Equity traders looking beyond what will likely be dismal Employment report
In Today’s Updates
* Debate on U.S./China Phase 1 agreement continues
* DOT to adjust order on China airlines: Reuters
* European stocks are now outperforming their U.S. peers
* Equity traders looking beyond a likely very dismal Employment report today
* OPEC cartel and its allies are set to extend production cuts through the end of July
* U.S. exports & imports posted largest monthly decreases on record in April
* U.S. ag trade data shows sector echoed broader trade as monthly deficit registered
* Bloomberg: Department of Justice subpoenas four major meat packers
* Update on reopening America... and around the world
* American Airlines plans to fly 55% of its domestic schedule in July
* Coronavirus update
* AstraZeneca is aiming to produce 2 billion doses of a coronavirus vaccine
* Iran releases U.S. Navy veteran detained for 683 days
* U.S., Australia reach agreement on SPR leasing
* Facebook has begun labeling state-controlled media organizations
* 2020 campaigns targeted by hackers
* Trump attacks Sen. Murkowski via Twitter, vows to back any Republican challenger
Equities today: Global stock markets were mostly higher. S&P 500 futures rebounded nearly 1% overnight, ahead of today's nofarm-payrolls report forecast to show more than 8 million job losses in May and a surge in the unemployment rate to nearly 20%.
In a change of trends, European stocks are now outperforming their U.S. peers in the latest leg of the rebound, lifted by bets of a quick recovery and enormous stimulus plans. The ECB on Thursday approved a stimulus package that surpassed expectations, nearly doubling the size of its Pandemic Emergency Purchase Plan to €1.35T and extending the program to at least June 2021.
U.S. equities yesterday: The Dow rose 11.93 points, 0.05%, at 26,281.82. The Nasdaq lost 67.10 points, 0.69%, at 9,615.81. The S&P 500 fell 10.52 points, 0.34%, at 3,112.35.
The OPEC cartel and its allies are set to extend production cuts through the end of July and could meet this weekend to sign off on the deal, Bloomberg reports. After almost a week of talks, Russia and Saudi Arabia clinched a tentative agreement with holdout member Iraq, which made less than half of its assigned cutbacks last month. Details are still not clear, but a failure to reach an understanding could have brought millions of barrels of oil back on the market.
• Crude oil prices have climbed higher as optimism for economic recovery and a focus on OPEC+ countries continues. U.S. crude is trading around $38.30 and Brent around $41.20 per barrel.
• Vehicle sales have been surprising to the upside. Some have suggested that the reluctance to use public transportation boosted demand for automobiles.
• Despite the Fed taking the overnight rate down to zero, credit card rates remain elevated.
• Small businesses expect to start 2021 with less than three-quarters of employees they had before the pandemic crisis.
• The Taiwan dollar hit a 2-year high.
• The Aussie dollar is testing the USD 0.7 resistance. Some are asking: Is the rally overdone?
• Construction in China is back in growth mode.
• Gavekal expects firms' return on capital to be higher than the cost of capital later this year, which should lead to a recovery in capital expenditures in 2021.
• The rebound in copper continues amid improved risk appetite.
• Gold and real Treasury yields have diverged.
• Investors pumped $22.5 billion into U.S. bond funds in a single week — the highest amount since 2007.
The Labor Department is set to release its monthly report of employment at 8:30 a.m. ET. Economists project millions of additional jobs were cut last month, on top of the 21.4 million jobs shed in March and April. Job loss on such a scale is unprecedented in the postwar era. The jobless rate was 3.5% in February and surged to 14.7% in April, the highest on records dating from 1948. Unemployment may have approached 20% or more in May.
Weekly jobless claims. Last week, there were 1.9 million unemployment claims, the first time initial claims have fallen below 2 million a week since the week ended March 14.
Many businesses in U.S. big cities had reopened or were set to reopen only to be looted or forced to board up during the protests. That could delay their reopening by days or weeks and cause another round of job losses. Even so, the Wall Street Journal reports there are signs of a gradual return to work — though not nearly enough to reverse damage from the past few months.
Would you go back to work if you were in this situation? Americans are collecting an additional $600 per week in unemployment benefits on top of their regular weekly payment, a perk for workers that is set to expire in July without new legislation. Democrats want to extend the funding, but Republicans are concerned the supplemental payments disincentivize a return to work. The Congressional Budget Office (CBO) estimated that extending the expanded jobless benefits through January 2021 would mean five in every six claimants would make more money from unemployment insurance than from work. That decreases the number of people who would otherwise be working in the second half of this year and all of next year. The policy would help boost spending in the short-term but not in the long-term, according to CBO.
U.S. exports and imports both posted their largest monthly decreases on record in April. Shipments of aircraft and cars have dropped as manufacturers such as Boeing Co. were hit by the world-wide disruption of travel and auto makers closed factories to prevent the spread of the virus. Global trade flows may start to pick up again as some factories reopen and the easing of social-distancing measures revives consumer demand.
U.S. ag trade data shows sector echoed broader trade as monthly deficit registered. The value of U.S. ag exports in April dropped to $10.67 billion, down 10.3% from $11.89 billion in March, as Covid-19-related impacts slowed demand from U.S. buyers. While the value of ag imports dropped to $11.40 billion in April, down 8% from $12.39 billion in March, it left a deficit for the month of $733.8 million. This marked the second monthly batch of trade red ink for the sector in a row and the third in four months.
The fall in exports being more dramatic than the fall in imports matched the overall trade picture in April where exports were at $151.3 billion, down 20.5%, while imports were at $200.7 billion, down 13.7%.
So far in Fiscal Year (FY) 2020, U.S. ag exports are valued at $81.9 billion against imports of $78.04 billion for a trade surplus of $3.86 billion. So far in FY 2020, the value of ag exports and imports are both above the same point in FY 2019. USDA has lowered its forecast for FY 2020 U.S. ag exports to $136.5 billion ($139.5 billion prior) and trimmed the import outlook to $130.2 billion ($132.5 billion), leaving a surplus of $6.3 billion.
To meet USDA’s forecasts, exports would have to average $10.92 each month and imports $10.432 billion. Already, the three monthly trade deficits for the sector in FY 2020 match the number of months in FY 2019 with a deficit which is the most registered for a fiscal year based on USDA data going back to the 1970s.
Corporate bankruptcies spiked during May as the coronavirus pandemic slammed the U.S. economy, pushing the number of filings to levels recorded in the wake of the 2007-09 recession. Link to WSJ for details.
Not pulling your leg... Lego said that it would pull advertising for police-themed toys and donate $4 million to organizations that educate children about racial equality.
— Update on China:
- Link to Special Report on China and the Phase 1 agreement with the U.S.
- Initial feedback on the special report on China filed earlier this morning:
• “Phase 1 said 'based on market conditions' and so far that has played out 100%. Brazil beans actually have higher "crush" value than U.S. beans. So China is buying every old crop bean that is available in Brazil and now is paying a premium due to potential trade war resumption. But buying sorghum/pork and some HRW due to market conditions. So, if U.S. supplies are the cheapest/available, then they are being purchased.”
• “I think Brazil farmers are much more than 25% sold new crop.”
• “All one needs to look at is Brazil prices vs U.S. price and China import margin on beans or really any commodity-including iron ore/coal etc. If there is a positive import margin they buy. It really is pretty simple.”
• “PRC has huge imports of Brazil beans in AMJ... are they stockpiling? But those saying they are short bought is not accurate. The beans just haven't arrived yet. I get daily port stocks vs history and they have been rising. In fact, China should have bought PNW beans in Feb/Mar due to loading delays in Brazil and they did not.”
• “So far, China's buying pattern is spot on with what was detailed to those who do business with China: Mainly new crop and with Trump likely to lose re-election, with assistance from the PRC, so who cares about any trade agreement. Again, they will buy based on "market conditions" which is better than all the tariffs essentially banning U.S. imports. The PRC only does what is in their interests... this is what one should never forget. Everything else is just BS to fill up print and maybe to get a lower price on buys.”
- Progress fulfilling a phase-one trade deal with China appears limited. Beijing committed to increasing purchases of U.S. goods and services by $200 billion over 2017 levels under the pact. Tracking by the Peterson Institute For International Economics' Chad Bown shows China’s purchases of products covered under the agreement were at less than half year-to-date targets."
- DOT to adjust order on China airlines: Reuters. The U.S. Dept. of Transportation (DOT) will issue a revised order that is likely to allow some Chinese passenger airline flights to continue after June 16, according to a report from Reuters. The apparent shift came after China Thursday said it would allow airlines to apply to restart flights in to China, a move that came following the U.S. announcement that it planned to bar Chinese airlines from flying passengers into the US by June 16 as China had not eased its restrictions on U.S. airlines that have sought to resume their flights to China.
- China says forcing Chinese firms off U.S. exchanges will harm U.S. A foreign ministry spokesman said forcing Chinese firms to retreat from U.S. stock exchanges would severely harm U.S. interests.
— U.S. food supply/industry update:
- Bloomberg: Department of Justice subpoenas four major meat packers. The Department of Justice (DOJ) has requested information from four major U.S. beef packers — Tyson Foods, JBS, Cargill, and National Beef — over potential antitrust violations, according to Bloomberg. The requests are akin to a subpoena. National Beef confirmed the civil investigative demand from DOJ, telling the news service the request was “very narrow in scope,” which leads us to believe that the DOJ does not necessarily believe there is an antitrust issue.” The action comes after several state attorneys general wrote to Attorney General William Barr, stating there are signs meat packers are driving down prices paid to farmers for their cattle while consumers are paying higher prices for their beef. President Donald Trump also said that he wanted DOJ to look into the meat packer situation. This comes as USDA has been examining the U.S. cattle market situation in the wake of a fire at a beef plant in Holcomb, Kansas, and also added examining market action in the wake of the Covid-19 situation.
— Update on reopening America... and around the world:
- American Airlines plans to fly 55% of its domestic schedule in July, up dramatically from May when the airline flew 20% of its schedule from a year earlier. American is increasing flights at a more aggressive pace than its competitor United, which is ramping up its July schedule to 25% of what it flew during the same month in 2019.
— Coronavirus update:
- Summary: Global Covid-19 cases have risen to 6,651,047 with the level of deaths at 391,439, according to data from the Center for Systems Science and Engineering (CSSE) at Johns Hopkins University (JHU). The U.S. case total has reached 1,872,660 with deaths at 108,211.
- AstraZeneca is aiming to produce 2 billion doses of a coronavirus vaccine, including 400 million for the U.S. and U.K. and 1 billion for those in low- and middle-income countries. Distribution would likely start in September or October, with the balance of deliveries likely to be made by early 2021. It is not known whether the vaccine, named AZD1222, will prove safe and effective in clinical trials, but "we believe the probability of success is high enough that we are willing to support the manufacturing at-risk," Dr. Richard Hatchett, who is involved with the project, said in a statement.
OTHER ITEMS OF NOTE
- Iran releases U.S. Navy veteran detained for 683 days. Michael White was the first American known to be detained by Iran since President Trump took office.
- U.S., Australia reach agreement on SPR leasing. U.S. Energy Secretary Dan Brouillette and Australian Minister of Energy and Emissions Reduction Angus Taylor did a virtual signing of an agreement between the two countries that allows any Australian oil held in the U.S. Strategic Petroleum Reserve (SPR) to be counted towards Australia’s compliance obligations with the International Energy Agency (EIA). Under the deal, Australia can lease space in the U.S. SPR to store Australian-owned oil and access this oil during an emergency, such as declared by the IEA or Australia for a domestic supply shortage.
- Facebook has begun labeling state-controlled media organizations like Russia's Sputnik, Iran's Press TV and China's Xinhua News to alert users whether content may be under the influence of a state. "State-controlled media outlets rarely advertise in the U.S.," the company wrote in a blog post. "Nevertheless, later this summer we will begin blocking ads from these outlets in the U.S. out of an abundance of caution ahead of the November 2020 election." Facebook will not label any U.S.-based news organizations, as it determined that even U.S. government-run outlets have editorial independence.
- 2020 campaigns targeted by hackers. Google said that hackers from Iran and China have targeted the Trump and Biden campaigns, respectively, a sign that the meddling four years ago in the U.S. presidential election by Russia could be pursued more widely this time.
- Trump attacks Sen. Murkowski via Twitter, vows to back any Republican challenger. Statements by Sen. Lisa Murkowski (R-Alaska) calling comments by former Defense Secretary James Mattis as appropriate and overdue, prompted a harsh rebuke from President Donald Trump via Twitter. “Few people know where they’ll be in two years from now, but I do, in the Great State of Alaska (which I love) campaigning against Senator Lisa Murkowski. She voted against HealthCare, Justice Kavanaugh, and much else,” Trump tweeted. “Get any candidate ready, good or bad, I don’t care, I’m endorsing. If you have a pulse, I’m with you!” Murkowski is up for re-election in 2022.