USDA to release Acreage, Grain Stocks reports | Powell testifies before House panel
In Today’s Updates
* China passes Hong Kong security law aimed at crushing protests
* U.S. places visa restrictions on Chinese officials responsible for Hong Kong action
* China vows to retaliate against U.S. defense export ban to Hong Kong
* Fed's Powell to caution U.S. must keep ‘virus in check'
* Powell: reopening of U.S. economy happened sooner than expected
* China says its factory activity expanded in June
* Pending-home sales posted their biggest monthly increase on record in May
* Reuters: New flu virus found in Chinese pigs has become more infectious to humans
* Biden to donors: 'I’m going to get rid of most of Trump’s tax cuts'
* Corn-state governors urge EPA on RFS 'gap' petitions
* U.S. food supply update
* Farm groups ask for more funding, this time to cover budget shortfall for inspectors
* Bakers, food groups request priority access for any Covid-19 vaccine
* Uber closing in on deal to buy Postmates, the food delivery service, for $2.6 billion
* Update on reopening America... and around the world
* AMC Entertainment Holdings postponing plans to reopen its U.S. locations
* One in four American CEOs thinks full economic recovery over a year away
* Coronavirus update
* Fauci to testify before Congress on state of coronavirus pandemic
* Study looks at economic impacts of Covid-19 on the ag sector
* EU trade commissioner Phil Hogan drops interest in WTO role
* White House threatens veto of $1.5 trillion House infrastructure bill
* Bipartisan pressure grows on Trump in Russian bounty case
* House appropriators planning to mark up new Agriculture-FDA spending bill
* House proxy voting extended through mid-August
* USMCA and labor provisions
* U.K. trade policy
Equities today: Equities across Asia rallied, and most major benchmarks closed up sharply. In Europe, stock markets vacillated between gains and losses. U.S. equity futures signal a lower opening. Fresh data overnight pointed to a strengthening recovery for China's manufacturing sector, while investors await the latest on the earnings front, with results today from FedEx and Conagra Brands
U.S. equities yesterday: The Dow advanced 580.25 points, 2.32%, at 25,595.80. The Nasdaq moved up 116.93 points, 1.20%, at 9,874.15. The S&P 500 gained 44.19 points, 1.47%, at 3,053.24. Investors cheered news on Boeing and traders shrugged off the latest surge in coronavirus cases — daily U.S. deaths attributed to Covid-19 fell to a new low of 253. The major averages also got a boost after the National Association of Realtors said pending home sales jumped by a record 44.3% in May.
Stocks are headed for a month of gains in June. The Dow is up 0.8% and the S&P 500 is up 0.3% in June. The Nasdaq has returned more than 4% this month.
On tap today:
• USDA Acreage, Grain Stocks, Rice Stocks
• House Dems to reveal recommendations to address climate change (link)
• S&P/Case-Shiller home-price index for April is out at 9 a.m. ET.
* Chicago purchasing managers index for June is expected to rise to 45.0 from 32.3 a month earlier. (9:45 a.m. ET)
* Conference Board's consumer confidence index for June is expected to rise to 91 from 86.6 a month earlier. (10 a.m. ET)
• Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven Mnuchin testify to a House panel on the government's pandemic response at 12:30 p.m. ET.
• New York Fed President John Williams speaks on central banking in the age of Covid-19 at 11 a.m. ET, Fed governor Lael Brainard speaks about the Dodd-Frank Reform Act at 10 a.m. ET, and Minneapolis Fed President Neel Kashkari and Atlanta Fed President Raphael Bostic participate in a National Association for Business Economics webinar at 2 p.m. ET.
• Bank of Japan releases its tankan survey of business sentiment for the second quarter at 7:50 p.m. ET.
• China's Caixin manufacturing index for June is out at 9:45 p.m. ET.
Powell to caution that U.S. must keep ‘virus in check.' Federal Reserve Chairman Jerome Powell will say the U.S. will need to “keep the virus in check” as the world’s largest economy begins to rebound from the shock of the coronavirus pandemic. In prepared testimony released ahead of a hearing before the House financial services committee today, Powell offered a more upbeat assessment of the current state of the economy than he has in the past. But in the face of worrying spikes in cases across states ranging from Arizona to Florida and California, he cautioned that containing the outbreak needed to remain a priority. “As the economy reopens, incoming data are beginning to reflect a resumption of economic activity: many businesses are opening their doors, hiring is picking up, and spending is increasing. Employment moved higher, and consumer spending rebounded strongly in May. We have entered an important new phase and have done so sooner than expected,” Powell said. “While this bounceback in economic activity is welcome, it also presents new challenges — notably, the need to keep the virus in check,” he added.
Powell added that the burden of the pandemic had fallen disproportionately on low-income households and minorities. Despite recent economic improvement, however, output and employment were still “far below their pre-pandemic levels... The path forward for the economy is extraordinarily uncertain and will depend in large part on our success in containing the virus. A full recovery is unlikely until people are confident that it is safe to re-engage in a broad range of activities,” he said.
Powell reiterated the Fed’s pledge to take additional action if necessary to help the economy: “Everything we do is in service to our public mission. We are committed to using our full range of tools to support the economy and to help assure that the recovery from this difficult period will be as robust as possible.
China says its factory activity expanded in June. China today said manufacturing activity expanded in June with the official Purchasing Manager’s Index coming in at 50.9. Economists polled by Reuters had expected the official manufacturing PMI number to come in at 50.4. PMI readings above 50 indicate expansion, while those below that level signal contraction. In May, official manufacturing PMI came in at 50.6, according to the National Bureau of Statistics. PMI readings are sequential. Data showed the index for new export orders was still in contractionary territory, even though the reading improved, coming in at 42.6 for the month of June from 35.3 in May.
U.S. employment report out Thursday is expected to show employers added 2.9 million jobs in June, adding back a fraction of the losses from March and April. Economists surveyed by the Wall Street Journal are forecasting a gain of anywhere from 1.9 million to 7.2 million, an unusually wide range that underscores uncertainty about the economy and difficulty measuring its performance during the pandemic. Recall that economists had forecast a loss of 8.3 million jobs and a 19.5% unemployment rate in May. The actual result was a gain of 2.5 million jobs and a 13.3% rate.
Pending-home sales posted their biggest monthly increase on record in May. "The housing market is likely benefiting from low mortgage rates, stronger demand for larger spaces as more and more people work from home and a desire to move away from crowded cities to avoid exposure to the coronavirus," said High Frequency Economics economist Rubeela Farooqi.
• Dollar index climbed to a one-month high, while Treasuries steadied.
• Crude oil prices lower. Brent crude oil ticked down 0.5% to $41.64 a barrel and WTI futures were down 0.7% at $39.44 a barrel.
• A substantial amount of oil output capacity can be brought online should oil prices rebound.
• U.S. lumber prices have recovered from the crisis selloff.
• U.S. natural gas futures jumped by more than 10% on Monday on warmer weather expectations, oversold conditions.
Reuters: A new flu virus found in Chinese pigs has become more infectious to humans and needs to be watched closely in case it becomes a potential "pandemic virus", a study said, although experts said there is no imminent threat.
— Corn-state governors urge EPA on RFS 'gap' petitions. The EPA should reject the 52 waivers it is considering from small refiners requesting exemptions from prior years of the Renewable Fuel Standard (RFS), the governors of South Dakota, Minnesota, Iowa, and Nebraska wrote the agency Monday (link). All of the governors except Minnesota’s are Republican. According to the governors’ letter, if the EPA approved all 52 waivers, “the market will lose more than two billion gallons of biofuel blending requirements.”
Their letter comes as corn-state lawmakers have been increasing pressure on the EPA to deny the waivers, which they and biofuels producers see as a tactic to circumvent a court ruling earlier this year that sharply restricted the EPA’s ability to grant exemptions. Iowa Republican Sen. Joni Ernst announced Friday she wouldn’t support Trump’s nominee to be the EPA’s deputy until the agency said how it would address the waiver requests.
— Update on China:
- China puts more temporary bans on meat imports in place. Three meat plants in Brazil and a German facility have been added to the list of those that China has banned imports from, though reports indicate that China’s General Administration of Customs has not indicated a formal reason for the suspensions. Reports indicate the Brazilian plants include one owned by Mafrig, one owned by JBS and a privately owned facility. Meanwhile, Danish Crown has also confirmed that a slaughterhouse in Essen, Germany, has now been blocked from exporting pork to China.
- The Trump administration on Monday made it harder to export sensitive American technology to Hong Kong, suspending regulations allowing special treatment for the territory over dual-use technologies like carbon fiber used to make both missile components and golf clubs. The U.S. shipped only about $1.4 million worth of defense articles and services to Hong Kong in 2019, according to a State Department spokesman.
- Commerce Secretary Wilbur Ross said his department has suspended preferential trade rules for Hong Kong, including export license exceptions, in keeping with the Trump administration's assessment that Beijing's increased oversight of Hong Kong raises security issues for the U.S.
- China vows to retaliate over U.S. defense export ban to Hong Kong. China has promised to retaliate against the United States after it moved to stop exporting defense equipment to Hong Kong because of the national security law. Chinese Foreign Ministry spokesman Zhao Lijian said the national security legislation for Hong Kong was an internal matter for China and no foreign country had the right to intervene. Zhao said China was determined to maintain its sovereignty, security and to implement the “one country, two systems” in Hong Kong and strongly opposed any interference by external forces. “Intimidating China will never work,” said Zhao. “In response to the U.S. mistaken action China will take necessary countermeasures to firmly defend our own national interests.”
- Under the new law, Chinese state security agencies will be allowed to operate openly in Hong Kong for the first time. The Chinese government will have jurisdiction over an “extremely small” number of national security crimes in the territory. The law also allows Hong Kong’s chief executive to appoint judges to preside over national security-related trials. All judicial assignments have previously been made by the judiciary. Beijing will also appoint a representative to a national security committee headed by the chief executive.
- India goes digital in China feud. India has retaliated against China after its border clash on June 15 by banning 59 Chinese-made apps, including the popular apps TikTok and WeChat. TikTok has at least 200 million monthly users in India, which is one of the company’s largest user bases.
— Biden to donors: 'I’m going to get rid of most of Trump’s tax cuts ‘and a lot of you may not like that.' Presumptive Democratic nominee Joe Biden told potential donors to his campaign that his administration would end most of President Donald Trump’s multitrillion-dollar tax cuts — even though “a lot of you may not like that... I’m going to get rid of the bulk of Trump’s $2 trillion tax cut, but I’m going to close loopholes like capital gains and stepped up basis.”
Biden also said he would raise the corporate tax rate to 28%, which he said would raise an estimated $1.3 trillion over the next decade. The Trump tax cuts had shrunk corporate taxes to 21% from 35%.
Biden said the recovery from the health crisis could present an “opportunity” to strengthen the middle class and make sweeping investments in clean energy and infrastructure.
— Update on implementation of CARES 1, including CFAP:
- The PPP loan window is closing. The application window closes today but there is more than $100 billion left unclaimed, triggering a new debate over what to do with the remaining funds.
— Food and beverage supply/industry update:
- Farm groups ask for more funding, this time to cover budget shortfall for inspectors. In a letter (link) Monday to the congressional appropriations committees, the groups said the decline in cargo imports and international travel have significantly reduced collections of the user fees funding Customs and Border Protection Agriculture Quarantine Inspection at U.S. ports of entry. The shortfall is estimated to total $630 million through fiscal 2021. “It is inconceivable that Congress would risk widespread damage to U.S. agriculture and the overall economy by not funding these inspections,” the organizations said in the letter.
- Bakers, food groups request priority access for any Covid-19 vaccine. The American Bakers Association and more than a dozen food, agriculture, retail and consumer packaged goods (CPG) industry groups are asking President Donald Trump to put food and agribusiness workers next in line behind healthcare workers, first responders and high-risk individuals for any Covid-19 vaccine that is developed. The groups said that prioritizing any vaccine for their workers “will be a key intervention to help keep workers healthy and the food and CPG supply chain operating.”
- Uber is closing in on a deal to buy Postmates, the food delivery service, for $2.6 billion, the New York Times reports (link). It comes on the heels of Uber’s failed attempt to buy Grubhub. Postmates is much smaller than Grubhub, which agreed to sell itself to Just Eat for $7.3 billion last month, or DoorDash, which was last valued at $16 billion.
— Update on reopening America... and around the world:
- AMC Entertainment Holdings, the country’s largest theater chain, is postponing plans to reopen its U.S. locations by about two weeks following date changes for the upcoming releases of two major films.
- One in four American CEOs thinks a full economic recovery is over a year away. The latest survey of corporate chiefs by the Business Roundtable found widespread pessimism.
— Coronavirus update:
- Summary: Covid-19 cases are now at 10,302,867 with 505,518 deaths, according to data from the Center for Systems Science and Engineering (CSSE) at Johns Hopkins University (JHU). The U.S. case count has climbed to 2,590,582 with 126,141 deaths.
- Fauci to testify before Congress on state of coronavirus pandemic. Dr. Anthony Fauci and other top health officials will testify before Congress on Tuesday on the state of the coronavirus pandemic. Fauci, the top infectious disease expert at the National Institutes of Health, has repeatedly urged states to follow the "carefully thought out" CDC guidelines for reopening, warning in May that failure to do so would lead to "some suffering and death" that could be avoided. Testifying before a House panel last week, Fauci said these two weeks are "critical" in how the country addresses the surge in states like Florida, Texas and Arizona.
- Australia imposed a four-week lockdown across parts of Melbourne, while in Iran 10,000 health-care workers have contracted the virus.
- Ag economists release study looking at the economic impacts of Covid-19 on the agriculture sector. Link to study.
OTHER ITEMS OF NOTE
- EU trade commissioner Phil Hogan drops interest in WTO role. Phil Hogan, the EU’s trade commissioner, has pulled out of the race to become the next head of the World Trade Organization (WTO), leaving the bloc with one week to decide whether to put forward an alternative candidate. Hogan said on Monday that he had decided not to put his name forward out of concern that the lengthy contest would be too much of a distraction from his role as EU trade commissioner, during a crucial time for relations with the U.S., China and the United Kingdom. “This important EU trade agenda requires the full and careful involvement of the European Union and in particular, the trade commissioner,” he said in a published statement. “I will return to my duties of trade commissioner with immediate effect.” In his statement, Hogan said “a new director-general of the WTO should be appointed without delay. However, in recent days, it has become evident that the original timeline for this appointment in early September 2020 will be delayed and therefore create uncertainty in the leadership of the organization at this critical time.”
- White House threatens veto of $1.5 trillion House infrastructure bill. While the Trump administration supports improving U.S. infrastructure but opposes the “problematic” $1.5 trillion infrastructure package from House Democrats, the White House budget office said in a statement. The measure, HR 2, is “biased against rural America, appears to be entirely debt-financed and fails to tackle the issue of unnecessary permitting delays,” the statement added, noting that President Trump’s advisers would recommend a veto of the bill if it cleared Congress. Link to statement.
Farm and energy groups are balking at a House proposal to expand tax credits for electric vehicles. In a letter to top lawmakers (link), industry groups including the American Farm Bureau Federation, Agricultural Retailers Association and American Petroleum Institute took issue with provisions to increase limits on the electric vehicle credits and expand infrastructure like charging stations, among others. They argued that Congress should “maximize investment dollars in infrastructure that benefit all Americans, not a small subset of the automobile fleet.”
- Bipartisan pressure grows on Trump in Russian bounty case. The White House is under increasing pressure to provide answers regarding reports of a Russian military intelligence-sponsored program offering cash bounties to Afghan militants for killing U.S. and coalition forces. On Monday, the Trump administration provided a briefing on the issue to Republican House lawmakers. House Speaker Nancy Pelosi (D-Calif.) requested an interagency briefing for the full House of Representatives. On Monday night, the New York Times reported (link) that U.S. President Donald Trump was provided a written briefing on the bounty program as early as February.
- House appropriators are planning to mark up the new Agriculture-FDA spending bill in subcommittee on July 6 and full committee on July 9. Legislative text is expected to be released on Sunday.
- House proxy voting extended through mid-August. The temporary ability for House lawmakers to vote by proxy has been extended until August 18, according to a letter from House Speaker Nancy Pelosi (D-Calif.) to House members. The action came as the House Sergeant in Arms notified Pelosi that the public health emergency from Covid-19 remains ongoing. “I am hereby extending the ‘covered period’ designated on May 20,” Pelosi said. The original allowance was to go for 45 days.
- USMCA and labor provisions. Link to Federal Register note on Interagency Labor Committee for Monitoring and Enforcement Procedural Guidelines for Petitions Pursuant to the USMCA.
- U.K. and trade policy. Britain officially left the world’s largest trading bloc in January, but the country remains in the European Union’s customs area and single market until the end of the year. On Monday, British and European Union negotiators will begin stepping up attempts to secure an unusual kind of deal: one putting up new barriers to commerce. Officials on both sides say a deal is possible. But a Wall Street Journal article (link) says the question now isn’t if the negotiations will result in more bureaucracy or trade friction, but rather how much. Link for details.