Next aid negotiators say progress being made, but big issues still big hurdles
In Today’s Updates
* CFAP payments a slow process; why aren't remaining 20% payouts being made?
* Democratic leaders and White House officials signaled progress in aid talks, but...
* Argentina strikes $65 billion debt restructuring deal
* U.S. expects to borrow additional $2 trillion in the second half of year
* Federal Reserve has become world’s backup lender.
* Not confused about U.S. corn, soybean crop size? Just do two estimates
* How gold market works, and why prices are rising
* Port of Montreal dockworkers planning another strike
* Canadian National Railway buying 1,500 hopper cars: strong growth in grain volumes
* Isaias makes landfall
* CFAP payments still shy of $7 billion
* Coronavirus aid talks show more promise, but big issues are still big hurdles
* Automatic stabilizers best ad hoc policy responses
Update on reopening America... and around the world:
* Some colleges reopening setting hard triggers for shutting down again
* FDA effort to solve mask shortage instead opened the gates for China
* Britain's government signed deals for fast Covid-19 tests
Politics & Elections:
* Kansas Republicans vote today in a bitterly contested primary
* Simplified model for forecasting the 2020 presidential election
Other Items of Note:
* Pompeo held surprise talks with Taliban chief negotiator
* Big issue for U.K. candidate for key WTO post
* Dem measure would boost EPA pesticide protections
* USTR nominee moves closer to being in place
* Menezes expected to be cleared for DOE post
* White House withdraws FCC renomination
* Trump orders limits on contractors’ foreign workers
* BP halved its second-quarter shareholder pay-outs
Equities today: Global stock markets were mixed in overnight trading. The U.S. stock indexes are pointed toward modestly weaker openings.
U.S. equities yesterday: The Dow rose 236.08 points, 0.89%, at 26,664.40. The Nasdaq gained 157.52 points, 1.47%, at 10,902.80. The S&P 500 was up 23.49 points, 0.77%, at 3,294.61.
On tap today:
• U.S. factory orders for June are expected to rise 5% from a month earlier. (10 a.m. ET)
Argentina strikes $65 billion debt restructuring deal. Argentina has reached an accord with its biggest creditors on terms for a restructuring of $65 billion in foreign bonds, after a breakthrough in talks that had at times looked close to collapse since the country's ninth debt default. In a statement today, the government said the agreement “will allow members of the creditor groups and such other holders to support Argentina’s debt restructuring proposal and grant Argentina significant debt relief.”
U.S. expects to borrow an additional $2 trillion in the second half of the year as federal spending ramps up to combat the coronavirus pandemic. The Treasury Department estimated the government would borrow $947 billion from July through September, a record for the quarter, and $1.216 trillion from October through December. Senior Treasury officials said their estimate assumes Congress will eventually pass another round of economic relief. Congress has authorized roughly $3.6 trillion in new spending since March to help mitigate the effects of the pandemic.
Federal Reserve has become the world’s backup lender. During two critical mid-March weeks, it bought a record $450 billion in Treasurys from investors desperate to raise dollars. By April, the Fed had lent another nearly half a trillion dollars to counterparts overseas, representing most of the emergency lending it had extended to fight the coronavirus at the time. The massive commitment was among the Fed’s most significant—and least noticed—expansions of power yet. It eased a global dollar shortage, helped halt a deep market selloff and continues to support global markets today. It established the Fed as global guarantor of dollar funding, cementing the U.S. currency’s role as the global financial system’s underpinning, the Wall Street Journal reports (link).
• StoneX brokerage sees U.S. 2020 corn yield at 182.4 bu/acre; soybeans at 54.2 bu./acre. Commodity brokerage StoneX, formerly known as INTL FCStone, on Monday projected U.S. 2020 corn production at 15.320 billion bushels, with an average yield of 182.4 bushels per acre (bpa). The company forecast this year's U.S. soybean harvest at 4.496 billion bushels, with an average yield of 54.2 bpa. Caveats: The estimates, based on customer surveys and other factors, are what the company predicts will be final production, not what its expects USDA to say in a monthly supply and demand report due Aug. 12.
Some traders and analysts say two estimates for the crops adds uncertainty.
• Gold prices hit a record at the end of last week, notching a new milestone in a bull run that began in late 2018 and has gathered momentum during the coronavirus pandemic. The Wall Street Journal takes a look at how the gold market works, and why prices are on the rise now (link).
• Crude oil prices were weaker overnight in Asian action as demand concerns arose over increasing Covid-19 case numbers. U.S. crude was down 28 cents at $40.73 per barrel while Brent crude was down 31 cents at $43.84 per barrel. Prices have eased further ahead of the US market open, with U.S. futures down more than 1.8% to trade around $40.25 per barrel with Brent down 1.8% at around $43.40 per barrel.
• The Port Authority of New York and New Jersey has lost $800 million in revenue since March and expects to fall $3 billion short of revenue by March 2022.
• Port of Montreal dockworkers planning another strike this week over work schedules.
• Canadian National Railway is buying 1,500 hopper cars amid strong growth in grain volumes.
Isaias makes landfall. The Category 1 storm hit the Carolinas with strong winds and heavy rain late Monday but weakened to a tropical storm around 3 a.m. Eastern time. The threat of tornadoes began to spread into southeastern Virginia.
— CFAP payments still shy of $7 billion. With the Coronavirus Food Assistance Program (CFAP) signup to run through August 28, payments at the national level moved up to $6.82 billion as of Aug. 3 with 499,156 applications approved for the program. Just $267 million in CFAP aid was delivered in the latest reporting week,
Livestock payments still account for the largest share at $3.44 billion, with $1.79 billion for non-specialty crops, $1.31 billion for dairy and $269.6 million for specialty crops.
Payments for cattle still lead all commodities at $2.98 billion, followed by the $1.31 billion for milk and $1.22 billion for corn. Those are the only commodities where payouts have topped $1 billion, with the next largest payments for hogs at $430.2 million, soybeans at $344.5 million, and upland cotton at $172.3 million. Payments for the remainder of commodities covered under the program are no more than $56 million.
The top six states remain Iowa ($697.4 million), Nebraska ($499.2 million), Minnesota ($435.2 million), Wisconsin ($389.3 million), Texas ($480.5 million), and California ($365.2 million).
The program was originally expected to pay out some $16 billion to producers with an initial payment level at 80% of the estimated total payment. It is still not clear why the payouts have lagged the expected total since the program applications started coming in May 26.
Next issue: Not if but when USDA pays the additional 20% of the CFAP payouts. At the time of the initial CFAP announcement, USDA said: "The remaining portion of the payment, not to exceed the payment limit, will be paid at a later date as funds remain available." The later date is here and funds are available.
Farm Service Agency (FSA) Administrator Richard Fordyce told the Red River Farm Network that there could be a few reasons why signup is not higher, including the initial payments based on 80% of the estimated total payment. He also cited acreage reporting deadlines faced by farmers for their participation in farm programs as another potential factor. “There’s also a lot of acreage reporting taking place right now and once this has finished up, we anticipate the CFAP applications to ramp up a little bit,” he noted. He also observed that the agency is still mulling adding additional commodities to the program. As for the 20% additional payment, Fordyce said, “If it looks like we’ve got some space and we’ll be able to issue that additional 20% of the eligible payment in CFAP, then we’ll make that decision at a later time.”
Perspective: Some $14 billion in additional Commodity Credit Corporation (CCC) funding became available in early July, so Fordyce's comments about “space” appears spacey. The only thing slower than CFAP might be the negotiations on another round of coronavirus aid, but even those are expected to be wrapped up before the end of CFAP signup Aug. 28.
— Coronavirus aid talks show more promise. Democrats and the White House showed cautious optimism about reaching a deal on the next round of aid after another series of meetings. The two sides remain at odds over extra unemployment benefits and providing aid to cities and states.
But House Speaker Nancy Pelosi (D-Calif.) sounds confident in the Democrats' strategy. Talking with Democrats on Monday, Pelosi reportedly said the two sides “are not together on an amount” for education funding. State and local cash is “still a zero” but Republicans will come their way, but they don’t “know it yet.” SNAP/food stamps is “not where we need.” She said Dems and Republicans aren’t moving on unemployment benefits. Election money is a “big fight for us,” and she noted they were going back and forth on USPS money. As for a possible timeline, Pelosi suggested no deal until next week.
President Trump has accused Democrats of wanting to bail out U.S. cities and states run by their party. Trump said his team was having a “very good discussion” with Pelosi and Chuck Schumer, the top Senate Democrat. But he said both sides disagreed over the amount of money Congress should provide to local governments to help them deal with the pandemic and the economic pain it has caused. “They want to do bailouts of their various Democrat-run states and cities,” he said. “They want a trillion dollars for that . . . They want to do much more than Covid-related. They want to bail out cities and states that have been in trouble for years of bad management — in all cases Democrat-run cities.”
Schumer said Monday's meeting focused on the costs of the Democratic and Republican proposals, and the two sides were “moving closer together”.
Federal Reserve officials warned yesterday that another round of fiscal relief would be critical for the U.S. economy as lawmakers continue to negotiate the contours of additional aid.“It’s very important that something be done,” Chicago Fed President Charles Evans told reporters yesterday. “If we go very long without somehow addressing the reduction and evaporation of that support, I think it’s going to show up in lower aggregate demand, and that would be very costly for the economy.” A continuation of some form of extra unemployment benefits would bolster economic growth, Federal Reserve Bank of Dallas President Robert Kaplan said. “I think you’re still going to need to see an extension of unemployment. It may be restructured to some extent from the $600 but I think it’s important that we see an extension of it,” Kaplan said in an interview on Bloomberg Television yesterday. St. Louis Fed President James Bullard echoed similar sentiments in comments to reporters, noting, “My sense is that nobody in Congress wants to go face an electorate this fall having failed to come to a deal.”
— Automatic stabilizers best ad hoc policy responses. "By the time the Cares Act passed on March 27, millions of workers had already been displaced, and tens of thousands of firms had already shuttered. It then took several more weeks to implement the various Cares support provisions. Moreover, when Cares was passed, many anticipated that the economic crisis would be short. The [Federal Pandemic Unemployment Compensation] program (the $600 supplement to UI benefits) was set to expire at the end of July, while [Paycheck Protection Program] loans were meant to support firms for only eight weeks. It now appears that the period of economic weakness will last much longer, particularly as Covid-19 cases have begun rapidly rising again, and that additional support will be needed. Policy responses with built-in triggers tied to economic conditions could adjust flexibly and automatically to the evolving situation," University of Illinois at Urbana-Champaign's Alexander Bartik and co-authors write in a new working paper (link).
— Update on reopening America... and around the world:
- Some colleges that are planning to reopen this fall are setting hard triggers for what it would take to shut their schools down. With no clear federal guidelines, their plans consider possibilities like student or staff deaths and full ICU facilities. Link to WSJ article for more.
— Coronavirus update:
- Summary: Source: Johns Hopkins University as of 7:00 a.m. ET.
— 18,315,281: Confirmed cases world-wide, and 584,556 deaths
— 45,368: New U.S. cases recorded yesterday
— 4,718,249: Total confirmed cases in the U.S.
— 540: Deaths in the U.S. recorded yesterday
— 155,478: Total U.S. deaths
— 57,543,852: Tests conducted in the U.S.
The U.S. posted fewer than 50,000 new coronavirus cases two days running — the lowest daily counts since early July — despite signs of upticks in some Northeast and Midwest states.
New Jersey Gov. Phil Murphy retightened restrictions on indoor gatherings to 25% of a room’s occupancy (25 people maximum), after several large house parties fueled new outbreaks.
Link to Covid Case Tracker
Link to Our World in Data
- An FDA effort to solve the mask shortage instead opened the gates to 3,500 Chinese manufacturers selling products of widely varying quality, potentially putting the public at risk and leaving some U.S. states with stockpiles of masks they no longer trust, a Wall Street Journal analysis found (link). Some companies given initial approval were just weeks old or posted incomplete mask-quality tests.
- Britain's government signed deals for fast Covid-19 tests, aiming to provide tests with a 90-minute turnaround to hospitals and care homes in time for an expected winter resurgence of cases. The U.K. has already secured the highest number of potential vaccine doses per capita, ahead of the U.S., having signed a deal with GlaxoSmithKline Plc and Sanofi for as many as 60 million doses.
POLITICS & ELECTIONS
— 2020 Presidential Election Interactive Map
— The Green Papers
- Kansas Republicans vote today in a bitterly contested primary, with some in the party warning that a victory by Kris Kobach — who has lost to Democrats in prior elections — could cost a pivotal seat in the U.S. Senate. But populists like Kobach because he criticizes meatpackers and supports mandatory country-of-origin labeling on meat. In the GOP candidate race, Rep. Roger Marshall is facing off with former Kansas Secretary of State Kobach.
- Sabato's Crystal Ball: A simplified model for forecasting the 2020 presidential election. Link for details — the model is from Alan I. Abramowitz, the Alben W. Barkley Professor of Political Science at Emory University and a senior columnist with Sabato’s Crystal Ball. Highlights:
• “Two factors that historically have been helpful in forecasting presidential elections —the power of incumbency and the state of the economy — may be less useful in this year’s election, both because of long-term changes in American politics and the current public health crisis.
• “A forecasting model based on evaluations of the incumbent president may be a better fit for this election.
• “This incumbent accountability model makes Donald Trump an underdog, but gives him about a 30% chance of winning based on his current approval rating.
• “However, he needs to improve his approval rating significantly to better position himself for a second term, based on history.”
OTHER ITEMS OF NOTE
- U.S. Secretary of State Mike Pompeo held surprise talks with Taliban chief negotiator Mullah Abdul Ghani Baradar, the group’s Doha-based deputy leader. According to Reuters, the talks covered the issue of Taliban prisoners held by the Afghan government. The Taliban insist that they should be freed before they join negotiations with government officials and other Afghans on a political settlement.
- A big issue for U.K. candidate for key WTO post. Classified U.S./U.K. trade documents leaked ahead of the December 2019 U.K. general election were obtained by suspected Russian hackers who had compromised the personal e-mail account of former Trade Minister Liam Fox, Reuters reported on Monday. The news comes after a parliamentary report found that the British government had failed to follow up on Russian attempts to influence the 2016 Brexit vote. Fox is currently Britain’s candidate for director-general of the World Trade Organization (WTO).
- Dem measure would boost EPA pesticide protections. A glimpse of what legislative initiative would look like should Democrats retain the House, regain the Senate and win the White House comes today when House and Senate Democrats today will unveil legislation that would allow the public to petition the EPA to immediately declare a pesticide as “dangerous” and force the agency to conduct more timely reviews of pesticides. Among the chemicals the bill would ban are chlorpyrifos, diazinon and paraquat. The bill, to be introduced in the Senate by Sen. Tom Udall (D-N.M.) and in the House by Rep. Joe Neguse (D-Colo.), is meant to address complaints that the agency has failed to aggressively regulate pesticides under Democratic and Republican administrations alike. The outlook for the bill is that the GOP-controlled Senate would not follow, and there is little time the House and Senate are slated to be in session — less than six weeks total — between now and the November election. Also, no Republicans are sponsoring the bill, and Udall won’t be in the Senate after the end of the year as he decided against running for a third term.
- USTR nominee moves closer to being in place. The Senate Finance Committee approved the nomination of Michael Nemelka to be a deputy U.S. Trade Representative on a 24-to-4 vote Monday. Nemelka was nominated to be deputy USTR for Africa, China and the Western Hemisphere and for investment, services, textiles, labor and environment. Nemelka has been a special advisor to USTR Bob Lighthizer for the past five months. He is expected to easily win confirmation in the full Senate. Lawmakers focused on issues relative to the U.S.-Mexico-Canada Agreement (USMCA) during Nemelka’s confirmation hearing as the agreement would fall under his purview.
- Menezes expected to be cleared for DOE post. The Senate is scheduled to vote at 11:30 am ET this morning on the nomination of Mark Menezes to be deputy Energy secretary. His nomination is expected to easily clear the chamber after the procedural vote on his nomination was approved 78-14. Menezes is currently undersecretary of Energy.
- White House withdraws FCC renomination. The White House Monday said it was withdrawing the renomination of Michael O’Rielly to be a member of the Federal Communications Commission (FCC) for another five-year term that would have started July 1, 2019. There was no reason given, but O’Rielly had faced some opposition in the Senate over his support of a 5G plan from Ligado Networks. Senate Armed Services Committee Chairman James Inhofe (R-Okla.) said he would block the nomination over the issue as the Department of Defense and Department of Transportation have expressed concern the plan could cause issues with GPS signals.
The nomination of Anthony Tata to be undersecretary of Defense for policy was also withdrawn, the White House said.
- Trump orders limits on contractors’ foreign workers. President Trump yesterday barred federal agencies from dismissing American citizens or green card holders and replacing them with foreign workers and blasted a major state enterprise for having done so. The executive order increases scrutiny of federal contractors’ use of H-1B visas to bring in temporary foreign labor for high-skilled jobs rather than relying on American workers. The action was prompted by the federally owned Tennessee Valley Authority’s June announcement that it’s laying off 62 information technology workers as the federal power agency outsources data and programming work, according to an administration official.
- BP halved its second-quarter shareholder pay-outs because of industry-wide losses caused by the Covid-19 pandemic. It had not slashed its dividend since the Deepwater Horizon disaster, a decade ago. Reporting a record $6.7 billion loss overnight as the oil industry struggles, BP halved its dividend to 5.25 cents per share following in the footsteps of rival Royal Dutch Shell. BP set out an accelerated timetable for its pivot towards green energy, setting targets of a 40% decline in hydrocarbon production and a ten-fold increase in low-carbon investment by 2030. It pledged to increase low-carbon spending to $5 billion a year by 2030 and boost renewable power generation to 50 gigawatts while shrinking oil and gas output by 40% compared with 2019. BP said it had "an exceptionally strong contribution" from trading (more than $1 billion for the quarter).