News Bites
Kitco daily macro-economic/business digest - May 18
Beijing Begins European Tour Aimed at Brokering End to Russia's War
Debt-limit talks | Black Sea grain pact extended 60 days | Farm policy updates
Abbreviated format today due to travel.
Debt-limit talks update:
- House Speaker Kevin McCarthy (R-Calif.) said he won't accept a deal without increased work requirements for social safety-net programs. President Joe Biden expressed modest willingness to enact new work requirements but not for Medicare. House Democrats are firmly opposed to any additional work requirements. Meanwhile, a Wall Street Journal editorial (link) noted the GOP can win on work requirements and welfare as the details show how reasonable the House debt-ceiling proposals are. Also, nearly two-thirds of Americans — including half of Democrats — back attaching work requirements SNAP, according to the latest Axios-Ipsos American Health Index.
- House Democrats are against budget caps that revert spending to fiscal year 2022 levels — another McCarthy demand.
- Biden is facing increased pressure from progressives to invoke the 14th Amendment.
- Biden will be back in Washington on Sunday to oversee the debt limit negotiations after cutting short the rest of his international trip, which was supposed to include stops in Papua New Guinea and Australia.
- JPMorgan CEO Jamie Dimon echoed the positive sentiment about debt-limit talks after he and other top bank executives met with Senate Majority Leader Chuck Schumer (D-N.Y.).
- Vice President Kamala Harris will hold a briefing about the ongoing negotiations to prevent a debt default at 12:40 p.m. ET, the White House said. National Economic Council Director Lael Brainard will join Harris. Meanwhile, Treasury Secretary Janet Yellen will discuss recent developments in the banking system and the importance of Congress addressing the debt limit today at the Bank Policy Institute.
- As of May 3, the Treasury Department had run out of about half of its available extraordinary measures to delay the deadline to raise the debt limit, according to a Bipartisan Policy Center analysis. Officials had about $115 billion left in available extraordinary measures to delay the deadline, out of $230 billion that was available in January. The biggest pot of money — temporarily declining to reinvest in the Federal Employees' Retirement System Government Securities Investment Fund — had $94 billion left, out of $169 billion in January, according to the analysis. Declining to reinvest in the Exchange Stabilization Fund leaves another $17 billion. Officials also can still issue securities from the Federal Financing Bank, giving them less than $10 billion. The Treasury has used up all $41 billion available by declining to reinvest in the civil service and postal retirement funds, according to the analysis.
— Russia launched 30 cruise missiles at Ukraine's capital and the Odesa region early Thursday, officials said, in an escalation ahead of a much-anticipated counteroffensive. Most of the missiles were shot down, and one death was reported from the attacks. Meanwhile, the U.S. is resisting a European push for the powerful fighters.
— Chinese ambassador Li Hui met with Ukrainian President Volodymyr Zelenskiyy, according to a readout today from China's Foreign Ministry, as Beijing kicked off a European tour aimed at brokering an end to Russia's war. Ukraine hasn't acknowledged the meeting, though it said Foreign Minister Dmytro Kuleba held talks in Kyiv with Li, who's also visiting Poland, France, Germany and Russia.
— U.N. Secretary-General Antonio Guterres has commended the extension of the Black Sea Grain Initiative for another two months, terming it as "good news for the world.” This extension was initially announced by Turkish President Tayyip Erdogan, with confirmations following from Russia, Ukraine, and the U.N. The Black Sea Grain Initiative aims to promote global food security, particularly supporting countries most in need.
The Russian foreign ministry underscored the importance of correcting "distortions" in the initiative's implementation, presumably referring to obstacles and inefficiencies. This is particularly relevant to the provisions related to expanding the export of Russian food and fertilizers. Guterres also addressed these concerns, expressing hope that exports of food and fertilizers, including ammonia, from Russia and Ukraine will reach global supply chains in a safe and predictable manner.
Vedant Patel, a spokesman from the U.S. State Department, pointed out that Moscow shouldn't need regular reminders to keep its promises and refrain from using people's hunger as a weapon in its conflict with Ukraine.
In light of the extension of the grain deal, shipping activities involving agricultural products from three Ukrainian ports are set to resume. According to Ukrainian Infrastructure Minister Oleksandr Kubrakov, about 70 vessels are currently waiting in Turkish territorial waters, with 90% of them ready to distribute Ukrainian farmers' products globally.
— Japan's imports fell for the first time in more than two years as commodity prices softened. The value of purchases decreased 2.3% in April from a year earlier. Exports were up 2.6%, driven by car shipments, and was largely in line with expectations.
— U.S. commercial real estate prices fell in the first quarter for the first time since 2011 — and “lots more” declines are coming. That's according to research from Moody's. It said the magnitude of a potential correction could be sizable and may lead to credit losses at banks.
— U.K. Prime Minister Rishi Sunak said he is considering stricter export controls and curbs on investment by British firms in China, insisting he is “very aligned” with President Biden on policy toward Beijing. The U.S. has been lobbying other G7 nations to screen outward investment to China in sensitive sectors.
— President Xi Jinping will seek to deepen Beijing's influence in Central Asia at a major summit. The two-day China-Central Asia Summit will assemble the leaders of Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan from Thursday in the Chinese city of Xi'an. Trade ties and regional security concerns will likely dominate talks, along with Russia's war in Ukraine and Xi is expected to deliver a keynote speech announcing new cooperation measures between the nations, state media reported, citing an official from China's Foreign Ministry.
— A pair of bipartisan bills aimed at banning federal dollars from going to foreign-made drones, especially those made in China, advanced out of relevant House and Senate committees on Wednesday. Security concerns have increased about the technology as more drones enter U.S. airspace. Lawmakers fear that Shenzhen-based SZ DJI Technology, the world's largest producer of remote-controlled aircraft, may be transferring sensitive data to Chinese intelligence agencies. DJI has already been blacklisted by the U.S. government, but the worry is that the company's broad reach in the consumer market could slip into work done by government agencies.
— China's embrace of artificial intelligence (AI) in warfare has set alarm bells off across the U.S. Former Google CEO Eric Schmidt during his testimony at a House hearing on Wednesday evening focused on accelerating the uptake of AI within the U.S.' own military defense. Schmidt warned that China invests far more in AI for defense than the U.S., on top of the “civil-military fusion” that has Chinese commercial companies working closely with the military. Kathleen Hicks, a deputy defense secretary, said she could see “the PRC trying to advance and exploit” AI technologies.
— A Bloomberg analysis of government records and spill data reveals that the Keystone Pipeline was pushed to its limit before the operator experienced its worst oil leak. TC Energy cranked Keystone's pressure higher than what's typically allowed — a move signed off by U.S. regulators — to move more oil while keeping costs down.
— Department of Energy to invest $251 million in carbon transport. The Department of Energy has announced $251 million in funding to support 12 carbon management projects in seven states. The projects aim to expand carbon dioxide transportation and storage infrastructure to reduce carbon dioxide emissions that originate from power generation and industrial operations.
— Temperatures are likely to soar to record highs over the next five years, driven by human-caused warming and the El Niño climate pattern, World Meteorological Organization forecasters said. There is also a two-thirds chance that one of the next five years could be 1.5 degrees Celsius, or 2.7 degrees Fahrenheit, hotter than the 19th-century average, the organization reported. There is a 98% chance that at least one of the next five years will exceed the temperature records set in 2016, the forecasters said, while the average from 2023 to 2027 will almost certainly be the warmest for a five-year period ever recorded. Even small temperature increases can exacerbate the dangers from heat waves, wildfires, drought and other calamities. El Niño conditions can cause further turmoil by shifting global precipitation patterns. The meteorological organization said it expected increased summer rainfall over the next five years in places like Northern Europe and the Sahel in sub-Saharan Africa and reduced rainfall in the Amazon and parts of Australia.
— Senate Agriculture endorses Torres Small for USDA No. 2 post. The Senate Ag panel voted unanimously Wednesday to send the nomination of Xochitl Torres Small for USDA deputy secretary to the full Senate.
— Biden Labor Dept. nominee's full Senate vote shelved until late May. The Senate isn't expected to vote on whether to confirm Labor nominee Julie Su until after Memorial Day, leaving her nomination in limbo for at least a few more weeks, said George Flynn, spokesperson for Sen. Mazie Hirono (D-Hawaii). Biden tapped Su for the job in February.
— Senate appropriators will start marking up government funding bills in June, as lawmakers expect a debt-limit deal to materialize in the near future. “With so many urgent priorities before us, we are committed to marking up the Senate's appropriations bills starting in June,” Senate Appropriations Chair Patty Murray (D-Wash.) and Vice Chair Susan Collins (R-Maine) said in a joint statement yesterday.
Surge in yuan transactions. The use of Chinese yuan in foreign-exchange swaps underwent the second-largest quarterly surge at the end of March, as more countries transacted in the currency, Bloomberg reports. In the first quarter, swap line balances accounted for 109 billion yuan, or 20 billion more than the previous quarter, according to cited data from the People's Bank of China. That's equivalent to $15.6 billion. The yuan's increased use may also indicate a global de-dollarization swing, as many central banks are moving away from reliance on the greenback. That's after the U.S. weaponized the dollar against Russian aggression, deterring other countries from relying on it too heavily. For that reason, foreign banks have also led a surge in gold purchases, fueling a historic high in the last three quarters.
— China gains access to Russia's Vladivostok port, signaling Russia's weakened position. China has been granted transit access to Russia's Pacific port of Vladivostok, a move that may ease transportation in China's northeast but also highlights Russia's weakened position in its relationship with China since the Ukraine war. The port has been a sensitive topic since China signed it over to Russia in 1860, and the lack of extensive coverage in state media from both countries suggests a desire to minimize public discussion on the matter.
Key points ThinkChina reported:
- China's General Administration of Customs announced on May 4 that Russia agreed to allow China transit access to the Russian Pacific port of Vladivostok, which will help companies in China's far northeastern provinces transport goods domestically.
- The agreement indicates Russia's weakened status in its relationship with China, especially since the beginning of the Ukraine war.
- The strategic port of Vladivostok has been a sensitive topic between the two countries since China signed it over to Russia in 1860.
- Beijing may eventually push for the port's return to Chinese control, but such discussions are expected to progress slowly due to the importance of the Russo-Chinese partnership amid competition with the West and the port's strategic significance to Russia as home to its Pacific Fleet.
- Neither Russian nor Chinese state media have extensively covered the deal, suggesting an effort to minimize public conversation on this contentious issue.
