U.S. CPI report | Australia warns China | $300 mil. for carbon sequestration, GHG emissions
In Today’s Digital Newspaper
Abbreviated report today.
— Equities: Asian and European stock markets were mixed to firmer in overnight trading. U.S. stock indexes are pointed toward slightly higher openings. Key U.S. financial report is the consumer price index report for June this morning. Headline CPI is expected up 0.3% from May which saw an increase of 0.1%, while the core rate is seen rising 0.3% from May after a 0.4% boost that month. On an annualized basis, headline inflation is expected at 3.1%, down from 4% in May.
— Markets: The U.S. dollar index lower. Nymex crude oil prices are near steady and trading around $75.00 a barrel. The benchmark 10-year U.S. Treasury note yield is presently fetching 3.948%.
— $1.4 trillion deficit first 9 months of FY 2023. The Congressional Budget Office (CBO) estimates that the federal budget deficit for the first nine months of fiscal year (FY) 2023 reached $1.4 trillion. This represents an increase of $875 billion from the same period the previous year. This rise in deficit is attributed to an 11% decrease in revenues and a 10% increase in outlays from October to June, compared to the same timeframe in fiscal year 2022.
Payment timings played a role in affecting the deficit: payments due on weekends caused a net increase in outlays for fiscal year 2023 by $23 billion. Specifically, the deficit saw an increase in June 2023 due to July 1 being a Saturday. Without these timing shifts, the nine-month deficit would have been slightly lower at $1,367 billion instead of the recorded $1,390 billion.
— Chinese hackers intent on spying breached email accounts linked to government agencies in Western Europe, Microsoft said. The group, Storm-0558, was able to remain undetected for a month after gaining access to email data from around 25 organizations in mid-May.
— Today, the People's Liberation Army (PLA) of China reportedly dispatched 32 warplanes into sensitive regions surrounding Taiwan. This action marks the largest show of force since April, a period when Beijing similarly utilized large-scale military drills in the region. The previous drills were a response to the meeting between Taiwanese President Tsai Ing-wen and House Speaker Kevin McCarthy (R-Calif.), which Beijing did not approve of. The PLA often deploys jets near Taiwan, but the magnitude of today's sortie indicates that this move is likely intended to convey a political message to Taipei, particularly concerning its interactions with foreign officials.
— To counteract negative market commentary, China's financial regulator has urged banks to respond to a pessimistic research report on the country's economy by Goldman Sachs. China Merchants Bank Co. responded by issuing a statement on Friday, refuting the Goldman report. The bank accused the report of misleading investors and being illogical. Prior to this, the state-run Securities Times newspaper had also rebutted the report. This public objection to Goldman's research, which is somewhat uncommon, highlights the ongoing attempts by officials to combat negative investor sentiment related to China's markets and economy.
— Australia has issued a stern warning to China over its ongoing review of import tariffs on Australian barley. Despite having agreed to a 90-day review period in April, China has sought a one-month extension. If the delay prolongs further, Australia threatens to restart its dispute settlement case at the World Trade Organization (WTO). In a joint statement from Foreign Minister Penny Wong, and Trade Minister Don Farrell, the Australian ministers expressed their aspiration for the tariffs to be removed soon. They warned that, should these duties remain in effect beyond the four-month period, Australia would reignite the dispute at the WTO. This disagreement traces back to 2020, when China leveled an 80.5% import tariff on Australian barley imports for a five-year span. As a result, Australia decided to take their case to the WTO. The clear messaging from the Australian ministers suggests the country's determination to protect its interests and its readiness to resume the debate on a global level if required.
— The European Union (EU) and Australia hit a deadlock in their ongoing negotiations for a free-trade agreement, putting the future of such an accord in jeopardy. The central disagreement appears to revolve around access to the European market for certain Australian agricultural products, notably beef. These disagreements complicate efforts to consolidate crucial supply chains, potentially impeding trade between the two parties. As these contentious issues are yet to be resolved, the outcome of the free trade deal currently hangs in the balance.
— NATO leaders extended an equivocal invite to Ukraine to join the military alliance at a recent summit held in Vilnius, Lithuania. The alliance was not explicit on the timeline or methodology for this inclusion, terms championed by President Biden who asserts that Ukraine is not adequately prepared to join NATO. This statement, however, drew criticism from European countries nearest to Russia, who argue for more urgent backing. The position outlined by the 31 NATO member states emphasized that Ukraine would be welcomed “when allies agree and conditions are met." Included in this preparation are routine evaluations of Ukraine's progress aligning with NATO's standards for democracy and military integration. This vague commitment lacks the more confirming language sought by Volodymyr Zelenskyy, Ukraine's president. Zelensky critiqued this lack of decisive clarity amidst the implications of Russia's invasion, calling it "absurd." Later, he moderated his criticisms, expressing trust in NATO and its partners and voicing his desire for a stronger and more decisive alliance.
Of note: President Joe Biden will meet Volodymyr Zelenskyy and address the NATO summit in Vilnius today.
— President Biden and G7 leaders are set to declare a "substantial" aid package for Ukraine. This assistance is targeted at bolstering Ukraine's military capabilities and thus addressing the ongoing challenges faced by the country due to conflicts. The development was confirmed by a U.S. official at the NATO Summit in Lithuania.
— European Union policymakers are set to cast their votes on the debated Nature Restoration Law today. The legislation has become a point of contention for climate activists and critics alike. Activists and proponents of the law argue that nature restoration can go hand in hand with economic prosperity. The Meuse river project serves as a key example of how nature restoration can coexist with economic expansion. However, critics of the law believe that the EU's ambitious nature restoration goals are not feasible due to the fierce competition for land. They point out that it's unclear whether the EU can generate sufficient funds to compensate farmers who will end up losing their land due to this initiative. Link to more via Bloomberg.
— USDA will spend $300 million on enhancing the measurement, monitoring, reporting, and verification of greenhouse gas emissions and carbon sequestration within climate-smart agriculture and forestry. This decision aims to encourage more confidence and participation from the private sector. The funding for this venture will be sourced from the Inflation Reduction Act.
The program, part of a broader Federal Strategy for Greenhouse Gas Measurement and Monitoring within the agriculture and forestry sectors, will be open for public comment.
— Passport backlog noted. The House's State and Foreign Operations appropriations bill highlights the issue of an increasing backlog in passport requests. The committee is urging the Secretary of State to take immediate measures to mitigate this issue, such as temporarily increasing consular personnel to shorten waiting times. The report attributes this backlog to a sudden spike in demand for passports this year due to increased interest among Americans in traveling abroad. The committee not only stresses expediting the passport and visa process, but also directs the comptroller to research and develop solutions for the heavy workload related to passport processing times.
Another point of concern raised by the lawmakers pertains to the supply of passport stock. They specifically noted issues related to the transition to new passports and the need for electronic chips that necessitate a surplus of passport covers. Lawmakers are requesting a detailed report on the plan for the transition to new passports.
— Decreasing water levels on the Rhine, Europe's paramount river, pose risks of a supply chain crisis like last year and could result in increased transportation costs for firms dependent on the river for commerce. Water level measurements at Kaub, a crucial point west of Frankfurt, fell below 1 meter earlier this Wednesday for the first time since March, as reported by German government data compiled by Bloomberg. This figure is significantly lower than the usual seasonal average, and fuel barge transportation to certain areas of inland Europe has already been limited.
With a length of around 800 miles from its source in the Alps, the Rhine was used to carry approximately 170 million tons of commodities like oil products, coal, chemicals, metals, and iron ore in 2021. In August last year, the measured level at Kaub dropped below 40 centimeters, making barge navigation through the waypoint economically unfeasible for numerous vessels.
There is no immediate expectation of water levels dropping back to the shallow depths seen in 2022, yet the cost of shipping on the Rhine has been rising. The current price per ton for transporting fuel between the Netherlands and Karlsruhe, Germany, is notably higher than the five-year seasonal average. Maersk, the container behemoth, has alerted its customers to "low water surcharges" for Rhine shipments.
In terms of weather predictions, there's little relief expected, with Germany's national forecaster warning of "extreme heat stress on the Upper Rhine." As Europe grapples with repeated severe weather incidents due to climate change, this adds stress on infrastructure while the region is still bouncing back from an energy supply crisis. The strain on shipping contributes to the challenges faced by the area's industries which are already facing diminished global demand and difficulty in obtaining raw materials. The downturn in Germany's industrial production, disclosed in a recent report, may be further extended due to these challenges.
