Make Kitco Your Homepage

Latest market-sensitive news and views - Sept. 22

Kitco News

(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)

Likely U.S. government shutdown in focus

Today's Digital Newspaper


Equities today: Asian and European stocks were mixed overnight. U.S. Dow opened flat to down slightly. In Asia, Japan -0.5%. Hong Kong +2.3%. China +1.6%. India -0.3%. In Europe, at midday, London +0.7%. Paris -0.4%. Frankfurt -0.1%.

U.S. equities yesterday: All three major indices suffered sizable losses Thursday as traders digested economic data and continued focusing on the Wednesday Fed meeting conclusion. The Dow dropped 370.46 points, 1.08%, at 34,070.42. The Nasdaq lost 245.14 points, 1.82%, at 13,223.98. The S&P 500 fell 72.20 points, 1.64%, at 4,330.00.

Microsoft's $75 billion acquisition of Activision Blizzard took a major step toward completion Friday after U.K. regulators said a new, restructured deal substantially addresses its concerns over cloud gaming.

Quotes of note:

  • Wall Street trims earnings outlook for freight railroad industry amid weak demand and service issues. As the third quarter of the year concludes with ongoing challenges such as weak demand, service disruptions, and rising fuel costs in the freight railroad industry, two Wall Street firms have adjusted their earnings expectations for key players in the sector.

    — Evercore ISI has reduced its earnings per share (EPS) estimates for Union Pacific, Norfolk Southern, CSX, Canadian Pacific, and Canadian National. The firm cited expectations of easier year-over-year comparisons and significantly improved service levels that were anticipated to drive a return to volume growth but did not materialize as expected.

    — TD Cowen has also lowered its earnings estimates for Union Pacific, Norfolk Southern, and CSX. They characterized the rail environment as "very challenged," with volumes continuing to lag behind pre-Covid levels. Norfolk Southern, which is still recovering from a major derailment in Ohio in February, saw the most significant downward adjustment in estimates following a technology outage last month.

    These adjustments reflect the ongoing struggles faced by the freight railroad industry, which has been grappling with various issues impacting its performance in the third quarter.

  • "There is a group of Tesla workers who are actively talking about forming a union." — Mike Miller, a regional director for the U.A.W. He told the New York Times that Tesla employees were reviving efforts to unionize.

  • "National security laws must rise to the top of your compliance risk chart, with the recognition that even the most innocuous-looking transaction or activity could implicate our collective security." —Marshall Miller, principal associate deputy attorney general at the U.S. Justice Department.

  • 45%: The percentage of world cities with more than 1 million in population facing elevated risks of strikes, riots and civil commotion over the next year, according to predictive modeling from the risk consultancy Verisk Maplecroft.

— Bank of Japan maintains interest rates, hints at possible end to negative rates. In its September meeting, the Bank of Japan (BoJ) kept its key short-term interest rate at -0.1% and maintained the 10-year bond yields around 0% through a unanimous vote. Additionally, the central bank left the allowance band of 50 basis points on either side of the yield target and the 1.0% cap, which were adopted in July, unchanged.

The BoJ's decision is driven the primary objective to achieve a sustainable 2% price stability target, coupled with wage increases. The committee also emphasized its readiness to implement additional easing measures, especially in response to rising inflation expectations.

Governor Kazuo Ueda has hinted at a potential departure from negative interest rates, suggesting that such a move could occur sooner than previously anticipated, provided there is sufficient data supporting wage hikes. This statement hints at the central bank's willingness to adapt its monetary policies to changing economic conditions and inflation trends.

WSJ: Fed hopes for unprecedented slow rate-cutting cycle amid economic uncertainty. The Federal Reserve is aiming for an unconventional approach as it anticipates not just a soft landing for the economy but the slowest rate-cutting cycle in its history, the Wall Street Journal reports. Fed officials plan to implement smaller rate cuts next year than investors had expected, and then extend these reductions over the course of the following three years. This strategy is driven by the belief that inflation will decelerate even in the absence of significant job losses. While this scenario may seem ideal for the central bank, the WSJ article notes that historical trends indicate that it might not be successful. Typically, interest-rate cycles conclude with swift rate cuts, and the Fed's projection of an extended series of rate reductions deviates from past patterns.

Market perspectives:

— Outside markets: The U.S. dollar index was firmer, with the euro and British pound both weaker against the greenback. The yield on the 10-year U.S. Treasury note eased to trade around 4.48% with a mixed tone in global government bond yields. Crude oil futures continued to gain after advancing in Asian action, with U.S. crude trading around $90.70 per barrel and Brent around $94.20 per barrel. Gold and silver futures were registering modest gains, with gold around $1,945 per troy ounce and silver around $23.96 per troy ounce.

— United Auto Workers (UAW) announced no additional strikes against Ford as they announced 38 more strikes in 20 states via extension of targeted strikes against General Motors, and Stellantis. UAW President Shawn Fain had previously issued a warning that the strike would broaden unless significant progress was made in negotiations. In response to the strike, politicians from both parties have entered the discussion, with many advocating for a middle-ground compromise. This compromise aims to secure pay increases in the range of 25% to 30% over the course of the proposed four-year contract. The outcome of these negotiations will have significant implications for both the auto industry and the workforce involved.

— Ag market outlook from Richard Crow, grain trader and analyst: "U.S, harvest will be slowed with weekend rains. The central belt may get upwards of 2 inches. The East has a chance early next week. Brazil's North area remains dry, Arg. is dry, South Brazil is wet. The market selling continued yesterday on the bad export sales report and the economic situation with no spending bill and strikes. The U.S. harvest does not present enough data to make a call on the crops. A reduction in soybean yields will be needed to offset the demand export shift to keep the carryout unchanged. In general, the yield talk gets a 1/2 to 1-bushel reduction. The ideas of soybeans s/d for next year are beginning to surface. The crushing industry expansion is evident. Early estimates are for a 100-million-bushel increase. To accommodate the crush, bean acres are estimated to expand by 2 to 4 million. As bean acres increase next year, corn acres are estimated to go lower. The working parts will be significant as Brazil's crop will likely be smaller."

— Mexico researchers show progress on replacing U.S. GM corn imports. Researchers at the Autonomous University of Chapingo highlighted progress they had made in producing more non-GM yellow corn seeds to help replace imports from the United States. Fields planted last spring were generating new strands of hybrid seed varieties to be tested in 2024 with release for planting in 2025, they said. The project aims in two years to develop enough non-GM seed varieties cultivable in Mexico to replace about 6 MMT of the 18 MMT of corn the country imports from the U.S. annually.

— India sells state-owned wheat. India sold 1.809 MTMT of state-owned wheat into the domestic market the ease prices. The Indian government says there are sufficient wheat reserves for continuation of these sales during 2023-24, without providing how much wheat it intends to auction.

— World sugar prices to stay strong on lower India output: Sucden. Global prices of sugar are expected to hover between 22 cents and 30 cents a pound in the next 12 months, Sucden's General Director Jeremy Austin said in New Delhi on Friday, Bloomberg reports. Prices are expected to stay elevated due to concerns over a drop in output in India, the world's second-biggest producer, he told reporters on the sidelines of a conference Friday. India is likely to produce 28.6m tons of sugar in 2023-24, Austin detailed. Brazil may produce 42.07 million tons in 2024-25 and 40.4 million tons in 2023-24, compared with 33.7 million tons in 2022-23.


— Renegade House Republicans blocked Pentagon funding bill, threatening gov't shutdown. In a surprising turn of events, renegade House Republicans once again rejected Speaker Kevin McCarthy's (R-Calif.) efforts to pass a Pentagon funding bill, raising concerns of a potential government shutdown in just nine days. This marks the second time this week that the rebel GOP members have disrupted federal spending plans, highlighting deep divisions within the party. Both parties have left Washington and will return Tuesday, just five days before a possible gov't shutdown. It now looks like the Senate will take the lead approach in trying to get a continuing resolution going, even though the House would likely balk at its contents.

Even after McCarthy conceded to demands from the band of renegades for more extensive spending cuts to avoid a gov't shutdown, this latest development underscores the challenges he faces in uniting the Republican caucus on critical budgetary matters.

Voting against it were Rep. Andy Biggs of Arizona, Dan Bishop of North Carolina, Eli Crane of Arizona, Marjorie Taylor Greene of Georgia and Matt Rosendale of Montana. Rep. Tom Cole of Oklahoma, the chairman of the Rules Committee and an ally of McCarthy, also voted "no" so that he would have the ability to request that the vote be reconsidered, a step he took immediately after it was defeated. Two GOP dissidents — Marjorie Taylor Greene, once a reliable McCarthy ally, and Eli Crane — surprised McCarthy by voting against bringing up the defense spending bill. Greene said she opposed the inclusion of $300 million in Ukraine aid — a move that caught the speaker by surprise.

Negotiations on both short-term funding solutions and long-term appropriations have deteriorated to the point where lawmakers from both chambers are returning home, with no scheduled votes for the remainder of the week.

Next House step: McCarthy and his leadership team now intend to focus on passing the remaining 11 individual funding bills. The House Rules Committee has scheduled a markup this afternoon on four spending bills — Homeland Security, State-Foreign Operations, Defense and Agriculture.

An unlikely alternative approach: Rep. Don Bacon (R-Neb.), who helped craft a bipartisan stopgap proposal with the Problem Solvers Caucus, said McCarthy needs to start working with Democrats.

The Senate is preparing to act first on a short-term funding plan if the House fails, but there are constitutional considerations since spending bills must originate in the House. Senate Majority Leader Chuck Schumer (D-N.Y.) teed up a bill that could become the vehicle for a bipartisan stopgap funding package designed to keep gov't open past Sept. 30. But that measure if approved, as is now likely, would likely face major hurdles in the House. The Senate will take an initial procedural vote Tuesday evening on the House's FAA reauthorization bill, which will eventually be substituted for the CR. Sen. Rand Paul (R-Ky.) has already said he won't give consent for speedy passage of a bill that includes Ukraine aid. And Rep. Mike Lawler (R-N.Y.) told reporters he'll demand a vote on a continuing resolution next week. If there is no vote, Lawler said he will use a discharge petition, which could allow a bill to be brought to the floor over McCarthy's objections. The petition process, which could take at least 10 days, would not allow enough time to avert a gov't shutdown.

Of note: When the House and Senate returns on Tuesday, lawmakers will have just five days left to avoid a shutdown.

— U.S. gov't agencies detail impact of potential shutdown on key services. Several U.S. government agencies have outlined their plans for maintaining essential services in the event of a gov't shutdown:

  • USDA: USDA's Animal and Plant Health Inspection Service and Federal Grain Inspection Service, which provide official phytosanitary certificates and grain inspection services, will continue their operations as they are funded by user fees. However, regulatory enforcement and standards development activities could be disrupted as they rely on appropriated funds. The Office of Management and Budget likely will issue a revised "Agency Contingency Plans" document in the event of a lapse in funding. If a shutdown does occur, there could be a disruption in services such as regulatory enforcement and standards development since the primary staffers that handle those activities are paid via appropriated funds. The work hours for headquarters staff in Washington, D.C., might also be staggered between "essential/exempted" staff since they are funded by both user fees and appropriated funds. The most recent partial gov't shutdown affected USDA loans and grants for rural communities, paused funding for food banks, and closed thousands of Farm Service Agency county offices. Link to USDA contingency plans for each agency.

  • Key gov't reports will be impacted. A government shutdown on Oct. 1 could temporarily halt the release of the September jobs report, September CPI data, and third-quarter GDP estimates, all scheduled for release in October. USDA's NASS told us that phone surveys for the Oct. 12 Crop Production Report are scheduled to run Sept. 29 to Oct. 4. Unless a deal is reached by then, NASS will ask enumerators to make as many contacts as possible on Sept. 29-30. If a shutdown occurs, all data collection will halt at midnight on Sept. 30. Whether NASS could release the report as scheduled all depends on how long a shutdown lasts, and more importantly how much data NASS can collect prior to Oct. 1. They must have enough data to set accurate estimates.

  • Army Corps of Engineers: Lock operations, considered exempted activities vital for human life and property protection, will remain operational during a government shutdown. 

— USDA's Risk Management Agency (RMA) is responsible for publishing the October harvest price that is typically announced Oct. 31 or Nov. 1. Even if any gov't shutdown would last through that time, typically there are more than a few outlets and university folks that will publish the price as it is based on daily settlement prices for futures. Also. RMA would have some essential personnel who could likely release the information. If not, it would not take long for an RMA announcement once the government reopens.

Perspective: Anybody with a spreadsheet of closing prices for Dec. corn and Nov. soybeans can easily determine the average closing price during October.


— President Biden announced that Abrams tanks will begin arriving in Ukraine next week. This decision coincided with Ukrainian President Volodymyr Zelenskyy's visit to Washington, where he aimed to secure continued support for Ukraine, despite growing opposition from Republicans regarding the financial cost of aid.

In a related development, the European Commission is reportedly progressing toward initiating discussions that would pave the way for Ukraine to potentially join the European Union, signaling a significant step in Ukraine's aspirations for closer ties with the EU.

— Ukrainian forces have breached the main Russian defensive line in the southeast with armored vehicles, a significant milestone in the three-and-a-half-month counteroffensive.

— Yellen expresses support for tax on frozen Russian assets to aid Ukraine. U.S. Treasury Secretary Janet Yellen signaled her endorsement of a European Union plan to impose a windfall tax on profits derived from frozen Russian sovereign assets. She described the proposal as a "reasonable" means to help finance the reconstruction of Ukraine, emphasizing that it differs from outright asset seizure. The Biden administration has faced pressure to seize these funds, which Yellen and the EU have deemed illegal under current law. The tax on profits earned from these frozen assets could provide crucial funding for Ukraine's recovery efforts and potentially garner more support for continued aid to Kyiv, which is currently under scrutiny from some Republican lawmakers.

However, European Central Bank President Christine Lagarde has expressed reservations about the plan, citing potential risks to the Eurozone's financial stability and currency liquidity. She and various EU member states argue that the support of the U.S. and the Group of Seven is essential for moving forward. The EU's executive arm intends to formally propose the tax in the coming weeks.

Meanwhile, on Capitol Hill, there is increased attention on legislation that would grant the Biden administration the authority to seize Russian assets in the U.S. for reconstruction costs, providing a potential solution to the political pressure faced by lawmakers concerning ongoing aid to Ukraine.

Former Treasury Secretary Larry Summers has also advocated for seizing the assets, citing moral, economic, political, and effectiveness reasons. He argued that the Biden administration already possesses legal authorization for such action under the president's emergency powers, referencing a comprehensive legal analysis that supports this position. The majority of the frozen Russian central bank assets, totaling over €200 billion ($219 billion), are held in Europe, particularly at Euroclear Ltd. in Belgium, where they generated significant income during the first half of 2023.


— Two prototype U.S. drone ships have arrived in Japan for their first deployment in the western Pacific, testing surveillance and attack capabilities that the Navy might find useful against China's larger fleet. WSJ.

— China to sell sugar reserves for first time in seven years. China will hold its first auction of state-owned sugar reserves since 2016 next week amid tightening supplies and rocketing prices. The auction will include 26,700 MT of old-crop white sugar with a floor price of 6,500 yuan ($890.40) per MT and 100,000 MT of white sugar produced in 2023 with a floor price of 7,300 yuan ($999.95) per MT, Huashang Reserve Commodity Management Center said.


— USTR meeting with Mexico omits mention of GMO corn dispute, while Mexico advances non-GMO corn seed production. In a recent meeting between the U.S. Trade Representative (USTR) official Jayme White and Mexican Undersecretary of Economy for Foreign Trade Alejandro Encinas, several trade issues were discussed, but notably absent was any reference to the GMO corn dispute. USTR raised concerns about Mexico's energy policy, steel and aluminum shipments to the U.S., and enforcement of fisheries-related environmental laws under the U.S./Mexico Canada Agreement (USMCA).

Of note: As we previously reported above, researchers at the Autonomous University of Chapingo are making progress in producing non-GMO corn seeds, with plans for commercial production in 2025 as Mexico aims to reduce its reliance on GMO corn imports from the U.S. This issue is part of the larger dispute between the two countries, with the U.S. asserting the safety of GMO corn.


— EPA science advisors question environmental benefits of corn-based ethanol. The Environmental Protection Agency's (EPA) Science Advisory Board raised doubts about the environmental benefits of corn-based ethanol versus traditional petroleum-based fuels, calling for more in-depth research on the matter. The panel, consisting of numerous experts, expressed uncertainty regarding the carbon intensity of ethanol and its impact on reducing greenhouse gas emissions.

In a draft report (link/pdf), the board stated, "According to the best available science, it appears there is a reasonable chance there are minimal or no climate benefits from substituting corn ethanol for gasoline or diesel." They urged the EPA to conduct "more extensive research" and consider these findings when establishing future biofuel-blending quotas.

While the board emphasized that it was not pre-judging the results of further research, its decision challenges the belief held by ethanol advocates that ethanol is a cleaner alternative for powering vehicles and aircraft. This development coincides with the U.S. Treasury Department's efforts to determine which products qualify for a tax credit aimed at promoting sustainable aviation fuel (SAF).

The debate centers on a federal requirement that renewable fuels, under EPA quotas, emit no more than 80% of the greenhouse gas emissions produced by gasoline and diesel throughout their entire life cycle, from cultivation to combustion. The board raised concerns about the expansion of cropland for corn ethanol production in response to annual biofuel-blending quotas mandated by the Renewable Fuel Standard.

Biofuel proponents countered the board's assertions, citing data indicating that corn production has become more efficient, and less U.S. land is being used for corn cultivation. They argued that ethanol is environmentally superior to petroleum-based fuels.

— Biden expands use of controversial social cost of carbon metric. The White House has granted federal agencies the authority to incorporate the contentious social cost of carbon metric into a wide range of decisions. This move paves the way for imposing higher fines on violators, conducting more rigorous assessments of federal programs, applying stricter analyses to permit applications, and promoting the adoption of electric vehicles and other low-carbon equipment.

The social cost of carbon represents the estimated societal cost of emitting one ton of greenhouse gases into the atmosphere, considering factors such as reduced agricultural productivity, property damage from severe weather events, and decreased access to freshwater resources.

Sen. Shelley Moore Capito (R-W.Va.) criticized the decision, branding the metric as "flawed" and accusing the Biden administration of relying on unproven figures to support its environmental policies. Capito serves as the ranking member of the Environment and Public Works Committee.

— Biden administration ordered to expand Gulf of Mexico Oil lease sale after legal challenge. The Biden administration has been directed by U.S. District Judge James Cain to broaden the scope of an oil lease sale in the Gulf of Mexico, specifically to include parcels of land that were previously excluded. These parcels, totaling approximately 6 million acres, had been removed from the sale at the last minute, causing concerns over increased vessel traffic.

Judge Cain's ruling criticized the Bureau of Ocean Energy Management (BOEM) for not providing sufficient justification for removing the parcels from the sale, suggesting that the decision seemed more like a misuse of the Endangered Species Act than a collaborative and lawful approach. The BOEM's stated reason for the removal was to protect the habitat of Rice's whale, an endangered species of whale.

The oil industry, which challenged the decision, argued that the delays in ship traffic resulting from the exclusion of these parcels would lead to increased time and costs for completing projects. Additionally, the state of Louisiana stands to benefit from this ruling, as it had expressed concerns about losing $2.2 million in revenues due to the excluded parcels.

Environmental groups are considering their options for challenging the Louisiana court ruling, but time is limited, as Judge Cain has mandated that the sale must be completed by Sept. 30.

— California poised to mandate carbon emissions reporting for private companies. California is on the verge of implementing a regulation that would compel numerous private businesses to disclose their carbon emissions, potentially affecting a significantly larger number of companies than the Securities and Exchange Commission's (SEC) proposed disclosure rule, which mainly targets publicly traded firms.

Details: Under this impending law, businesses operating in California with annual revenues exceeding $1 billion would be required to report their emissions. This mandate encompasses not only direct emissions but also indirect emissions from suppliers and customers, known as "Scope 3" emissions, which are more challenging to quantify.

The legislation is expected to impact around 5,300 companies, including over 3,900 privately held entities. Apart from the direct costs of complying with carbon accounting requirements, these private companies may also face reputational risks as their environmental impacts become public knowledge. Additionally, the law could disrupt the practice of "brown spinning," where public companies divest high-emission assets to private entities that face less scrutiny while profiting from them.

— Other environmental news:

  • Air pollution near U.S. maritime ports requires more monitoring and oversight from the EPA, according to an inspector general report released Thursday.

  • The Biden administration is calling for financial institutions to develop and execute climate transition plans, which outline steps that companies aim to take to reach net zero, under voluntary recommendations published Tuesday by the Treasury Department.

  • Twenty-five governors made a series of new environmental policy commitments to slash carbon emissions from buildings, including a push to quadruple the number of heat pump installations nationally.


Senate Ag panel on Sept. 27 will conduct a much-anticipated hearing regarding the issue of foreign ownership of U.S. farmland. This topic has garnered attention on Capitol Hill due to rising national security concerns, particularly when entities associated with countries such as China acquire land in proximity to American military bases. Both Republicans and Democrats have shown interest in addressing foreign ownership of agricultural land in the farm bill. However, lawmakers are cautious about crafting language that is too broad, as it could potentially result in discrimination. This issue reflects the delicate balance between national security considerations and safeguarding against unintended consequences in policymaking.

— Sen. Robert Menendez indicted on federal corruption charges in New York. Menendez is a prominent Democrat from New Jersey who leads the Senate's Foreign Relations Committee. This indictment comes after an extensive investigation by federal prosecutors in Manhattan and nearly six years after his previous trial for unrelated corruption charges resulted in a hung jury. While Menendez had been under federal scrutiny for some time, the charges mark a significant development in his political career. The indictment is expected to have political implications in Washington and New Jersey, particularly as Menendez faces competition from both Democratic and Republican challengers in his bid for re-election to a fourth term in the Senate. If he were to step down, New Jersey's Democratic governor would appoint his successor. Representatives for Menendez have not yet commented on the charges. Associated Press.


— Michael Bloomberg outlined the succession plan for Bloomberg LP, saying that when he dies, the company will go to his foundation and then be sold within the first five years. New York Times.

— A growing wave of migration that has been building at the U.S./Mexico border is exploding in Eagle Pass, Texas. Mayor Rolando Salinas Jr. declared a state of emergency in the city of about 28,000 people, as thousands of migrants are entering daily, overwhelming the resources of federal border agents and the community's only shelter. Meanwhile, a Mexican railroad suspended services because of the migrant surge.

— Calendar of events today include:

Friday, Sept. 22

  • Federal Reserve. Fed Governor Lisa Cook delivers keynote remarks at the National Bureau of Economic Research's Fall 2023 Economics of Artificial Intelligence Conference.

  • Geoeconomics. Atlantic Council 2023 Transatlantic Forum on GeoEconomics on the use of tools of economic statecraft.

  • Ohio train derailment. House Energy and Commerce Environment, Manufacturing, and Critical Materials Subcommittee field hearing on "Life After the Train Derailment: Ensuring Transparency and Accountability for the People of East Palestine."

  • Semiconductor supply chains. Brookings Institution discussion on "Strengthening U.S. Semiconductor Supply Chain Resilience."
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.