Evening Report | October 4, 2023

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U.S. 30-year bond yield hits 16-year high... A sustained selloff in world government bonds on Wednesday briefly drove up U.S. 30-year Treasury yields to 5% for the first time since 2007 and German 10-year yields to 3%. With resilient U.S. economic data, a sharp unwinding of traders’ long positions and rising bond supply, the growing sense that interest rates in major economies will stay higher for longer to contain inflation has become predominant.

“A lot of people bought into the idea that because the Federal Reserve was reaching the peak of rate hikes, it was time to buy government bonds,” Juan Valenzuela, fixed income portfolio manager at asset manager Artemis, told Reuters. “The positioning in the market has been wrong.”

Also weighing on bonds (supporting yields) is an increase in the supply of bonds, as governments sell more debt to fund budget deficits while offloading the vast bond holdings they built up through recent crises. Concerns over the U.S. government stalemate in Washington is also a concern.

U.S. private jobs growth slows to 32-month low... Private businesses in the U.S. hired 89,000 workers in September, ADP National Employment Report showed, the lowest number since a decline was recorded in January 2021, and below market expectations of a 153,000 increase. The latest data indicates a gradual slowdown in the U.S. labor market following the Federal Reserve’s aggressive policy tightening.

Economists polled by Reuters expect the Labor Department to report non-farm payrolls increased 170,000 in September in Friday’s reports, though the lower-than-expected ADP figure is causing the “whisper” number to decline from that level.

Biden administration plans trade talks with U.K., bypassing congressional involvement... The Biden administration's intention to initiate trade negotiations with the U.K., focusing on a new trade partnership without tariff adjustments, has stirred concerns on Capitol Hill, according to Politico. Senate Finance Committee Chairman Ron Wyden (R-Ore.) expressed disappointment, emphasizing the administration’s approach leaves Congress sidelined on U.S. trade policy. There are indications the U.K. is resisting U.S. efforts to address agricultural trade barriers, potentially complicating the overall negotiations. The administration’s stance has been to prioritize the enforcement of existing trade agreements and the negotiation of new trade framework deals, rather than pursuing free trade agreements (FTAs). The absence of trade promotion authority (TPA) approval further limits the possibility of FTAs with U.S. trading partners, leading to growing anxiety among agricultural interests, especially as the U.S. faces a historic trade deficit in the sector.

Billions of paper bills still underpin $25 trillion in global cargo trade... While paper bills still domininate global cargo trade, growing vulnerability to fraud is fueling a clamor for a system upgrade, according to a Bloomberg article.

• Less than 2% of global trade is transacted via digital means, but that is set to change as easy to fake and frequently lost paper bills rattle an antiquated system.
• Nine of the top 10 container shipping lines — which account for over 70% of container freight — have committed to digitizing 50% of their bills of lading within five years, and 100% by 2030.
• The next challenge will be getting companies to change processes in place for hundreds of years. Few are keen to take the first steps.

RFA urges California to accelerate approval of E15... The Renewable Fuels Association (RFA) is calling on the California Air Resources Board (CARB) to expedite its approval process for E15, a blend of 15% ethanol and 85% gasoline. RFA argues CARB’s delays in approving E15 are hindering potential air quality and emissions improvements. The letter from RFA highlights the benefits of E15, including reduced emissions of pollutants like particulate matter, carbon monoxide and hydrocarbons compared to E10. RFA also emphasizes the lower carbon intensity of E15 compared to gasoline and E10. The organization urges CARB to act swiftly to approve E15, citing the potential environmental and health benefits of the fuel for California.

Debate over advanced pricing of Class I and II milk sparks concerns about disorderly marketing... The ongoing USDA hearings to amend the Federal Milk Marketing Order system have reached their seventh week, with discussions centered on 21 submitted proposals, including those related to Class I skim milk price adjustments and advanced pricing dynamics. The American Farm Bureau Federation notes dairy industry stakeholders have raised concerns the current use of advanced pricing, coupled with the “average-of” plus 74 cents formula, has led to disorderly marketing conditions and non-uniform pricing for dairy farmers. The Federal Milk Marketing Order system seeks to establish minimum uniform prices paid to farmers based on the value of raw milk in various dairy products, and this debate aims to address issues related to pricing equity among handlers and farmers within the system.

Russia may ease ban on diesel exports soon... The Russian government is ready to ease a ban on diesel exports in coming days, the daily Kommersant reported, citing unnamed sources, while Deputy Prime Minister Alexander Novak said the restrictions were working. Despite being one of the world’s top oil producers, Russia has suffered high domestic prices and shortages of gasoline and diesel in recent months as high export prices made it advantageous for refiners to sell their products abroad.

Kommersant reported the ban would be lifted only on pipeline exports of diesel, and that volumes may be subject to quotas to avoid surges in wholesale prices. The ban on gasoline exports will remain in force for now, it said.