Senate Unanimously Approves Phase 3 Rescue Package

Posted on 03/26/2020 7:28 AM

Jobless claims of 3.28 million | Impact of rescue package


In Today’s Updates



* Senate unanimously passed a $2 trillion rescue plan, 96-0
* House on Friday to consider the Phase 3 package, then on to President Trump
* Trump said he would sign Phase 3 package immediately
* Wells Fargo analysts size up impacts of Phase 3 rescue package
* Bracing for a huge boost in jobless claims
* Forecasts surge for U.S. unemployment
* Some Senate Dems helped scale back USDA CCC borrowing authority boost push
* Orange juice futures have recently spiked
* A look at the financial sector
* Dr. Fauci: U.S. needs to be prepared for second cycle
* Analyzing potential Covid-19 drugs
* Truckers are wrestling with increasingly splintered delivery network
* U.S. food price rise in 2020 to be below average
* Remembering Carole Brookins
* Senate on recess until April 20
* Former FBI agent died in Iranian custody, family says
* U.S. says it will allow some importers to delay tariff payments
* 11 U.S. House members urge EU to impose sanctions on Russian oligarch
* Fed Chairman Jerome Powell appears on NBC Today show
* Japan’s gov't signals Covid-19 impacting economy

 


MARKET FOCUS


 

Markets: Will this pattern be broken? As fear builds each weekend, Mondays experience the sharpest selloffs. On Tuesday, we get a relief rally. And on Thursday, the market sells off again.

     Pattern

Global markets slipped as investors awaited fresh data on U.S. unemployment claims, which everyone expected to be in millions — the median estimate of economists is for 1.6 million with forecasts running as high as 4 million... the number came in at 3.28 million. The previous record was 695,000 new claims, in October 1982. U.S. stock index futures are presently pointed toward lower openings with the Dow futures down around 150 points.

     Jobs plunge

Until March, U.S. employers added jobs for a record 113 straight months, causing payrolls to grow by 22 million.

     Jobs streak

Forecasts for unemployment surge spook Americans already anxious about catching the Covid-19 virus.

     Unemployment forecasts

Orange juice futures have recently spiked. Axios says the Covid-19 outbreak “is hitting both supply and demand for OJ. A desire for immune-boosting vitamin C has increased demand at stores while fear of infection is peeling off labor supply in key hubs.”

     OJ spike

Financial sector checkup: (1) Corporations are rapidly drawing on their credit lines. (2) Credit downgrades are accelerating. (3) The number of bonds traded at distressed levels approaches 2009 highs. (4) Reports note some credit funds couldn't meet their margin calls on total-return swaps (used to leverage portfolios of corporate loans). The margin calls were triggered when loan prices plummeted in recent days. The banks are now liquidating the collateral. (5) The Fed flooded the world with dollars (via swaps with other central banks), easing the funding crunch.
 


POLICY FOCUS



Senate approves massive Phase 3 rescue package known as the CARES Act. The estimated $2 trillion bill cleared the Senate just shy of midnight by a 96-0 vote after earlier hitting a snag when some Republican senators protested its unemployment provisions. The House will consider the legislation on Friday, according to Steny Hoyer (D-Md.), the House majority leader, before sending it to President Trump for his expected signature. Link to our special report for a summary and details of the Phase 3 package.

     Four senators were absent from the late-night roll call because of the virus or illness. Sen. Rand Paul (R-Ky.) has contracted Covid-19, the disease caused by the virus, while two Utah Republicans, Sens. Mitt Romney and Mike Lee, were in self-isolation after spending time with Paul. Sen. John Thune of South Dakota, the second-ranking Republican, also missed the vote because he wasn’t feeling well and had left Washington to return home, a spokesman said.

Treasury Secretary Steven Mnuchin said the money would arrive for most Americans within three weeks.

     How Phase 3 recipients will spend the money. Source: CivicScience survey; ±3 percentage point margin of error.

     Where spending will take place

Partisan politics was very evident by some Senate Democrats, including Sen. Patrick Leahy (D-Vt.) and Debbie Stabenow (D-Mich.), actively working to reduce the efforts by Sen. John Hoeven and USDA to boost Commodity Credit Corporation (CCC) borrowing authority by $20 billion, to $50 billion. Instead, the measure allows CCC to use $14 billion to reimburse net realized losses.

     Leahy, the top Senate Appropriations Committee Democrat, said he was concerned about the $20 billion increase in borrowing authority and said President Donald Trump’s use of the CCC for the trade aid payment had been a political move to help his farm base.

     Stabenow, ranking member on the Senate Agriculture Committee, said on the Senate floor that cherry growers in her state of Michigan had not received payments although they’ve been hurt by trade practices by Turkey.

     The package also sets up a $9.5 billion ag emergency fund for producers, including fresh fruit and vegetable growers, dairy farmers and cattle ranchers, along with local food systems like farmers markets.

     The package would allocate roughly $350 billion to guarantee loans for small businesses, a provision which could also test the ability of the SBA to get money quickly to affected companies. Ag-related individuals and companies are looking at whether or not they can qualify for this section of the legislation.

     Democrats proudly announced they had won agreement on language to block President Trump, other government officials and their families from receiving assistance from a $500 billion fund to be administered by the Treasury Department. But observers note the provision might not preclude funds from going to companies owned by the family of Trump’s son-in-law and White House adviser, Jared Kushner, while Trump’s companies would not be barred from benefiting from other elements of the bill intended to help broad swaths of American business. At least two of the provisions, intended to help the hotel and restaurant industries, could potentially provide financial help to the Trump Organization.

     The legislation also fixes the “retail glitch” in the 2017 tax law: Restaurants, retailers and other businesses will now be able to immediately write off renovations to their stores, after they were accidentally left out of the so-called qualified improvement property provision in the Republican tax code rewrite. The change could mean $15 billion tax savings per year for those businesses, the New York Times writes (link).

Many expect a Phase 4, or more ahead. If the latest rescue plan isn't doled out fast enough or the pandemic drags on longer than expected, even a $2 trillion package might not be enough. This could well be the case for the U.S. ag and energy sectors.

What impacts will Phase 3 rescue package have? Wells Fargo analysts handled that query in a research note. The conclusions:

     “This bill should help plug some of the sizable hole in lost income that is developing as a result of measures taken to stem the spread of Covid-19. Total U.S. income is approximately $900 billion per month, and the combination of direct checks to households, expanded unemployment benefits, grants/loans to various levels of government and generous loans to U.S. companies should help ease what is likely to be a significant decline in U.S. total income. This in turn should help many households and businesses remain current on their financial obligations for the next couple months. But, this fiscal stimulus is not a panacea. The household measures should help for a time, but the longer the Covid-19 shutdown is in effect, the less these temporary boosts to personal income will be able to keep households afloat. And while in principal the small and large business lending programs should provide much needed liquidity and solvency, the usual lag in policy implementation, combined with the untested nature of these programs, raise questions about their ultimate efficacy in a period of rapid economic change. This is not to say the policies are ill designed, but rather that until the Covid-19 outbreak is in check, fiscal and monetary policymakers are just buying time rather than solving the true underlying problems. In sum, the passage of this bill gives us reasonable confidence that another Great Depression is not in the cards. That said, the economic contraction in the months ahead will still be quite severe, in our view.”

Coronavirus update:

  • Summary: Global Covid-19 cases are at 480,446 with deaths at 21,571, according to information compiled by Johns Hopkins University. U.S. cases are at 69,197 with deaths at 1,046. New York's 33,000 cases are the most of any state by far. New York has seen 366 deaths, nearly triple Washington state's 133 fatalities. Spain's death toll is greater than China's. Global coronavirus infections have nearly doubled in a week, prompting governments to roll out more punitive measures on individuals who flout lockdowns and social-distancing rules.
     
  • President Trump signaled a staggered reopening of the U.S. economy. The president said restrictions in some regions could be lifted sooner than in other parts of the country such as New York, which has nearly half of all confirmed coronavirus cases in the U.S.
     
  • Dr. Fauci says U.S. needs to be prepared for second cycle. Americans need to prepare for a second cycle of the Covid-19 outbreak in the U.S., a White House health advisor said Wednesday. “Would this possibly become a seasonal cyclic thing? I’ve always indicated to you that I think it very well might,” Dr. Anthony Fauci, the director of the National Institute of Allergy and Infectious Diseases Director, said a White House press briefing.
     
  • CDC will be releasing guidance on how to utilize national parks during the coronavirus outbreak, VP Mike Pence said yesterday.
     
  • Some U.S. hospitals preparing for a shortage of ventilators for Covid-19 patients are modifying oxygen devices usually used for decompression sickness or foot ulcers to assist patients who will need help breathing.
     
  • Health-services giant UnitedHealth Group is rolling out a new coronavirus test that patients can self-administer.
     
  • With no known vaccine or drug treatment for the virus yet, governments around the world are searching for the next best thing: a test to see if people are immune to the virus.
     
  • Analyzing potential Covid-19 drugs. Are chloroquine and hydroxychloroquine effective against Covid-19? It's not yet known, but Oracle is beginning a collaboration with the White House on creating a data repository for clinical trials. Two senior administration officials familiar with the matter say the online platform could gather data from physicians who prescribe the malaria drugs and track patient symptoms. Planners have also discussed using it to mail the treatments to patients involved in the trial.
     
  • U.S. air travel continues to be greatly reduced. The Transportation Safety Administration (TSA) data shows that 279,108 travelers went through TSA checkpoints, down from 2,151,913 on that date in 2019. The last date with more than one million travelers going through TSA checkpoints was March 16 with 1,258,772.
     
  • A Group of Seven nations meeting ended without a joint statement because members wouldn’t agree with a U.S. request to refer to the novel coronavirus as the "Wuhan virus,” according to the Wall Street Journal.

Truckers are wrestling with increasingly splintered delivery networks as coronavirus-driven changes in retail demand upend supply chains. Shipments of food and household staples are soaring even as other businesses shut down under restrictions that are spreading across the U.S. The Wall Street Journal reports (link) that is leaving freight networks “severely out of balance, pushing companies to run empty rigs across more miles while driving up rates for shippers looking for capacity.” Load board DAT Solutions says spot truckload rates have jumped 12% so far this month, and freight brokers say many of their customers are having to search longer distances for trucks as traditional distribution networks are scrambled. Meantime, trucking companies like Werner Enterprises Inc. and U.S. Xpress Inc. say they are shipping their drivers necessary goods like hand sanitizer. But like other Americans, truckers are finding such products in short supply.

U.S. food price rise in 2020 to be below average. Overall U.S. food prices are forecast to increase in 2020 by 1.5% to 2.5% compared with 2019, according to USDA’s Economic Research Service (ERS), nearly in line with the increase of 1.9% registered for 2019. The 20-year average for food price inflation is 2.3%.

     At the grocery store — where most consumers procure food — prices are forecast to increase from 0.5% to 1.5%, in line with the increase of 0.9% in 2019. Food at home (grocery store) prices have a 20-year average increase of 2.0%. The increase of 0.9% in 2019 was the biggest rise at the grocery store since prices rose 1.2% in 2015. The 2015 increase was followed up by two consecutive years of price declines at the grocery store — -1.3% in 2016 and -0.2% in 2017, the first back-to-back annual declines registered since at least the 1960s, according to USDA data. And the level of increase in grocery store prices was just 0.4%, meaning consumers have not seen an increase above the 20-year average since 2014 when prices were up 2.4%.

     Food away from home (restaurant) prices for 2020 are now seen rising from 1.5% to 2.5%, down from the month-ago outlook for prices for eating out to rise by 2% to 3%. The increase now forecast by USDA would be considerably under the 20-year average of 2.8%. Restaurant prices, however, include other factors such as energy, rental/real estate and labor costs in addition to food costs. Given the broader factors that go into the food-away-from-home segment, those prices have tended to increase more than the underlying food costs. Restaurant prices have risen 2% or more every year since 2010 when they increased just 1.3%.

     But grocery store prices are viewed as “the principal indicator of changes in retail food prices,” according to ERS. Grocery store prices are given a relative importance of 54.8% in terms of overall food-price inflation versus 45.2% for restaurant prices.

     Within the grocery store, 2020 prices for meats, poultry and fish are seen rising compared to 2019, while prices for fats and oils, fresh fruits and processed fruits and vegetables are seen declining. The increases for most items are not substantial, with the exception of egg prices which USDA sees rising 5% to 6% compared with 2019. But egg prices are one of the more-volatile components in the food price outlook from an historical perspective — they fell 10% to 11% in 2019.

Remembering Carole Brookins. It was very sad news to hear that on Monday evening, World Perspectives founder Carole Brookins died after succumbing to the Covid-19 virus. She was 75 years old. She fell ill after returning to Palm Beach from Paris two weeks ago. She paved the way for agriculture reporting and analysis and was a titan in the ag consulting industry. Carole graduated cum laude from college and began her career as a municipal bond underwriter in Chicago. She then became a market reporter at the Chicago Board of Trade where she was tapped by the then second largest stock brokerage firm, E.F. Hutton. In the 1970’s she rose to become Vice President of the firm's Commodity Department and eventually started her own consulting firm.

     I asked two individuals who knew her even better than I did to provide remarks:

     Merrill Oster, co-founder of Pro Farmer: "Carole was one of the brightest of our Commodities magazine contributors. Her insights were always based on well resourced and highly reliable contacts she had around the world. It was always a joy to interact with this very engaging professional."

     Jack Pettus, who used to work with Carole: "Carole could process information faster than IBM. She had a unique ability to ask the right questions and anticipate the answers, which made her an alarming conversationalist who was always one step ahead of you. Carole hosted formal dinners at her home that were ag policy’s version of the Algonquin Table, with trade policy experts, international trading company reps, USDA General Sales Managers and foreign embassy officials engaging in discussions that were breath-taking in scope and depth."

     Few of the fledgling female agriculture reporters and other communicators of today likely knew Carole. But they should know how she broke so many barriers while tirelessly trying to educate and connect important dots about the business of agriculture.

Other items of note:

  • Senate on recess until April 20. The Senate will be in recess until April 20 but could come back for votes with 24 hours’ notice, according to Senate Majority Leader Mitch McConnell (R-Ky.). The Senate will meet in pro forma session in the interim.
     
  • Former FBI agent died in Iranian custody, family says. Robert Levinson went missing in Iran in 2007. Relatives said it is unclear when or how he died, but they believe it was while he was being held in the country.
     
  • The U.S. will allow some importers to delay tariff payments, again raising questions over whether the Trump administration should grant broader tariff relief during the pandemic. The U.S. Customs and Border Protection agency told companies in recent notices that it will approve some delays in tariff payments. The U.S. Trade Representative separately said companies could seek tariff relief for medical-care products from China to respond to the pandemic. Domestic steel producers are criticizing any efforts to delay or roll back levies on imports, saying trade barriers are important to the steel industry and its workers.
     
  • Eleven members of the U.S. House of Representatives have urged the European Union to impose sanctions on Russian oligarch Yevgeny Prigozhin, the latest attempt by lawmakers to combat alleged election meddling by the Kremlin in the U.S. and allied countries as well as possible disinformation about the coronavirus pandemic. The bipartisan group of lawmakers said Prigozhin has been serving as an agent for the Kremlin acting primarily through the Wagner Group, a Russian security company, and Internet Research Agency LLC. Prigozhin and IRA were indicted in 2018 on charges of engaging in a widespread effort to interfere in the 2016 presidential election as part of special counsel Robert Mueller’s investigation.
     
  • Occidental Petroleum, the largest oil producer in the giant Permian Basin, has ceded to activist investor Carl Icahn’s demands and announced deep spending cuts in a bid to survive the steepest crude-price plunge in decades.

Markets. The Dow on Wednesday rose 495.64 points, 2.39%, at 21,200.55. The Nasdaq fell 33.56 points, 0.45%, at 7,384.30. The S&P 500 was up 28.23 points, 1.15%, at 2,475.56.

     Federal Reserve Chairman Jerome Powell made a rare televised interview appearance on the NBC Today show as the central bank deploys an unprecedented array of tools to prevent the health crisis from becoming a financial one. Powell pledged that the central bank will keep using the tools it has to fight the economic slowdown brought on by the coronavirus crisis. The central bank chief said the recent initiatives the Fed has taken will help provide capital to businesses that need it and will be especially helpful once the virus is brought under control. “When it comes to this lending, we’re not going to run out of ammunition, that doesn’t happen,” Powell told NBC’s Savannah Guthrie. “We still have policy room in other dimensions to support the economy.”

     Japan’s government signals Covid-19 impacting economy. Economic conditions in Japan are being labeled “severe” as the Covid-19 situation has idled factories and has tempered consumption, according to the monthly assessment of the economy by the Japanese government. "Japan's economy is in a severe situation, extremely depressed by the coronavirus," the report said. "Conditions are likely to remain severe due to the influence of the disease." Previously, the report had described the economy as “recovering,” with that language in the assessment since at least 2013. However, the current economy situation is expected to result in a major stimulus package from the government, with some expecting it to near $140 billion.


 

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