Latest market-sensitive news and views - Sept. 27
(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)
Amazon | Russia short of fuel? | Bank deposits
Today's Digital Newspaper
— Equities today: Asian and European stocks were mixed to firmer overnight. U.S. Dow opened up around 60 points higher and then turned slightly lower. Investors are concerned about the Fed's interest rate policy and the prospect of a government shutdown. All eyes are on the House, after the Senate reached a stopgap spending deal yesterday. In Asia, Japan +0.2%. Hong Kong +0.8%. China +0.2%. India +0.3%. In Europe, at midday, London -0.2%. Paris flat. Frankfurt -0.2%.
U.S. equities yesterday: All three major indices ended with sharp losses Tuesday. The Dow fell 388.00 points, 1.14%, at 33,618.88. The Nasdaq lost 207.71 points, 1.57%, at 13,063.61. The S&P 500 was down 63.91 points, 1.47%, at 4,273.53.
— The Federal Trade Commission (FTC) and 17 U.S. states have filed a lawsuit against Amazon, alleging that the e-commerce giant unlawfully exercises monopoly power in the online marketplace. The lawsuit claims that Amazon's practices artificially inflate prices, lock sellers into its platform, and harm its competitors. This legal action is seen as a significant step in the Biden administration's aggressive stance on enforcing antitrust laws. FTC Chair Lina Khan, a vocal Amazon critic, has faced challenges in persuading courts to adopt her antitrust perspectives, having previously lost cases involving Microsoft and Meta Platforms.
"The lawsuit is wrong on the facts and the law, and we look forward to making that case in court," Amazon said in a statement.
Bottom line: This is a landmark antitrust suit, as Amazon controls about 40% of the e-commerce market. It represents a pivotal moment for Khan and her agency's efforts in addressing monopolistic practices in the tech industry. Analysts say the case will hinge on how a market is defined. Amazon says it represents a tiny fraction of the retail sector if brick-and-mortar stores are included. But the FTC defines the market as "online superstores," a narrower category of e-commerce companies.
— Targeting theft. Target will shutter nine underperforming stores in the U.S. on Oct. 21 due to increased violence and organized retail crime at the locations. The store closures are expected to have a positive impact on margins. Retail theft has been on the rise in the U.S., climbing nearly 20% last year, according to the National Retail Federation. The top five areas that were affected were Los Angeles, San Francisco/Oakland, Houston, New York and Seattle. Other retailers such as Dick's Sporting, Lowe's and Macy's have also pointed to a rise in crime as a factor in reduced earnings and expect the trend to continue.
— Quotes of note:
— What travelers need to know for early October plans if there is a gov't shutdown. Here is what travelers should know if a U.S. government shutdown begins on Oct. 1 and impacts their travel plans (based on a Wall Street Journal article):
Impact on Flights:
Customs and Border Protection:
U.S. Embassies and Consulates Overseas:
— Outside markets: The U.S. dollar index was firmer, with the euro and British pound weaker. The yield on the 10-year U.S. Treasury note was weaker, trading around $4.50%, with a negative tone in global government bond yields. Crude oil futures continued to strengthen ahead of U.S. gov't inventory data due later this morning, with U.S. crude around $91.90 per barrel and Brent around $93.50 per barrel. Gold and silver were seeing pressure ahead of Durable Goods data, with gold around $1,909 per troy ounce and silver around $23.02 per troy ounce.
— Canada initiates review of Bunge-Viterra merger amid concerns over competition. Canada's Ministry of Transport is launching a public interest assessment of the proposed merger between Bunge and Viterra, backed by Glencore. The review is set to be completed by June 2, 2024, as announced by Ministry of Transport Pablo Rodriguez. Both Bunge and Viterra have ownership interests in port terminals across Canada, making competition in the transportation sector a vital consideration. Rodriguez emphasized the importance of healthy competition in ensuring fair pricing and access for users, particularly Canadian farmers. Besides the Ministry of Transport's review, Canada's Competition Bureau is also evaluating the merger, which, if approved, would result in the creation of an agricultural company valued at approximately $34 billion. The reviews aim to address potential competition concerns in the agricultural sector.
CONTINUING RESOLUTION (CR) & POSSIBLE GOV'T SHUTDOWN
— Senate's bipartisan stopgap funding bill, which cleared a procedural vote last night, 77-19, would keep federal agencies open until Nov. 17. The White House-endorsed bill includes around $6 billion in new economic and military aid for Ukraine, plus another $6 billion for disaster relief. There is no border security money, nor spending cuts that some House GOP lawmakers have been incessantly demanding. However, Sen. Rand Paul (R-Ky.) says he won't give consent for speedy passage of the continuing resolution (CR). That means the Senate could potentially vote on final passage of the CR as late as Sunday, which is after government funding expires.
More on Ukraine funding: The Senate's nearly seven-week CR provides a fraction of what President Joe Biden sought for Ukraine in the remainder of 2023. The Senate allocates $4.49 billion for the Defense Department's effort in Ukraine, alongside $1.65 billion in additional aid for the war-torn country, money that will remain available until Sept. 30, 2025. Combined, the more than $6 billion is far less than the White House's request for $20.6 billion in Ukraine funding. But if the plan becomes law, Congress will almost certainly pursue additional money for Ukraine later this fall.
In the House, Speaker Kevin McCarthy (R-Calif.) aims to amend the Senate's CR with HR 2, a bill related to border security from the House of Representatives. In brief:
The White House in a statement Tuesday night came out in support of the Senate-led proposal and urged House Republicans to stick to the parameters of a spending deal McCarthy and President Joe Biden reached earlier this year to avoid a default on the nation's debt. The Senate has marked up its full-year funding bills to match that agreement, while House Republicans have marked up theirs to much more conservative spending figures to appease demands from the renegade Republicans.
Bottom line: McCarthy faces key challenges among House Republicans as they seek to influence the content of the Senate's CR and shape the narrative around key issues like border security, spending cuts, and aid to Ukraine. McCarthy said funding for Ukraine should be dealt with in a supplemental request and not tacked onto a stopgap bill. "I don't quite understand, when you have all these people across the country talking about the challenges happening in America today, that people would go and say, ‘Oh, we need to do Ukraine and ignore what's happening along our border,'" he said.
If McCarthy is unable to pass a stopgap with just Republican votes, passing the Senate's bill appears to be the only way for him to avoid a gov't shutdown Oct. 1, or at least keep it brief.
— The House Tuesday evening cleared a rule allowed four spending measures to proceed to debate, though that does not guarantee eventual passage on any. The four bills would fund the Departments of State, Homeland Security, Defense, and Agriculture. The vote was 216-212, with several Republicans changing their votes to "yea" from previous attempts in appreciation for GOP leaders' work to get the individual spending bills moving again. They include Arizona Reps. Andy Biggs and Eli Crane, Matt Rosendale of Montana and Dan Bishop of North Carolina. Rep. Marjorie Taylor Greene (R-Ga.) was the sole GOP "nay" vote, largely in protest over the underlying Defense and State-Foreign Operations bills' inclusion of money for Ukraine.
Key ahead: amendments, and several of them would impact ag and food policy. But the bill is going nowhere in the Senate.
— Poland and Ukraine make progress in grain import dispute resolution talks. Poland and Ukraine are making strides in their discussions to resolve the ongoing disagreement regarding Poland's ban on Ukrainian grain imports. Polish Agriculture Minister Robert Telus stated that both sides are actively engaged in dialogue and are working to establish future mechanisms while addressing emotional aspects of the dispute. The Ukrainian Agriculture Ministry has announced that its chief, Muykola Solsky, will meet with Minister Telus in a week to discuss Ukraine's proposed license system, which aims to implement import licenses for corn, rapeseed, sunflower seed, and wheat destined for five East European countries within the European Union (EU). Additionally, Poland's Minister Telus has urged Ukraine to withdraw its complaint filed at the World Trade Organization (WTO), where Ukraine initiated a dispute settlement process against bans imposed by Poland, Hungary, and Slovakia.
— WSJ: Kremlin grapples with fuel shortages and oil company tensions as Russia faces domestic crisis. Russia, a major global oil exporter, is confronting a sudden shortage of fuel within its borders, sparking tensions between the Kremlin and the country's oil companies. This crisis has even resulted in the removal of executives from state controlled Rosneft Oil. The situation escalated when surging fuel prices, particularly in key agricultural regions, compelled the Russian government to prohibit the export of diesel and gasoline earlier this month. While this move alleviated pressures on Russian businesses, it also contributed to elevated diesel prices worldwide, potentially exacerbating the ongoing energy-price surge. Wall Street Journal.
— China's industrial profits surge 17.2% in August, signaling economic stabilization after months of decline. Official data reveals that China's industrial profits experienced a 17.2% year-on-year increase in August, marking the fastest growth rate seen in over a year. This positive shift comes after five consecutive months of year-on-year declines in industrial profits. While these figures indicate a potential stabilization of China's economy, experts caution that a full recovery from its recent economic challenges is likely to be both arduous and protracted.
— China increases minimum wheat purchase price for 2024. China announced an increase in the minimum purchase price for third-grade wheat to 2,360 yuan ($323) per metric ton for the 2024 supply. This marks a slight uptick from the 2023 price of 2,340 yuan per metric ton. The National Development and Reform Commission (NDRC) revealed that a maximum of 37 million metric tons will be procured at this new minimum price.
— U.S. Ambassador's visit to Gwadar port raises geopolitical questions amid China-Pakistan Economic Corridor (CPEC) tensions. Donald Blome, the U.S. ambassador to Pakistan, recently made a visit to the Pakistani port of Gwadar, a key element of China's Belt and Road Initiative and the $50 billion China-Pakistan Economic Corridor (CPEC). This visit marked the first time a U.S. diplomat had visited Gwadar in two years. Gwadar hosts a Chinese-built and operated deep-sea port, playing a central role in CPEC. However, tensions have arisen due to Pakistan's financial challenges, resulting in delayed payments to China under the CPEC agreements. Reportedly, Islamabad is in negotiations with Beijing to reduce the costs associated with a railway project.
Bottom line: Pakistan appears to be seeking leverage in its forthcoming negotiations with China concerning CPEC projects. The visit by Ambassador Blome is seen as part of Pakistan's diplomatic strategy, attempting to maintain a delicate balance between the interests of both the United States and China in the region.
— PBOC adviser: ‘No Japanification' for Chinese economy. China is expected to achieve economic growth of slightly more than 5% this year, an adviser to the central bank said. While some economists contend China's economic situation could be worse than Japan's lost decade of the 1990s, Wang Yiming, a member of the Monetary Policy Committee of the People's Bank of China (PBOC), said: "There is no Japanification in China, we are still in the medium-to-high growth stage." PBOC said it would step up policy adjustments and implement monetary policy in a "precise and forceful" manner to support an economy whose recovery was improving with "increasing momentum."
ENERGY & CLIMATE CHANGE
— Giant batteries provided vital support to U.S. power grid during summer heat waves. During the scorching summer months, the U.S. power grid found a crucial lifeline: giant batteries. Battery storage, although a relatively small component of the overall electrical-power mix, played a significant role in supporting the grid during heat waves, the Wall Street Journal reports (link). These batteries stepped in to fill the gap after sunset when solar generation decreased, ensuring a stable power supply as air conditioners continued to run.
POLITICS & ELECTIONS
— Supreme Court rejected Alabama's proposed congressional map that would only include one majority-Black district. The U.S. Supreme Court has declined to block the enforcement of an Alabama voting rights decision issued earlier this year. In June, the court ruled that Alabama's Republican-drawn congressional map violated the Voting Rights Act by creating only one congressional district where Black voters were a majority or close to it. The lower court then ordered the creation of a second majority Black district, but when the GOP-led legislature failed to comply and instead increased the number of Black voters in one district, the lower court appointed a special master to draw a new map with two majority Black districts. Alabama appealed to the Supreme Court to postpone the new map's creation, but the justices refused, reinforcing the importance of the Voting Rights Act in preventing the dilution of Black voting power.
Bottom line: David Wasserman of the Cook Political Report with Amy Walter, says this "ensures that one of the three maps proposed by a court-appointed special master (all of which feature a second Black majority seat) will be adopted for 2024, netting Dems a seat."
Of note: In several Southern states, such as Georgia, Louisiana, and Florida, legal battles are ongoing in the courts regarding their congressional district maps. Federal judges have determined that these maps also violated the law by disenfranchising Black voters. However, these court cases have been protracted, and there's a possibility that the upcoming congressional elections scheduled for next year may be conducted in these states using maps that a court has declared as illegally disenfranchising voters of color.
— EPA administrator faces congressional inquiry into agency's science and technology utilization and integrity. In a House Science, Space, and Technology Committee hearing today, EPA Administrator Michael Regan will be under scrutiny for the agency's approach to utilizing science and technology in decision-making processes. The inquiry will also delve into the EPA's commitment to scientific integrity and its measures to ensure access to the highest quality scientific information, as detailed in the panel's hearing charter.
OTHER ITEMS OF NOTE
— Travis King: North Korea expels U.S. soldier who crossed demilitarized zone. North Korea has announced its decision to expel U.S. Army Private Travis King, who had crossed into North Korea from South Korea in July while touring the joint security area. According to state media KCNA, the decision to expel King was made by "the relevant organ of the DPRK" under the country's laws, and the investigation into his actions has concluded. North Korea claims that King confessed to illegally entering its territory due to dissatisfaction with alleged inhuman maltreatment and racial discrimination within the U.S. army, as well as disillusionment with what he perceived as an unequal U.S. society, a statement that is not yet confirmed by others outside North Korea, including King himself. The report does not provide details on when, where, or how King will be expelled from North Korea.