Russia/Ukraine Absorbs Political Leaders and Markets

Congress out | Vilsack in Dubai | USDA outlook confab Thursday and Friday

Washington Focus

Both chambers of Congress are out and will return Feb. 28.

The Russia/Ukraine situation has absorbed both political leaders and markets. Citing escalations in the breakaway Donbas region of Ukraine, Putin called on Kyiv to “sit down at the negotiating table” with separatist leaders “and agree on political, military, economic and humanitarian measures to end the conflict.” The government in Kyiv refuses to negotiate with the Russia-backed separatists, saying they are proxies for Moscow.

Russia will extend its military drills with Belarus involving some 30,000 troops near Ukraine’s border, the government in Minsk said, citing an uptick in violence in eastern Ukraine. The exercises had been scheduled to wind down this weekend, but Belarus said Sunday they would continue indefinitely.

On Wednesday, the General Assembly of the United Nations holds a meeting to debate the ongoing tensions in Ukraine.

Volodymyr Zelensky, Ukraine’s president, argued that the West had to ditch its “policy of appeasement” in its relations with Russia. Speaking at the Munich Security Conference, despite American entreaties to stay home, Zelensky said that Ukraine had acted as Europe’s “shield” and needed more support. The speech came the day after President Joe Biden said he was (again) convinced an invasion was days away.

Biden said Friday: "We’re calling out Russia’s plans loudly and repeatedly, not because we want a conflict, but ... to remove any reason that Russia may give to justify invading Ukraine." U.S. officials have been releasing intelligence for weeks about alleged Russian plans to build a pretext for war.

Secretary of State Tony Blinken on NBC's Meet the Press: "It certainly looks like everything we said was likely to occur in the lead-up to the actual invasion is happening." Putin claims the U.S. is trying to bait him into invading. Blinken said he plans to meet his Russian counterpart, Sergei Lavrov, this week to discuss the buildup at Ukraine's borders — unless Russia invades in the meantime.

The Biden administration has easily overused the word “imminent” in characterizing the timing of what they believe to be a coming Russian invasion. Defense Secretary Lloyd Austin said he doesn't think Russian President Vladimir Putin is bluffing. ABC News chief global affairs correspondent Martha Raddatz asked Austin in an interview, an excerpt of which was posted Friday, about the possibility of a Russian invasion of Ukraine due to the buildup of Russian troops along the border. "This is not a bluff?" Raddatz asked Austin. “I don't believe it's a bluff. I think he's assembled the right kind of — the kinds of things that you would need to conduct a successful invasion,” Austin said.

Pentagon spokesperson John Kirby on Sunday said Russia still has "diplomatic options left on the table" amid heightened fears that Moscow will invade Ukraine. "If Russia does this, they do it with diplomatic options left on the table. They won't have an excuse that merits any sort of credibility about why they went forward when there was a diplomatic path forward," Kirby said while appearing on Fox News Sunday. "They will choose this war and Putin will be responsible for the casualties and the suffering and the sacrifice the destruction that will result as a result of any single story," he added, referring to Putin.

Bottom line: Putin has already invaded... our heads. He has a huge ego along the lines of former President Donald Trump. Putin wants Ukraine as a buffer and will likely do whatever it takes to keep it so. But we’ve already been through the silly guessing game of picking a date on when any invasion may come. Remember when some reported it would be Feb. 16? Wrong. Meanwhile, former national security adviser John Bolton said Putin could be dragging out the Ukraine crisis in a campaign of "classic brinkmanship" and warned the Russian leader could win control of the country without sparking a large-scale conflict or invasion. In an interview with John Catsimatidis on WABC 770 AM, Bolton said Putin could invade Ukraine, but it "depends on how successful he is diplomatically in achieving his larger strategic interests… The Russians are playing a very agile, diplomatic game," Bolton said on Sunday, "which primarily centers on fracturing NATO."

Where in the world is USDA Secretary Tom Vilsack? He’s in Dubai to promote U.S. agricultural trade with the United Arab Emirates and neighbors such as Saudi Arabia.

But he has a U.S. problem in mind: the surge in food prices. He said a recent spike in avocado prices was an example of businesses “taking advantage” of the coronavirus pandemic and supply-chain disruptions to push up food costs. The U.S. gov’t will allow imports of Mexican avocados to restart on Monday, ending a week-long suspension triggered by a threat against a USDA food inspector. Prices surged during the ban.

“I would raise some serious questions about that cost increase given the fact it was obvious this was a short-term situation,” Secretary Tom Vilsack said in an interview in Dubai with Bloomberg on Sunday. “There’s no justification for that. None.”

Food prices have soared globally as economies recover from the pandemic. Producers and transporters are struggling to cope with the surge in demand, leading to huge delays moving goods through ports. The rise in food costs has contributed to U.S. inflation accelerating to 7.5%, putting pressure on President Joe Biden ahead of November’s mid-term elections. (Most Americans scoff at the 7.5% figure, saying their inflation is in the double-digit arena.)

Vilsack acknowledged the economic rebound and logistical snarls are causing cost increases, but not all of them are justified, he said. “The question is whether all those increases are directly correlated to those causes or whether people are taking advantage,” he said. “There are some comments I’ve read — attributed to some folks in the agribusiness world — where they’re suggesting or at least intimating that this is an opportunity to raise prices beyond what is necessary to deal with supply-chain challenges they may face.”

Food prices should start to fall, Vilsack predicted, as the U.S. economy normalizes and supply problems are resolved, he said. “If they come down, will they come down commensurate with how much they went up?” he said. “If they don’t, that would suggest there’s something more afoot here. People should be asking those questions.”

USDA on Friday provides another update on its food price forecasts. Many see USDA upping its current forecasts, which most see as too conservative.

Vilsack rejected a call from Republicans for “damages” from China to address shortfalls in purchases of U.S. exports. House Minority Leader Kevin McCarthy (R-Calif.) and a group of colleagues recently that Beijing failed to meet a commitment in the Phase 1 of a U.S./China trade deal to buy agricultural goods in 2020 and 2021.

“That’s interesting coming from the party that basically caused the problem to begin with,” said Vilsack. “That’s not an answer. The answer is negotiations. The answer is looking for ways in which we can strengthen the trading relationship in agriculture with the Chinese. I’m confident we’ll see a better performance.”

The Renewable Fuels Association's National Ethanol Conference will take place Monday through Wednesday. Last week, a Senate Environment and Public Works Committee hearing occurred on the future of the Renewable Fuel Standard (RFS), which requires refiners to blend billions of gallons of ethanol and other biofuels into its fuels. At the hearing, biofuel advocates argued that the RFS is a clean energy policy, it supports farmers it reduces the country's need to import energy. The oil industry opposes the standard as too costly.

RFS details are under review by the Environmental Protection Agency, which intends to announce potential changes as soon as May or June… this year.

Canadian truckers’ three-week occupation of parts of the nation’s capital has ended. On Sunday morning, Ottawa was quiet for the first time in 24 days, as police made a final push to clear anti-vaccine-mandate holdouts a few streets from parliament. Some 170 people were arrested, 53 vehicles were towed, and dozens more were scared off after police in riot gear swooped on the city, encircling the protesters, and pushing them away from the downtown. Before that, the protesters blocked vital Canada/U.S. border crossings, including the Ambassador Bridge, linking Detroit in the U.S. and Windsor, Ontario — North America’s busiest.

About 80% of Canadians — and nine in 10 truckers — are vaccinated. Most restrictions, including vaccine passports for restaurants, are implemented by provincial premiers, not Trudeau’s federal government.

Interim police chief Steve Bell said the operation would not have been possible had Trudeau not invoked the never-before used Emergencies Act, which gives the government sweeping powers for 30 days to step up enforcement, restrict public assembly, freeze bank accounts and seize assets. Its predecessor, the War Measures Act, was used by Trudeau’s father, Pierre Elliott Trudeau, to put down a violent rebellion in Quebec in 1970. But the prime minister’s opponents in the Conservative party, many of whom backed the “Freedom Convoy,” called it an over-reach.

Queen Elizabeth tested positive for Covid-19, focusing attention on the 95-year-old monarch’s health. The queen, who recently became Britain’s longest reigning monarch, is experiencing “mild cold-like symptoms,” Buckingham Palace said in a statement on Sunday. “She will continue to receive medical attention and will follow all the appropriate guidelines,” the palace said, and is expected to continue light duties over the coming week.

The announcement comes after the queen came into contact with her son Prince Charles, who earlier tested positive for Covid-19 on Feb. 10, though it isn’t clear whether she contracted the virus from him. Covid symptoms generally appear from two to 14 days after exposure to the virus.

The diagnosis comes as England prepares to lift all remaining pandemic-related restrictions this week, including the legal requirement to self-isolate while infected.

Economic Reports for the Week

The biggest economic report expected is Friday's personal consumption expenditure data, which is watched by the Federal Reserve, is expected to show a continued hot inflation pace in January. The second estimate of Q4 GDP is expected to see an upward revision. Updates on new home sales and durable goods orders are also on the way.

A few Fed speakers are on the calendar in the four-day week ahead, including Cleveland Fed President Loretta Mester and Fed Governor Christopher Waller Thursday — see below for the Fed speakers.

Monday, Feb. 21

Presidents’ Day holiday: Markets closed
Fed Governor Michelle Bowman speaks

Tuesday, Feb. 22

S&P/Case-Shiller home prices
FHFA home prices
Manufacturing PMI and Services PMI: IHS Markit releases its Manufacturing and Services Purchasing Managers’ Indexes for February. Consensus estimates are for a 56 reading for the Manufacturing PMI and a 52.2 for the Services PMI. This compares with 55.5 and 51.2, respectively, in January. The January Services PMI was the lowest reading since July 2020.
Conference Board releases its Consumer Confidence Index for February. Economists forecast a 110.8 reading, roughly three points less than the January data.
Dallas Fed Interim President Meredith Black
Atlanta Fed President Raphael Bostic

Wednesday, Feb. 23

MBA Mortgage Applications

Thursday, Feb. 24

Jobless Claims
BEA reports its second estimate of fourth-quarter 2021 gross domestic product. Economists forecast a 5.9% seasonally adjusted annual growth rate, one percentage less than the advance estimate of 6.9%.
Richmond Fed President Tom Barkin
Census Bureau reports new-home sales for January. Expectations are for a seasonally adjusted annual rate of 792,000 new single-family houses sold, 19,000 fewer than in December.
San Francisco Fed’s Daly
Atlanta Fed’s Bostic
Richmond Fed’s Barkin
Cleveland Fed President Loretta Mester
San Francisco Fed President Mary Daly
Fed Governor Christopher Waller
Fed Balance Sheet
Money Supply

Friday, Feb. 25

Census Bureau releases the January durable goods report. Consensus estimate is for new orders for manufactured durable goods to rise 1% month over month to $270.3 billion.
BEA reports personal income and spending for January. Income is expected to decline 0.3% month over month, while expenditures are seen rising 1.4%.
PCE deflator
National Association of Realtors releases its Pending Home Sales index for January. In December, pending home sales fell 3.8%, the second consecutive month of declines. Rising mortgage rates and record-high home prices have taken some of the wind out of the housing market.
Consumer sentiment

Key USDA & international Ag & Energy Reports and Events

Ag focus this week is on USDA’s Annual Outlook confab on Thursday and Friday. USDA analysts on Thursday will release their best guesstimates (not based on surveys) of supply and demand forecasts for the 2022-23 marketing year — this is assuming those forecasts are not leaked earlier as has been the case in some years (link). A seasoned analyst said: “We know they are based off the February WASDE. Brazil’s government agency (CONAB) has cut the size of their soybean crop — and USDA usually adopts that in the end — in their February estimate. As a result, one really needs to take them with a grain of salt this year. The caveat would be if the run in the actual market prices after the CONAB report would drive more total corn plus bean area in 2022.”

Bottom line: While some observers think we are beginning to price ration some commodities, others are not in that camp. “Soybean crush margins are still good,” said one analyst. “Also, oil prices are high and likely going higher. Meanwhile, Brazil is going all out on exports now… what if they halt exports June or July before U.S. new crop?”

On the energy front, CEOs of TotalEnergies, Eni and Shell will be among dozens of speakers at the annual International Energy Week in London, held virtually and live. The oil market will also be in the spotlight as Russia/Ukraine developments play out and the prospect of higher production out of Iran is weighed.

Monday, Feb. 21

Ag reports and events:

Holiday: U.S. and Canada
Monthly MARS bulletin on crop conditions in Europe
Malaysia’s Feb. 1-20 palm oil export data