The Week Ahead: July 31-August 6, 2017

Posted on 07/30/2017 8:53 AM

House out, Senate in | Employment report | White House upheaval | Farm bill listening sessions



The Senate is in and the House is out for its August recess. The key economic report comes Friday with the Employment update.

The White House staff upheaval continued late last week when President Donald Trump replaced Chief of Staff Reince Priebus with John F. Kelly, a retired four-star Marine general, in hopes of projecting toughness, discipline and inspiring respect on Capitol Hill and stopping the infighting among some White House officials. James Baker, who held the position of White House chief of staff under two presidents, offered some advice to the New York Times: “You can focus on the ‘chief,’ or you can focus on the ‘of staff.’ Those who have focused on the ‘of staff’ have done pretty well.”

On the agriculture policy front, the House Agriculture Committee is holding three farm bill listening sessions, including Monday in San Angelo, Texas (USDA Secretary Sonny Perdue was supposed to attend but stayed in Washington to attend a hastily called Cabinet meeting this morning). Today’s hearing starts at 2 p.m. ET and will be live-streamed here. The panel will also be in Morgan, Minnesota, on Thursday and will hold another session Saturday in Modesto, California. Conaway will stay in San Angelo after Monday’s meeting to participate in the West Texas Legislative Summit, an annual conference that this year will highlight a new farm bill. Link for details.

Perdue will speak on Saturday at the Iowa Ag Summit in Des Moines, an event organized by agribusinessman Bruce Rastetter, who put together a similar conference in 2015 with the presidential candidates. Link to agenda.

Focus turns to tax reform and need for debt-limit hike. With the Senate defeat of health-care reform legislation last week, attention on the topic will linger but focus has moved in part on tax reform and the need to increase the debt limit, with Treasury Secretary Steve Mnuchin pushing lawmakers to make a decision by Sept. 29, before the end of the current fiscal year. Two recent debt-limit fights on Capitol Hill, in 2011 and 2013, raised yields on Treasury securities ahead of the expected date of default, ultimately boosting Treasury’s borrowing costs by about $260 million in 2011 and $230 million in 2013, according to research released by the Federal Reserve this year.

Trump responds to Senate failure to repeal, replace ObamaCare. “If a new HealthCare Bill is not approved quickly, BAILOUTS for Insurance Companies and BAILOUTS for Members of Congress will end very soon!” President Trump tweeted Saturday. The next set of payments, which total millions of dollars for insurers that have lowered deductibles and other out-of-pocket costs for the poorest enrollees in coverage under the law also known as ObamaCare, is due in three weeks. “If the president refuses to make the cost-sharing reduction payments, every expert agrees that premiums will go up and health care will be more expensive for millions of Americans. The president ought to stop playing politics with people’s lives and health care, start leading and finally begin acting presidential,” said Sen. Chuck Schumer (D-N.Y.) on Saturday. Kellyanne Conway, an adviser to President Trump, said Sunday Trump will make a decision this week on ending key payments to insurance companies under ObamaCare. Sen. Susan Collins (R-Maine), one of three Republicans who blocked the GOP’s latest health-care bill, on Sunday said President Trump’s threatened cuts in payments to insurers would be “detrimental” to America’s poor.

As for Senate committee action, nominations for various subcabinet posts will be taken up in several committees as the slow process of filling out positions in the Trump administration continues. The Senate Finance panel on Tuesday will examine America’s affordable housing crisis, focusing on challenges and solutions. On Wednesday, the Senate Commerce, Science, and Transportation Committee considers nominations of Mark H. Buzby to be administrator of the Maritime Administration, Ronald L. Batory to be administrator of the Federal Railroad Administration and Robert L. Sumwalt III to be National Transportation Safety Board chairman. On Thursday, Senate Finance will examine agency nominations including Gilbert B. Kaplan to be undersecretary of commerce for international trade.

North Korea, China and Russia foreign policy issues will also highlight the week, especially after weekend events.

Trump tweets on China, North Korea. President Trump hit China late Saturday for being insufficiently helpful in pressuring North Korea, comments seen as a tougher approach ahead. The pair of tweets: "I am very disappointed in China. Our foolish past leaders have allowed them to make hundreds of billions of dollars a year in trade, yet ... they do NOTHING for us with North Korea, just talk. We will no longer allow this to continue. China could easily solve this problem!" China watchers expected another U.S. round of secondary sanctions, targeted at important institutions and individuals. But Beijing continues to call for calm and more talks. Meanwhile, South Korea is boosting its offensive capability. The White House is widely expected to seek a new resolution from the U.N. Security Council.

Vladimir Putin said the U.S. State Department would have to cut their staff in Russia by 755 people, saying the amount of U.S. personnel in the country will be capped at 455 — the same number of Russians working in the United States. It is the latest sign of worsening relations between the two countries and comes days after the U.S. Senate voted overwhelmingly to strengthen sanctions on Russia in the wake of Kremlin interference in the U.S. election.

EPA is holding a public hearing Tuesday on the Renewable Fuel Standard (RFS) proposals the agency put forth for biofuels for 2018 and for biodiesel in 2019 (link). The hearing will be held in Washington, D.C. EPA said the hearing aims to provide interested parties the opportunity to present data, views, or arguments concerning the proposal. The agency may ask clarifying questions during the hearing, but will not respond to presentations at that time.

EPA erred in its use of a waiver to set a target lower than Congress mandated in a Renewable Fuels Standard (RF) law that prescribes how much of the nation’s motor fuel supply should be plant based, the Court of Appeals for the D.C. Circuit ruled Friday. It is not clear how the decision about the 2016 target will impact the target for 2018, which the agency must set no later than Nov. 30. While an EPA spokesperson said the agency is “currently reviewing the decision,” EPA said its proposed RVOs (Renewable Volume Obligations) for 2017 and 2018 won’t be affected because it kept the ethanol figure at the full 15 billion gallons. But ClearView Energy Partners said one way the agency could conceivably address this deficit in the past is by incorporating some or all of the deficit into the 2017 and 2018 RVOs. The net effect would be higher RIN prices and more demand for ethanol (and biodiesel, which could be the big winner, some observers note). FBR Capital Markets & Co. noted in a research report "the ruling will increase the intensity of push for remaining options for relief, such as shifting the point of obligation or encouraging congressional intervention; however, the options may face a diminishing probability or play out over the long term." Other options are being discussed by some observers. "The simplest way would be to, over some period of time, use old RINs to comply with the volumes if you have them. If a party doesn't, then they can buy 2017, 2018 or 2019 RINs and use those for the special re-compliance," said Scott Irwin, an agriculture economist from the University of Illinois at Urbana-Champaign. "If I was an obligated party who was short RINs, I'd be extremely nervous."

Link to RFS case.

On trade policy, the US International Trade Commission will hold a session to vote on the issue of ripe olives from Spain.

Comments on violations and abuses of U.S. trade laws are due today. Public comments are due by midnight tonight to Office of the U.S. Trade Representative (USTR), Commerce Department and others on the WTO and other bilateral and regional free trade deals. This is via the executive order signed by President Trump earlier this year and the review of the agreements and public feedback are due to head to President Trump by October 26.

Friday will be the focus for economic updates as it will bring the monthly jobs report, with nonfarm payrolls for July seen rising by 200,000, and the jobless rate deen ticking down to 4.3% (from current 4.4%). But ahead of that, Monday opens with Chicago PMI, Pending Home Sales and Dallas Fed Manufacturing with Tuesday releases on Personal Income and Outlays, PMI Manufacturing Index, ISM Manufacturing Index and Construction Spending. Wednesday data includes the ADP Employment and Treasury Budget updates, followed by Thursday releases including Weekly Jobless Claims, PMI Services Index, Factory Orders and the ISM Non-Manufacturing Index. Friday will bring the July Employment update and June International Trade.

The Fed schedule is relatively light so far, but that sometimes changes as more appearances are released or as Fed officials give interviews with media outlets that bring their comments into focus for markets even if they were not "on the schedule." Wednesday will see Cleveland Fed's Mester and San Francisco Fed's Williams both deliver remarks – Mester in the morning and Williams in the afternoon. Both are 2018 voters and that will put them into the voting mix ahead so their comments will carry some weight. Attention will be on their expectations of when the Fed will start its balance-sheet trim and whether they think September seems most likely. Also, their views on inflation will be of note given the rising attention that topic is garnering.

Weather remains the key focus of agriculture market traders, ahead of USDA’s Aug. 10 Crop Production survey results. Colorado State on Friday updates the Atlantic Hurricane forecast before the peak of the season.

Monday's Crop Progress update is the first focal point for markets each week. Monthly Agricultural Prices data also comes that day along with Grain Inspections. The calendar flips to August Tuesday and that means the "industrial" reports will be out – Cotton System, Fats & Oils, Grain Crushings and Flour Milling. Thursday's releases will include the Weekly Export Sales, Cash Rents, Land Values and Farm Production Expenditures. Closing out the week will be the Latest U.S. Agricultural Trade Data. Initial spring wheat harvest results will also be monitored after the disappointing findings by the wheat tour that rolled through North Dakota and portions of the surrounding states last week, finding below-average yield potential due to drought.

In agribusiness earnings reports, Archer-Daniels-Midland and Mosaic announce earnings on Tuesday, while Bunge reports results Wednesday.

On the international agriculture front, Tuesday brings the International Cotton Advisory Committee monthly supply/demand report. Early Thursday the Food and Agriculture Organization (FAO) releases its food price index.

Vice President Mike Pence on Thursday visits Eastern Europe, traveling to Estonia, Georgia and Montenegro.


 

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