Latest market-sensitive news and views - Sept. 21
(Editor's note: This daily digest of the latest news and perspective is a must read for those in business who need to keep abreast of the newest developments in the marketplace, yet do not have time to scour all the media outlets. In less than 10 minutes you will be caught up and in the know on the current events impacting the marketplace.—Jim Wyckoff)
FOMC | China buys U.S. soybeans, cotton | John Deere layoffs | GAO on Vilsack & CCC
Equities today: Asian and European stocks were mostly lower overnight. U.S. Dow opened around 120 points lower. In Asia, Japan -1.4%. Hong Kong -1.3%. China -0.8%. India -0.9%. In Europe, at midday, London -0.6%. Paris -1.5%. Frankfurt -1.1%.
U.S. equities yesterday: All three major indices finished with losses the wake of the Fed meeting conclusion, with the Nasdaq operating in the red much of the session. The Dow lost 76.85 points, 0.22%, at 34,440.88. The Nasdaq dropped 209.06 points, 1.53%, at 13,469.13. The S&P 500 declined 41.75 points, 0.94%, at 4,402.20. All three major indexes closed at session lows.
The VIX volatility gauge closed above 15 for the first time this month and climbed further pre-market on Thursday.
Two-year Treasury yields topped 5.2% on Thursday for the first time since 2006 — up 32bp this month alone. Ten-year Treasury yields hit 4.5% for the first time in almost 16 years.
U.S. crude oil futures dropped back below $90 per barrel for the first time in more than a week — down almost 6% from Tuesday's highs. but in current trading resumed to the $90-plus level.
FedEx posted higher profit despite a drop in revenue, as the shipping giant continues its extensive cost-cutting efforts amid slumping demand.
Quotes of note:
— Federal Reserve: 'Hawkish pause' in its tightening campaign in 'higher for longer' message following the FOMC meeting Wednesday. Highlights:
Outlook: Futures now show the implied Fed policy rate for the end of next year at a new cycle high of 4.85% — up 35 basis points in just over a week. And that's still a quarter point below where Fed policymakers indicated they would be by then — and just 50bp below the 'peak rates' later this year.
— The Bank of England kept its policy interest rate at 5.25%, marking the first halt in its tightening cycle in almost two years. This decision comes after a series of rate hikes totaling 515 basis points, with the Monetary Policy Committee voting 5-4 in favor of maintaining the current rate. The central bank cites recent inflation data and anticipates a significant decline in CPI inflation, despite upward pressure from oil prices and continued declines in food and core goods price inflation. Policymakers remain prepared to tighten policy further if necessary.
— Outside markets: The U.S. dollar index was firmer, with the euro, yen and British pound all weaker against the greenback. The yield on the 10-year U.S. Treasury note was higher, trading above 4.46%, while there was a mixed tone in global government bond yields. Crude oil futures remained lower ahead of U.S. trading but up from earlier levels, with U.S. crude around $89.25 per barrel and Brent around $93.05 per barrel. Gold and silver were under significant pressure ahead of US market action, with gold around $1,938 per troy ounce and silver around $23.35 per troy ounce.
— Stellantis and GM furlough workers amid strikes, while Hollywood's entertainment strike costs reach $6 billion. Stellantis and GM have initiated furloughs for dozens of autoworkers this week, with warnings that hundreds more could face similar situations as strikes in the automotive industry continue. This marks the first layoff announcement from Stellantis, the manufacturer responsible for vehicles under brands like Jeep, Ram, Dodge, and Chrysler. Ford and GM have already implemented layoffs or issued warnings about idling employees at two of their plants due to the ongoing targeted strikes. The strikes in the automotive sector are primarily centered around demands for improved pay and benefits by unionized autoworkers. However, the companies argue that meeting these demands would be financially unsustainable.
Meanwhile, the entertainment industry is grappling with significant financial losses due to Hollywood's ongoing strikes. The combined losses related to the strikes are nearing $6 billion. Writers and executives from the four major studios are engaging in negotiations for a second consecutive day to reach a resolution and bring an end to the historic strike that has halted the majority of TV and movie productions.
— 6 billion: Approximate U.S. exports of petroleum products, in barrels per day, in the first half of 2023, up 2% from the same period last year and the highest level for exports in records dating to 1981, according to the Energy Information Administration.
— China continues buys of U.S. soybeans, cotton. USDA Export Sales data for the week ended Sept. 14 included activity for 2023-24 of net sales of 1,801 metric tons of wheat, 71,214 metric tons of corn, net reductions of 650 metric tons of sorghum, net sales of 205,589 metric tons of soybeans, and 25,923 running bales of upland cotton. Activity for 2023 included net sales of 2,501 metric tons of beef and 2,526 metric tons of pork.
— USDA daily export sale: 137,160 MT corn to Mexico. Of the total, 121,920 metric tons is for delivery during the 2023-2024 marketing year and 15,240 metric tons 2024-2025 marketing year.
— Palm oil prices have reached their lowest point in nearly three months due to worries surrounding weak demand and increasing production. The tropical oil has faced additional pressure from declining soybean oil prices. China's ongoing strong demand for South American soybeans, even during the period typically dominated by the U.S., has raised concerns for American growers as their harvest season begins.
— Migrant surge disrupts U.S./Mexico border supply chain operations. The increasing influx of migrants heading towards the U.S. is beginning to disrupt supply chain operations along the U.S./Mexico border, the Wall Street Journal reports (link). Mexican railway company Ferromex has temporarily halted freight operations on several rail lines serving border cities like Ciudad Juárez due to a rising number of migrants boarding trains. Ferromex, a subsidiary of Grupo Mexico, has stopped approximately 60 freight trains traveling northbound on routes where authorities have reported multiple incidents, including fatalities, injuries, and unexpected childbirths. Mexican officials suggest that some railway workers may be facilitating the passage of migrants by stopping trains in rail yards, allowing them to evade authorities. Ferromex has reported up to 1,500 migrants on trains and in train yards at one of its locations. As a result of the situation, U.S. Customs and Border Protection temporarily closed one truck crossing in El Paso, Texas, to redirect field officers to assist in migrant processing. Truckers have noted that the suspension had a limited impact on the flow of goods across the border.
CONTINUING RESOLUTION (CR) & POSSIBLE GOV'T SHUTDOWN
— House Republicans make progress on stopgap bill, but face Senate divide. House members took steps toward reaching an agreement to fund the government, garnering support from Republicans. However, their path appears to diverge significantly from the Senate's stance.
The latest GOP plan involves a stopgap bill as a precursor to more significant spending cuts and the establishment of a commission to address the federal debt. Additionally, the House Rules Committee sent the Defense appropriations bill back to the floor, a sign of reduced tensions within the Republican caucus. Previously, a floor vote on a rule for the Defense appropriations bill faced challenges due to disputes over funding differences only loosely related to the legislation.
Renegade GOP Reps. Bob Good (R-Va.) and Ralph Norman (R-S.C.) expressed willingness to support a stopgap measure setting a top-line budget level of $1.526 trillion for appropriators, without redirecting old, rescinded funds to bolster those numbers. House appropriators had initially adopted a $1.47 trillion top-line allocation but permitted the use of $115 billion in rescinded funds, effectively providing around $1.59 trillion in spending.
This lower funding level will further widen the gap between House and Senate funding levels, which previously stood at approximately $100 billion. The Senate's official allocation was $1.59 trillion, but emergency spending led to bills with roughly $1.68 trillion in funds.
House Republicans still must resolve various details to secure support for their stopgap measure, even though it faces little chance of passing in the Senate. The inclusion of enforcement mechanisms in a debt commission measure is crucial for winning the vote of Rep. Victoria Spartz (R-Ind.), who emphasizes the need for Senate consideration of reform language.
Timeline: A vote on the defense spending bill (HR 4365) could pave the way for a vote on the continuing resolution on Saturday.
Bottom line: House Speaker Kevin McCarthy (R-Calif.) still lacks the necessary votes following a closed-door meeting. Other renegade GOP members, including prominent McCarthy critic Matt Gaetz and Cory Mills of Florida, oppose the stopgap spending bill and instead advocate for a prolonged government shutdown while Congress works to pass 12 individual spending bills.
Of note: Senate Republicans are expecting McCarthy to seek help from House Democrats to avert a government shutdown by reaching a bipartisan agreement as divisions within the GOP prevent unity on the issue. Senate Republicans are growing impatient with McCarthy's efforts and are suggesting he explore other options, including seeking votes across the aisle. They emphasize the need for a pragmatic approach to prevent a shutdown and fund key priorities.
Meanwhile, former President Trump last night weighed in on the funding plan, saying in a Truth Social post that "Republicans can and must defund all aspects" of the government. Some House Freedom Caucus members are taking Trump's criticism as encouragement to "hold the line" against a deal.
Impacts: Long lines at airports. Delayed food-safety inspections. Halted infrastructure projects. Military personnel working without pay. These are just some of the potential consequences if the federal government partially shuts down next month, according to the White House.
— Russia plans a new tax on exporters to soak up excess revenue companies reap when the ruble depreciates past a certain level and support its strained wartime budget. Bloomberg.
— Ukraine wheat shipment reaches Turkey. The cargo ship "Resilient Africa," loaded with 3,000 MT of Ukrainian wheat, arrived off Turkey's Bosphorus Strait on Thursday. It is the first vessel loaded with grain from Ukraine to sail in and out of the Black Sea using a temporary corridor. Another ship "Aroyat" has yet to leave the port of Chernomorsk.
— U.S. urged JPMorgan to ‘be patient' before halt to processing Russia grain payments. Washington urged JPMorgan to "be patient" before the U.S. bank stopped processing agricultural payments for Moscow after it quit the Black Sea grain export deal, a senior State Department official told Reuters. "It was JPMorgan's decision, and in fact, we had... made clear to the Russians that if they could show signs they were returning to the deal, it would be much easier to keep this payment system alive," James O'Brien, head of the State Department's Office of Sanctions Coordination, told Reuters. He said JPMorgan made a "completely commercial decision based on business and reputational factors."
— Ukraine agrees on grain trade deals with Slovakia, Poland. Slovakia and Ukraine have agreed to establish a licensing system for trading grains, allowing a ban on imports of four Ukrainian commodities to Slovakia to be lifted once the system is set up, the Slovak ag ministry said. The ministry did not give details on how the licensing system would work. Ukraine's ag minister also agreed to "work out an option to cooperate on export issues" with Poland.
— Ukrainian President Volodymyr Zelenskyy is scheduled to meet with President Biden and visit the U.S. Capitol today as he seeks increased support for Kyiv. In the past few hours, Ukraine's military successfully intercepted 36 out of 43 missiles launched by Russia in attacks conducted across the country. The threat of further missile strikes remains imminent. During the aerial assaults on Kyiv, Ukrainian officials reported at least seven people wounded, while two individuals were injured in Kharkiv. In addition, Russian shelling resulted in the deaths of at least two people in the southern city of Kherson.
The White House is preparing to offer a new aid package to Ukraine as part of Zelenskyy's visit, according to a U.S. official cited by CNN.
— ERP Phase 2 payments increase to $10.99 million. As of Sept. 19, total payments made under the Emergency Relief Program (ERP) have climbed to $7.45 billion. This represents a significant increase since the last update in late August. Additionally, payments under ERP Phase 2 now total $10.99 million, benefiting 6,839 recipients. This marks a substantial rise from the previous update, which reported $7.14 million distributed to 4,763 recipients in the week ending Aug. 27. Notably, there have been no reported changes to the Coronavirus Food Assistance Program (CFAP) efforts.
— As for ERP Phase 2 payments for 2020-21 losses, a USDA official told us: "We are doing our best at getting these payments out the door and doing a college try to get them out before the possible shutdown. Originally, they were scheduled for mid-October, but we are trying to move that up. Obviously, no guarantees but we are scrambling."
— GAO: USDA's use of $3.1 bil. in CCC funds for new climate-smart programs deemed legitimate. USDA has been found to be within its legal rights regarding the use of Commodity Credit Corporation (CCC) funds for new financial assistance programs. The General Accountability Office (GAO) decision states that USDA did not violate the CCC Charter Act or the Antideficiency Act when transferring CCC funds for programs not specifically identified in its budget submission to Congress. Furthermore, the Partnerships for Climate-Smart Commodities (PCSC) program, which supports the marketing and production of climate-smart agricultural commodities, is authorized under section 5(e) of the CCC Charter Act and is not subject to the restrictions of the Environmental Quality Incentives Program (EQIP).
Sen. Roger Marshall (R-Kan.) asked GAO to make a decision on the matter.
— Coalition calls for wealthiest farmers to bear more crop insurance costs in farm bill. A coalition of think tanks, budget hawks, and environmental groups has advocated for changes in the upcoming farm bill, including making the wealthiest farmers contribute a larger share of the cost of taxpayer-subsidized crop insurance. They argue that there is no immediate need to increase farm subsidies despite appeals from farm groups. "There is no obvious or urgent need to increase farm subsidies," said Nan Swift of the R Street Institute.
The reformers within this coalition have proposed implementing income and payment limits to access crop insurance and reducing federal support for insurance companies and agents who sell the policies. Currently, the government covers 62 cents of every $1 in premiums, which amounted to approximately $11.6 billion in 2022. Additionally, insurers are guaranteed underwriting gains of at least 14.5 percent annually, with over $1 billion paid out each year for administrative and operating costs.
The coalition emphasizes the need to establish guardrails on the crop insurance program, similar to the eligibility and payment limits imposed on crop subsidies. They argue that the absence of such limits on the insurance program does not make sense. "Put some guardrails on that program," said Joshua Sewell of Taxpayers for Common Sense, just as there are eligibility and payment limits on crop subsidies. "It makes no sense that we have no such limits on the crop insurance program," said Scott Faber of the Environmental Working Group.
The coalition asserts that agriculture is an industry that receives significant government support and should not be exempt from reform. They suggest that the traditional practice of building urban-rural coalitions in Congress for farm bill passage, with various interest groups supporting the legislation, needs to be reevaluated as it may no longer be sustainable. Farm household income is far above the median income of U.S. households overall, and USDA estimates that farm profitability this year will be the second highest on record, said Bryan Riley of the National Taxpayers Union. Chris Edwards of the libertarian Cato Institute, said: "Agriculture is an unusually coddled industry."
Perspective: Says a farm policy analyst: "First, those who propose to impose a pay limit or AGI means test on crop insurance clearly do not understand principles of insurance. One does not intentionally strive to remove good risk from an insurance risk pool which is what pay limits and AGI means testing would do by removing good risk, full-time farm and ranch families. The consequence would be higher premiums paid by those producers left in the risk pool. Hence, all producers would be harmed by the proposal. It would also invite increased calls for ad hoc assistance as farmers and ranchers are locked out of crop insurance.
"Second, proposals to cut premium support for farmers and ranchers would undo two key pillars that made crop insurance the success it is today: the 1994 reform that increased premium support and more especially the 2000 reform. Undo these two laws and we return to the fledgling crop insurance of yesteryear. That is undoubtedly what these groups want.
"Third, as has been refuted countless times, these groups refer to the ‘wealthiest farmers' in referring to full-time farm and ranch families and they do so through a sleight of hand. USDA defines farmer as anyone that produces $1K in agricultural products in a year. Hence, full-time farmers and ranchers appear "wealthy" in comparison to a 4-H student who sells a prize bull, and the universe of these full-time producers also looks small in comparison with the total number of ‘farmers'. These groups serve up the same nonsense year after year hoping that at some point that lawmakers will fall for the deception.
"Finally, rain or shine, the groups invariably argue that farmers and ranchers don't need support. If prices are strong, they point to that and say a safety net is unnecessary. If prices are depressed, they say that support should not be provided because farmers and ranchers should just do something else. One of these groups seriously argued that a farmer or rancher faces no more risk than a barber. Such a demonstrably errant declaration discredits the entire bunch."
— Senate confirms Gen. Charles Q. Brown Jr. as Joint Chiefs Chairman amid ongoing political standoff. The Senate moved marks a significant moment as he becomes only the second African American to hold this prestigious position. The confirmation came after Democrats temporarily put aside their ongoing dispute with Sen. Tommy Tuberville (R-Ala.) to move forward with President Biden's nominee. The 83-11 vote averted the potential embarrassment of leaving the top military position temporarily vacant. However, it doesn't resolve the larger issue of around 300 senior officers who remain in limbo due to Tuberville's months-long hold on military promotions, which stems from a disagreement over the Defense Department's abortion policy. The 11 senators voting against Gen. Brown's confirmation were all Republicans.
This development opens the door for other potential confirmation votes for Marine Corps Gen. Eric M. Smith and Army Gen. Randy George to lead their respective services, with the possibility of new Navy and Air Force leaders once their nominations clear Senate scrutiny.
— Bashar al-Assad, Syria's president, arrived in China on his first visit there since the start of his country's civil war in 2011. Assad is expected to seek Chinese funds to help rebuild Syria, ravaged by over a decade of conflict. Assad, an international pariah since the war, recently reestablished relations with several countries; in May, Syria was readmitted into the Arab League.
— WSJ: Iran's oil exports surge amid quiet diplomacy with U.S. and eased sanctions enforcement. Iran's oil exports have experienced significant growth due to a shift in U.S. policy and a more lenient approach to sanctions enforcement during diplomatic negotiations between Washington and Tehran, the Wall Street Journal reports. This policy change has led to the recent release of five American detainees and other concessions. The Biden administration issued a waiver that allowed international banks to transfer $6 billion in frozen Iranian assets from South Korea to Qatar, a move that coincided with the prisoners' release.
Furthermore, Iran's oil shipments to China, its largest customer, have been on the rise as the U.S. opted not to aggressively enforce international sanctions.
Former U.S. officials suggest that even before negotiations over detainees, the United States had made a strategic decision not to rigorously enforce sanctions, aiming to facilitate engagement with Iran at the diplomatic level. This shift has contributed to the growth in Iran's energy exports in recent years.
ENERGY & CLIMATE CHANGE
— Groups urge Biden administration to use GREET model for SAF tax credit eligibility. Several organizations, including the Clean Fuels Alliance America, the American Soybean Association, National Oilseed Processors Association, and the U.S. Canola Association, have called upon the Biden administration to utilize the Argonne National Laboratory's GREET model as the "similar methodology" option for determining eligibility for Sustainable Aviation Fuel (SAF) tax credits, as outlined in the Inflation Reduction Act. They argue that not using the GREET model could hinder investments in SAF production, which their members have heavily committed to. The groups noted that their members have invested $3.8 billion in new construction or optimization of facilities and some $6 billion to expand or build new oilseed processing capacity in 10 U.S. states. USDA Secretary Tom Vilsack said last week that his agency was going to expend around $400,000 to update the GREET model with the expectation it will be used by Treasury for the SAF credits. The Treasury is expected to release guidance on SAF credits later this year.
— Biden launches American Climate Corps to tackle environmental challenges. The program is designed to engage over 20,000 young individuals in its first year to address climate-related issues. Drawing inspiration from the New Deal-era Civilian Conservation Corps, the Climate Corps will focus on conservation, clean energy projects, and community resilience efforts. It aims to provide paid opportunities, with many positions requiring no prior experience, and Climate Corps members may become eligible for education awards. Additionally, the Office of Personnel Management is considering a rule-making process to offer a streamlined path to civil service jobs for participants. The initiative, which had been proposed in previous climate legislation, is now being funded through existing sources. Link for more via the Associated Press.
USDA Secretary Tom Vilsack said the Forest Corps, operating through the U.S. Forest Service, would be the first major interagency partnership with the Climate Corps. "USDA is proud to be part of this effort through the Forest Corps … and will support efforts to address the wildfire crisis," said Vilsack via social media. Some 80 young adults, ages 18 to 26, will join the Forest Corps in summer 2024 to work on wildfire prevention, reforestation, and other projects as part of the Forest Service's long-term wildfire strategy. Participants will receive compensation equivalent to $15 an hour, including lodging, transportation, a living allowance, and health benefits.
— DOE allocates $47.7 million for 16 clean hydrogen projects to advance technology and infrastructure. The Department of Energy (DOE) has unveiled a significant investment of $47.7 million distributed across 16 research, development, and demonstration (RD&D) projects focused on advancing clean hydrogen technologies. These selected projects have the goal of reducing technology costs, enhancing hydrogen infrastructure, and optimizing the performance of hydrogen fuel cells. When combined with private sector contributions, the total investment in these projects amounts to $58.4 million.
These initiatives will be overseen by the DOE's Hydrogen and Fuel Cell Technologies Office (HFTO) and are concentrated on critical areas within the hydrogen supply chain. These include technologies related to hydrogen delivery and storage, as well as advancements in fuel cell technology.
Before the awards are officially granted, the DOE stipulates that a negotiation process must be undertaken with the project applicants, and it retains the right to rescind the offers during this period. The investment is aimed at accelerating the development and deployment of clean hydrogen solutions to support the transition to a more sustainable energy future.
— EPA seeks bids for grants to reduce GHG emissions. EPA initiated a request for proposals from state, local, and tribal governments to access a total of $4.6 billion in grants designed to support the implementation of climate action plans and the reduction of greenhouse gas (GHG) emissions. This funding has been authorized under the Inflation Reduction Act (IRA).
The grant awards will be distributed in two installments. The first installment will comprise 30 to 115 grants ranging from $2 million to $500 million each. The second installment is dedicated specifically to tribes and territories, with 25 to 100 grants available, ranging from $1 million to $25 million each. These grants are aimed at assisting government entities in their efforts to combat climate change and achieve GHG emission reduction goals.
— Biden administration is resuming a program to deliver free Covid-19 tests through the mail, according to Secretary of Health and Human Services Xavier Becerra. The federal program had restarted last December in partnership with the U.S. Postal Service, allowing households to order a total of four at-home Covid tests for free. However, plans to preserve the remaining test kits and a decline in hospitalizations prompted officials to pause the program in June. The latest decision to resume the program comes amid a slight uptick in Covid-related hospitalizations in the United States.
The program previously sent 775 million tests through the mail, reaching more than two-thirds of American households, according to DHHS, but it was paused last September over test supply concerns, then relaunched in December 2022, before being suspended again on June 1. The tests are meant to be used through the end of the year.
— Bryan Johnson, a former tech executive, is spending millions trying to reverse aging with a strict regimen of 111 pills a day, a cap that shoots red light onto his scalp and more. Time magazine.
POLITICS & ELECTIONS
— CNN poll: Trump tops rivals in New Hampshire, DeSantis falls to fifth place. A CNN/University of New Hampshire poll of 2,107 adults, including 845 likely GOP primary voters, taken 9/14-18 shows Donald Trump leading with 39%, followed by Vivek Ramaswamy at 13%, Nikki Haley at 12%, Chris Christie at 11%, and Ron DeSantis at 10%. DeSantis' support has dropped since a similar poll in July, driven by a sharp drop-off among moderates, from 26% backing him in July to 6% now. He fell a smaller 8 points among conservatives. Link for details.
OTHER ITEMS OF NOTE
— India suspends visa issuance to Canadians amid diplomatic rift over Sikh killing. The move exacerbates an ongoing diplomatic dispute between the two nations. The dispute stems from allegations made by Canadian Prime Minister Justin Trudeau linking Indian "agents" to the killing of Canadian Sikh separatist Hardeep Singh Nijjar. Canada expelled a senior Indian diplomat in response, and India reciprocated by expelling a Canadian diplomat. India's government has also issued a warning to its citizens traveling to Canada, citing concerns about "anti-India activities" and "politically condoned hate crimes." This dispute has strained relations between the two countries, which have a significant Indian diaspora population and bilateral trade amounting to $10.5 billion in goods.
Canada's embassy in New Delhi announced Thursday it would "temporarily adjust staff presence" to protect its diplomats from threats, and days after the two governments expelled senior diplomats identified as the respective station chiefs of their intelligence services.
— Glyphosate nears EU renewal. The European Commission proposed renewing EU approval of glyphosate, the most widely used weedkiller in the world, for 10 years, with some new restrictions on its application.
— Calendar of events today include:
Thursday, Sept. 21