retail in coming months to compete with traditional meats during grilling season.
— U.S./China trade policy update:
- Phase 1 of U.S./China trade accord begins today as the coronavirus outbreak puts China’s commitments in a likely delayed pattern. The coronavirus outbreak means China likely won’t be able to meet some of its limited commitments, particularly $40 billion in additional U.S. farm goods purchases annually over the next two years — something U.S. National Security Advisor Robert O’Brien admitted this week. He added the coronavirus would certainly disrupt the global supply chain. “There’s no doubt that the virus could have an impact on the U.S. economy and also the world economy,” O’Brien said. Chinese officials have said they are committed to working with the United States on eliminating all trade war tariffs. China has said it may have to depart from some commitments in light of the covid-19 outbreak. Although China’s president, Xi Jinping, has reportedly assured President Trump that China will import as much as was promised, some of the purchases will come with a delay. The deal has provisions in it for regular meetings between officials. Meanwhile, the U.S. will cut tariffs on $120 billion of Chinese goods in half, with China reciprocating on $75 billion of U.S. goods, including cars, crude oil, and soybeans.
- Coronavirus threatens to blow up Trump’s energy trade deal with China. The U.S. was banking on China making $50 billion in additional oil and natural gas purchases this year and next year; energy trade was a centerpiece of the phase one deal. That looks even more unrealistic now, according to Foreign Policy writer Keith Johnson (link).
- China released another 14,000 tonnes of pork from central reserves, the sixth release this year with the total standing at 130,000 tonnes, according to the Ministry of Commerce. The ministry reiterated that more reserves would be released into the market in the future.
- The U.S. charged Huawei with racketeering and conspiring to steal trade secrets, escalating its fight with the Chinese telecommunications company. In a federal indictment, the Justice Department accused the company and two of its subsidiaries of a “pattern of racketeering activity” and stealing information from six U.S. companies, including source code and manuals for wireless technology, going back to 1999. The Trump administration says Huawei poses a national security risk as it supplies 5G networks around the world.
— Coronavirus update:
- China’s deaths from the coronavirus rose by 121 as of Feb. 13, the National Health Commission said. The figure was revised as 108 cases were removed due to double-counting in Hubei province. The commission noted 5,090 new coronavirus cases on the mainland on Thursday, taking the total number of infected to 63,851. There have been nearly 450 cases reported outside of China in 24 countries with three deaths. Tracking the coronavirus in China has become more complicated after Hubei revised its method to diagnose cases. World Health Organization officials said that a surge in cases reported earlier this week involved older infections and didn’t represent a sudden surge.
- Germany’s Economy Ministry said it was too early to estimate the economic impact of the coronavirus situation on China and its trading partners. Reuters released a poll of 40 economists taken Feb. 7-13 that indicated China’s first quarter 2020 GDP would fall to 4.5% from 6.0% in the fourth quarter of 2019. For all of 2020, they expect China GDP at 5.5% versus 6.1% in 2019.
- Moody’s Analytics assesses coronavirus impact on China economy. Moody's Analytics: "The coronavirus has prompted us to revise down our baseline forecast for China. We now look for China’s GDP to have fallen 0.2% at an annualized rate in the first quarter, the first drop since the late 1980s. We expect that growth will bounce back in subsequent quarters as some of the lost output is recouped. Still, we have cut the forecast for GDP growth for 2020 and now look for it to rise 5.4%, compared with the 6.1% in the January baseline. Risks are still weighted to the downside."
- China’s banking sector has been impacted by the COVID-19 situation, but the impact is controllable, according to an official with Ping An Bank. Xie Yonglin, chairman of Ping An Bank, said the virus has caused challenges for banks to manage loan risks on reduced consumption and companies losing business, according to a China Daily report on the company’s earnings report. "Although it has dealt some blows to the banking industry, the impact is much smaller than other industries such as catering, hotels and tourism, and it is generally controllable," he said.
- Diminished trade as a result of the coronavirus outbreak is costing container shipping lines $350 million a week in lost volumes, a new report says, as declining activity in China begins to take a deeper toll on maritime operations, including bulk commodities. More than 350,000 boxes have been removed from global trade networks since the disease broke out last month, Denmark-based maritime data provider Sea-Intelligence said Monday. Officials at the ports of Shanghai and Hong Kong said only about half of dock workers returned to work on Monday. IHS Markit, a transportation data provider, said it expects dry-bulk shipping will be the hardest hit of the shipping sectors because of weak demand from China’s factories for raw commodities such as iron ore and coal. “The first quarter will likely see a significant drop although a question remains on the extent of demand recovery once the dust settles and in the second half of 2020,” said Rahul Kapoor, a vice president at IHS Markit.
- China is considering whether it will postpone its national political meeting that is slated for March 5, the Japanese news organization Kyodo reported.
- Chinese authorities disclosed that 1,716 medical workers had contracted the coronavirus and that six had died. The number of infected workers represents 3.8 percent of China’s overall confirmed infections.
- The U.S. said it would approve humanitarian assistance to North Korea to help fight the coronavirus, amid concerns the country may be hiding an outbreak.
- Xinhua reports that oil companies have ramped up their production and made sizable donations to help the coronavirus situation. As of Feb. 9, the China National Petroleum Corporation (CNPC) has produced 64,300 tonnes of medical raw materials, while the China National Offshore Oil Corporation (CNOOC) has manufactured 32,500 tonnes of polypropylene and polyethylene products. CNPC said daily crude oil output rose 2.2% from year ago and natural gas output production was up 12.6% from year ago during the Spring Festival Holiday, according to Xinhua. CNOOC said its 870 filling stations across the country were in normal operation while promising sufficient market supplies and no hikes in prices. Sinopec’s January crude production was put at 2.98 million tonnes, even with year ago, with gas output at 2.62 billion cubic meters, a 5.7% rise.
- The IHS Markit Materials Index (industrial commodities) fell to the lowest level since 2017. Analysis from William May, IHS Markit: “The key question for commodity demand remains the same one posed last week - how long do Chinese factories remain idle? Estimates range widely, but for regions less affected by the coronavirus in the north and west, the outlook for something close to normal production resuming across February seems increasingly likely. Indeed, closer to the epicenter of the outbreak, the Shanghai government claims that up to 70% of manufacturing enterprises have resumed operations in the greater metropolitan area. Better news is that the number of newly confirmed cases outside Hubei province has declined for six consecutive days to Feb. 9, providing hope that the government’s clampdown is containing the virus. If this indeed proves to be the case, markets will calm, with prices potentially recovering some of their recent losses even by the end of February.”
— An environmental group is trying to block President Trump's environmental rollbacks from taking effect, arguing the administration has not provided proper access to public documents on a new rule that would limit the scope of the National Environmental Policy Act (NEPA).
The Southern Environmental Law Center (SELC) is seeking an injunction from the U.S. District Court in Charlottesville that would block changes to the bedrock environmental law that are slated to take effect in early March. The administration is holding commenting sessions before the rule is finalized. "The irony of all this is that the comment process puts a high value on informed input from the public, but at the same time, the Trump administration is keeping information away from the public," said Kym Hunter, a senior SELC attorney who filed the request for the preliminary injunction. "The rules call for openness and transparency, but instead the administration has shut the door and boarded the windows," she added.
Background. NEPA requires agencies to evaluate how pipelines, highways and some oil and gas developments affect the environment and nearby communities.
— Other items of note:
- Trump advised to refrain from tweeting. Senate Majority Leader Mitch McConnell (R-Ky.) said he thinks President Trump should follow the suggestion of Attorney General William Barr and refrain from tweeting about pending Justice Department business. In an interview with ABC News earlier, Barr said the president's public statements about the sentencing of Roger Stone was making his job "impossible,” adding, “I’m not going to be bullied or influenced by anybody.” Barr’s remarks were aimed at containing the fallout from the department’s handling of its sentencing recommendation for Trump’s longtime friend Roger J. Stone Jr., who was convicted of seven felonies in a bid to obstruct a congressional investigation that threatened the president. After career prosecutors initially recommended a sentence of seven to nine years in prison, Trump spent days attacking them, the department and the judge presiding over Stone’s case.
- Senate votes to block Trump from further attacks on Iran. Senators passed, as amended, the legally binding measure (SJRes 68) from Sen. Tim Kaine (D-Va.) by a vote of 55-45. The final vote included eight Republicans voting in favor. The privileged resolution, offered under the 1973 War Powers Act, would require Trump to immediately end any hostilities against Iran without a vote of Congress. It comes amid continuing fears about the prospects for war following the early January targeted drone killing by the United States of Iran’s top military commander, Maj. Gen. Qassem Solemani. The measure now goes to the House where it is expected to easily pass. However, President Donald Trump is expected to veto the resolution and supporters of constraining his ability to unilaterally attack Iran lack the two-thirds vote necessary in both chambers to overturn such a veto.
- Major hurdle for Trump Fed nominee. Republican senators dealt a blow to one of President Trump’s nominees to the Federal Reserve Board when they raised concerns over her writings and public statements at a confirmation hearing. Lawmakers of both parties on the Senate Banking Committee said they were uncomfortable with at least some of Judy Shelton’s policy preferences. Senate Democrats are in agreement that Shelton, a conservative commentator, was too radical to be placed on the Fed board. They cited years of her writings favoring the gold standard and devaluation of the dollar as an acceptable goal of monetary policy. White House officials said later Thursday they were confident Shelton would overcome any lingering doubts to win Senate backing and disputed a report that said she would withdraw from consideration. “I think she did very well today, and I think she’s headed for confirmation,” said Lawrence Kudlow, director of the National Economic Council. Shelton defended her writing, saying she had been “intellectually consistent” if not part of the “mainstream.” She said she would work closely with her Fed colleagues and act to make sure the Fed was independent from political interference. “I think the intellectual diversity would strengthen the discussion,” she said. Trump has also nominated Christopher Waller, the director of research at the St. Louis Fed, to the Fed board. Waller’s nomination is not considered controversial.
- Nominations unveiled. President Trump on Thursday announced the nominations of two officials to become the deputy chiefs of the Environmental Protection Agency (EPA) and Energy Department. Douglas Benevento will be nominated as the EPA's deputy administrator and Mark Menezes will be nominated to be the deputy Energy secretary. Menezes has served as under secretary of Energy since 2017, advising the department on energy policy and energy technology. Before that, he worked as an executive with Berkshire Hathaway Energy. He has also lobbied for several energy companies.
- Trump plans to divert funds from the Pentagon in order to build his U.S.-Mexico border wall. President Trump is preparing to divert $3.8 billion from Pentagon programs, the second consecutive year Trump is tapping the Department of Defense’s coffers, but this time a major portion of the funds will come from a controversial war account known as the Overseas Contingency Operations fund. The money would otherwise be used to build ships, F-35 fighter jets, and Army vehicles.
- A judge blocked Microsoft's $10 billion JEDI contract. The order comes after Amazon filed a motion to stop work on the decade-long US Department of Defense cloud project over allegations that President Trump unfairly intervened in the contract process.
- Cotton AWP moves up. The Adjusted World Price (AWP) for cotton rose to 58.82 cents per pound, effective today, from 58.44 cents per pound the prior week. This marked the second consecutive week the AWP has been under 60 cents per pound. Meanwhile, USDA will establish Special Import Quota #17 for 55,557 bales of upland cotton Feb. 20, applying to cotton purchased not later than May 19 and entered into the U.S. not later than Aug. 17.
— Markets. The Dow on Thursday fell 128.11 points, 0.43%, at 29,423.31. The Nasdaq declined 13.99 points, 0.14%, at 9,711.97. The S&P 500 lost 5.51 points, 0.16%, at 3,373.94.
The University of Michigan releases its Consumer Sentiment Survey for February tomorrow. Consensus estimates are for a 99.2 reading, down from January’s 99.8 figure.
The Census Bureau reports retail sales data for January. Economists forecast a 0.3% gain, in line with the December rise. Excluding autos and gas, retail sales are expected to climb 0.4%, after jumping 0.5%.
U.S. mortgage rates continue to drift lower.