Biden: Gas Price Pain Means Less Reliant on Fossil Fuels When This is Over

Biden officials try to sell Indo/Pacific framework to a not-so-convinced U.S. public

President Joe Biden said leaders are navigating “a dark hour in our shared history” due to Russia’s war in Ukraine, adding President Vladimir Putin’s invasion appears to be aimed at obliterating the culture of his neighbor.

A Russian diplomat in Geneva quit over Moscow’s conduct in a rare protest by a public official. And a court in Kyiv sentenced a Russian soldier to life in prison for murdering a Ukrainian civilian, ending the first war-crimes trial stemming from the invasion.

Ukraine and the global food crisis are the topics of a new report by Eurasia Group and the food security consultancy Gro Intelligence. Details in Russia/Ukraine section.

The European Central Bank, dealing with record inflation and mounting concerns about the weak euro, is likely to end its negative-rate experiment by September, President Christine Lagarde said. The euro gained against the dollar Monday.

Europe’s economy slowed in May and flagging factory orders point to further weakening over coming months, according to business surveys released Tuesday.

Egypt’s bread crisis awakens old fears of political unrest. The WSJ notes that in a country where political discontent often follows jumps in food prices, the potential for bread shortages is among the country’s most urgent security challenges since the 2013 coup that installed President Abdel Fattah Al Sisi.

U.S. births increased in 2021 for the first time in seven years, a sign the pandemic baby bust was less than expected.

On the energy front, we have more impact assessment (not much) from the likely tapping of a diesel reserve, a Reuters report noting the White House is considering waiving smog rules on gasoline (no impact expected for ethanol consumption) and one J.P. Morgan analyst predicting gas prices could reach $6.20 per gallon by August. But the real informative energy item comes from the Wall Street Journal answering the question: If gas prices are so high, why aren’t shale drillers pumping more oil?

Another energy nugget comes from President Biden who celebrated record-high gas prices Monday, gushing that the pump pain was part of “an incredible transition” of the U.S. economy away from fossil fuels. “[When] it comes to the gas prices, we’re going through an incredible transition that is taking place that, God willing, when it’s over, we’ll be stronger and the world will be stronger and less reliant on fossil fuels when this is over,” Biden said during a press conference in Japan following his meeting with Prime Minister Fumio Kishida.

On the policy front, centrist Sen. Joe Manchin (D-W.Va.) said a party-line climate and social spending bill is still in play, focusing on domestic energy production, drug costs and corporate taxes.

On the trade policy front, Biden officials insist one should not call the Indo/Pacific framework a trade agreement. Reason: no market access or other traditional trade accord features.

Federal Reserve officials are weighing a future rate policy shift… what would a day be like without several Fed officials coming on rate strategy ahead.

Georgia, Texas, Alabama and Arkansas hold Republican primaries today. The Georgia races between Gov. Brian Kemp and former Sen. David Perdue and between Secretary of State Brad Raffensperger and Rep. Jody Hice are tests of former President Donald Trump’s political strength within the GOP.

The U.S. is releasing monkeypox vaccines from its national stockpile. U.S. health officials sought to reassure the public that the risk of monkeypox is low and the country is prepared to handle its spread, though they acknowledged more cases are likely.

Equities today: Global stock markets were mostly lower overnight. U.S. stock indexes are pointed toward lower openings. Asian equities were broadly lower as investor concerns on inflation weighed. The Nikkei fell 253.38 points, 0.94%, at 26,748.14. The Hang Seng Index declined 357.96 points, 1.75%, at 20,112.10.

U.S. equities yesterday: The Dow closed up 618.34 points, 1.98%, at 31,880.24. The Nasdaq gained 180.66 points, 1.59%, at 11,535.27. The S&P 500 rose 72.39 points, 1.86%, at 3,973.75.

Agriculture markets yesterday:

• Corn: July corn gained 7 1/2 cents to $7.86 1/4. December corn rose 7 cents to $7.39.
• Soy complex: July soybeans fell 18 1/4 cents to $16.87, after posting a four-week high at $17.20 earlier. July soymeal fell $7.40 to $422.50. July soyoil fell 46 points to 80.47 cents.
• Wheat: July SRW wheat rose 21 1/4 cents to $11.90. July HRW wheat rose 23 3/4 cents to $12.76 1/2. July spring wheat futures rose 19 1/2 cents to $12.98 1/2.
• Cotton: July cotton rose 48 points to 142.75 cents per pound. December futures rose 80 points to 125.98 cents.
• Cattle: August live cattle rose $1.425 to $132.975, up from an early drop to a 6 1/2-month low and the contract’s highest closing price since May 17. August feeder cattle rose $1.70 to $165.625.
• Hogs: June lean hog futures rose $1.50 at $110.375, while July hogs rose $1.85 at $110.85, a three-week closing high. The CME lean hog index rose 80 cents to $101.17 (as of May 19), the third straight daily gain and near a two-week high.
  

Ag markets today: Spring wheat futures led gains in the wheat markets overnight as planting progress fell shy of expectations. Soybeans firmed, while corn traded slightly lower overnight. As of 7:30 a.m. ET, corn futures were trading fractionally to 2 cents lower, soybeans were 1 to 5 cents higher, SRW wheat was 10 to 12 cents higher, HRW wheat was 5 to 6 cents higher and spring wheat was 16 to 18 cents higher. Front-month crude oil futures were around 35 cents higher and the U.S. dollar index was trading just below unchanged.

Technical viewpoints from Jim Wyckoff:

On tap today:

• S&P Global’s U.S. manufacturing index, due at 9:45 a.m. ET, is expected to fall to 57.4 in the opening weeks of May from 59.2 in April. The services index is forecast to decrease to 55.0 from 55.6.
• U.S. new-home sales, due at 10 a.m. ET, are expected to fall to an annual pace of 750,000 in April from 763,000 one month earlier.
• Richmond Fed’s manufacturing survey, due at 10 a.m. ET, is expected to fall to 9.5 in May from 14 one month earlier.
• Federal Reserve Chairman Jerome Powell delivers welcoming remarks at a National Center for American Indian Enterprise Development conference at 12:20 p.m. ET.
• Food supply chain: The House Select Committee on the Climate Crisis holds a hearing on building a resilient and affordable food supply chain.

Eurozone economic growth remained robust in May despite headwinds associated with the Ukraine war, Covid-19 pandemic supply constraints and the rising cost of living, S&P Global said. The eurozone composite purchasing managers index edged down to 54.9 in May from 55.8 in April, according to the preliminary reading.

Federal Reserve officials are weighing a future rate policy shift. Federal Reserve Bank of St. Louis President James Bullard said that while he sees no reason to slow down rate increases now, it is possible the central bank may be able to pull back on some of its rate rises in the future.

Federal Reserve Bank of Atlanta President Raphael Bostic said policy makers could potentially pause interest-rate increases in September after hiking by a half point at each of their next two meetings. The Fed within days will release minutes of its latest monetary policy deliberations, potentially shedding more light on increasingly aggressive tightening.

U.S. economy needs supply-side interventions rather than interest-rate hikes by the Federal Reserve that will fail to bring inflation under control, said Nobel laureate economist Joe Stiglitz. “Raising interest rates is not going to solve the problem of inflation,” the Columbia University professor said. “It’s going to make it more difficult because you aren’t going be able to make the investments.”

Rise in concentration among U.S. industries is making it easier for some companies to pass cost increases along to customers in the form of higher prices, a factor that is adding to inflationary pressures, according to a new paper (link) released on Monday by the Federal Reserve Bank of Boston. Industry concentration increased by about 50% from 2005 to 2020 and some sectors became even more concentrated during the pandemic, which led businesses to make structural changes, according to findings cited in the report. “Our results suggest that the recent rise in concentration is an amplifying factor for the pass-through of current cost shocks emanating from supply shortages, energy price shocks, and labor market tightness,” wrote Boston Fed economists Falk Bräuning, José Fillat and Gustavo Joaquim.

U.S. births increased last year for the first time in seven years, according to federal figures released Tuesday that offer the latest indication the pandemic baby bust was smaller than expected. American women had about 3.66 million babies in 2021, up 1% from the prior year, according to the Centers for Disease Control and Prevention (CDC). It was the first increase since 2014. The U.S. recorded about 198,000 more births than deaths in 2021, according to provisional CDC death data. If that level holds when final data are released, it will be narrower than the 230,000 surplus of births over deaths in 2020.

Average age of vehicles on U.S. roadways edged higher in 2021, hitting a record of 12.2 years, as Americans challenged by high car prices and slim pickings on dealer lots held on to cars longer.

Market perspectives:

• Outside markets: The U.S. dollar index is sharply weaker and hit a four-week low in early trading. The yield on the 10-year U.S. Treasury note is fetching 2.797%. Nymex crude oil futures prices are slightly higher and trading around $110.50 a barrel. West Texas Intermediate crude was little changed. Gold futures rose 0.5% to $1,863.70 an ounce.

• Turkish lira dropped by 0.7% against the dollar to its lowest level since the currency crisis in December last year, when it hit an all-time low. Inflation in Turkey is rising at its fastest pace in two decades fueling further concerns over the country’s loose monetary policy.

• U.S. average retail prices for ultra-low-sulfur diesel rose more than 37% in just 10 weeks after Russia’s invasion of Ukraine, setting a new nominal record of $5.62 a gallon in the week ended May 9, according to the U.S. Energy Information Administration. The Biden administration is considering a release of diesel fuel from federal reserves to address surging prices and the threat of supply outages on the East Coast. Officials have drafted an emergency declaration as prices have soared to record highs in recent weeks, White House spokeswoman Emilie Simons said on Twitter on Monday. Such a declaration would allow for the quick release of some of the 1 million barrels of diesel in the Northeast Home Heating Oil Reserve “if necessary,” she said. While the reserve only contains about one day’s supply, and might not substantially reduce diesel prices, it could prevent spot outages of the fuel, an official said. Diesel has outpaced gasoline prices because of refinery closings and because Russia was such a big supplier of refined fuels into Europe, causing ripple effects world-wide.

• Gas prices are at record highs — a dollar more than one year ago — and one J.P. Morgan analyst predicted prices could reach $6.20 per gallon by August.

• If gas prices are so high, why aren’t shale drillers pumping more oil? The Wall Street Journal notes one reason: Their executives are no longer paid to. After years of losses, investors demanded changes to how bonuses are formulated, pushing for more emphasis on profitability. Now, executives who were paid to pump are rewarded more for keeping costs down and returning cash to shareholders. The focus on profitability over growth helps explain drillers’ muted response to the highest prices for oil and natural gas in more than a decade.

• Indonesia official signals no plan to reduce palm oil in biodiesel. Indonesia is not considering lowering the percentage of palm oil in biodiesel below the current 30%, Indonesian Minister for Economic Affairs Airlangga Hartarto told Reuters in an interview in Davos, Switzerland. “With palm oil, we reduce our dependency on oil. And if now we compare the price of palm oil and the price of energy, you have to (subsidize) more to energy. So, the issue will be energy security,” Hartarto stated. pay[s] the delta (difference) between the energy price and affordable price.”

• Californians could face mandatory statewide water restrictions this summer unless residents and businesses scale back on their water use, Gov. Gavin Newsom said. California is stretching into its third year of drought and the state’s reservoirs are dropping to critically low levels. In July 2021, Newsom announced a drought emergency, calling on residents and businesses to voluntarily cut their water usage by 15%. Yet in March, not only had the target not been met, but urban water usage rose by 19% from March 2020, according to the State Water Resources Control Board. Meanwhile, with drought throughout much of the U.S. West, the Forest Service will temporarily stop its use of prescribed burns and conduct a 90-day review of the practice, said Chief Randy Moore.

• NWS weather: Heavy rain, flash flooding, and severe weather possible from the Southern Plains into the Lower Mississippi Valley and Mid-South... ...A fire weather threat to continue across portions of the Southwest and northern California... ...Record highs possible in portions of California.

Items in Pro Farmer’s First Thing Today include:

• Followthrough buying in wheat
• Consultant trims U.S. corn acres
• HRW, SRW CCI rating improve
• Firm sharply increases Ukraine grain production forecast
• Bearish meat demand implications in Cold Storage Report
• Cash cattle trade starts early
• Hog futures, cash index build on recent gains

— Summary: Ukrainian officials reported Russian aerial strikes in east-central Ukraine and heavy fighting in the eastern Donetsk region, where Russian forces are trying to advance. New satellite images also appear to show Russian ships loading up with what is believed to be stolen Ukrainian grain. Ukraine’s President Volodymyr Zelenskyy has accused Russia of “gradually stealing” Ukrainian food products and trying to sell them.

• European Union is “within days” of agreeing on an embargo on Russian oil, according to Germany’s economy minister. Robert Habeck, however, warned that the action would not immediately weaken the Kremlin because of the elevated price of the fuel. He also said the EU was working with the U.S. on an “unusual measure” to cap global oil prices.
• Ukraine has deployed the first American heavy artillery in battle. The arrival of American-made M777 howitzers has buoyed Ukraine’s hopes of achieving artillery superiority at least in some frontline areas.
• Boris Bondarev, a Russian diplomat at the U.N., became the most prominent Russian official to resign and publicly criticize the war in Ukraine. “For 20 years of my diplomatic career I have seen different turns of our foreign policy but never have I been so ashamed of my country as on Feb. 24 of this year,” he said in an email to colleagues, referring to the date of Russia’s invasion of its neighbor. Bondarev wrote: “Those who conceived this war want only one thing — to remain in power forever, live in pompous tasteless palaces, sail on yachts comparable in tonnage and cost to the entire Russian Navy, enjoying unlimited power and complete impunity. To achieve that they are willing to sacrifice as many lives as it takes.”
• Ukrainian President Volodymyr Zelenskyy implored global leaders and the international community at the World Economic Forum in Davos to withdraw their business engagements from Russia and support efforts to reconstruct Ukraine—including by seizing Russian assets abroad—as the war passes its 90th day. “I invite you to take part in this reconstruction,” he said in a video. “The work to be done is colossal.”
• Biden and Indian Prime Minister Narendra Modi discussed efforts to combat the rise in energy and food prices caused by Russia’s invasion of Ukraine, according to the White House. In a statement following the leaders’ bilateral meeting in Tokyo on Tuesday, the White House said Biden “condemned Russia’s unjustifiable war against Ukraine,” notably not saying whether Modi did the same.
  

— Market impacts:

• Egypt’s bread crisis awakens old fears of political unrest. Long the world’s top importer of wheat, Egypt has been hammered by Russia’s invasion of Ukraine, which has disrupted wheat supplies from both countries. The pair previously supplied more than 80% of Egypt’s imports. In a country where political discontent often follows spikes in food prices, the WSJ reports (link) the potential for bread shortages is among the most urgent security challenges the Egyptian state has faced since the 2013 coup that installed President Abdel Fattah Al Sisi in power.

• Ukraine and the global food crisis. A new report by Eurasia Group and the food security consultancy Gro Intelligence (link) says the most likely outcome of the war isn’t a massive escalation by Russia or a sudden outburst of doves crying for peace on both sides — but rather a more uncertain, protracted stalemate. After fierce fighting, this would mean that the Donbas and parts of southern Ukraine settle into “frozen conflicts,” sanctions remain in place, and no durable resolution appears. That outcome will have devastating impacts globally, the report says, with little prospect of restoring Ukraine’s farming capacity or export routes, while sanctions and Kremlin countermeasures continue to push up the prices of Russian fertilizer and energy. Under this scenario, the report says:
• More than 280 million people will be plunged into food insecurity this year.
• Those facing extreme poverty will rise by 200 million.
• Those on the edge of starvation will rise by 7 million.

— Manchin outlines fiscal priorities. Centrist Sen. Joe Manchin (D-W.Va.), a key Democrat who opposed his party’s “Build Back Better” economic agenda, at a World Economic Forum panel Monday said Democrats could still roll back parts of the Republican 2017 tax cuts bill, pass drug pricing legislation, and pass an energy and climate measure as part of a reconciliation package. Manchin said opposition to the Republican tax law is a unifying force among Democrats.

— Federal Reserve Chair Jerome Powell was sworn in for a second term at the helm of the U.S. central bank on Monday. Lael Brainard took an oath of office as vice chair, while Lisa Cook and Philip Jefferson were sworn in as governors, the Fed said in a statement. With four of his five Fed picks now installed, Michael Barr, President Biden’s nomination as vice chair for supervision, still awaits Senate confirmation.

— President Biden now has a track record of misspeaking on Taiwan when responding to reporters, which has raised questions over whether he has been hinting at a new policy or simply bungling details.

— Airbnb will stop offering rental homes in China, partly because of the country’s “zero-covid” policy. The company had been struggling there even before the pandemic. It will instead focus on catering to Chinese residents travelling abroad.

— Biden comments on U.S. tariffs imposed on China. President Joe Biden in Tokyo Monday said his administration is considering whether to reduce tariffs on goods imported from China. “I am considering it,” he said. “We did not impose any of those tariffs. They were imposed by the last administration and they’re under consideration.” Biden indicated he would be discussing the matter with Treasury Secretary Janet Yellen. U.S. Trade Representative Katherine Tai is reportedly against lifting the tariffs, thinking it would lessen any leverage on China’s trade policy. Tai said that the U.S. must be “strategic” when it comes to a decision on whether to remove tariffs on China. “With respect to the tariffs, our approach as with everything in this relationship, is to be strategic,” Tai told Bloomberg. “We have to keep our eye on the ball in terms of how to effectively realign the U.S./China trade and economic relationship.”

Bottom line: Most economists believe cutting tariffs would provide a negligible benefit in reducing inflation. Supply chain shortages in China, some due to its Covid lockdown policies, reinforce this fact.

— Biden’s Indo/Pacific trade policy framework: Is that all there is? “What countries in Asia want is precisely what Biden cannot give: greater access to the U.S. market,” said Neil Thomas, a China analyst at the political risk consulting firm Eurasia Group. The framework targets cooperation on global issues such as supply chains, clean energy and digital rules but does not include plans to negotiate lower tariffs or broad steps to clear away barriers to market access. U.S. officials said the framework is a new approach that moves beyond traditional trade deals. Still, it will be a challenge for the group to coexist with the CPTPP, which includes Japan and several Southeast Asian nations. Link to White House fact sheet.

USTR Tai tries to sell the U.S. ag sector. “We will see commitments with IPEF partners that facilitate agricultural trade through science-based decision making and the adoption of sound, transparent regulatory practices,” U.S. Trade Representative Katherine Tai told reporters. “This will help our farmers, our ranchers and our fishers gain certainty for getting their products to the region.”

National security adviser Jake Sullivan said IPEF “is not a traditional free trade agreement” because it focused on transformations taking place in clean energy and the digital and technology sectors as well as fortifying nations to cope with fragile supply chains and fighting corruption. “It’s designed as a more innovative and flexible approach, designed to reflect the fact that our economies have changed,” said Commerce Secretary Gina Raimondo.

— White House mulls waiving smog rules on gasoline. The White House is considering waiving U.S. gasoline environmental rules aimed at reducing summertime smog, hoping the waiver will combat rising pump prices, Reuters reported (link), citing three sources involved in the discussions. Retailers are required to sell summer-blend gas from June 1 to Sept. 15. In the past, the U.S. government has waived those requirements regionally or nationally to deal with hurricanes or other supply issues. The Biden administration has already lifted the restriction on summer sales of E15. The waiver under consideration would apply to all grades of gasoline, the sources said.

Comments: The Reuters report indicates the blending items are things like butane and that such a move to waive the smog rules would apply to all grades of gasoline and does not signal any impact for ethanol. “These pollutants have severe impacts on public health and would likely exacerbate the inequity in air quality that BIPOC communities already bear,” activist green groups including Friends of the Earth, National Wildlife Federation and Sierra Club, wrote to EPA Administrator Michael Regan on Monday. The “potential savings from this measure are limited, while the climate impacts are irreversible. Solutions to oil price hikes lie elsewhere.”

— Democrats float $500 rebate to combat gas prices. Americans would receive a $500 cash rebate under legislation being introduced today by Democratic Reps. Sean Casten (Ill.), Don McEachin (Va.) and Earl Blumenauer (Ore.) that would be paid for by eliminating tax subsidies for the fossil fuel industry. The measure would eliminate 11 tax breaks for oil and gas companies, including for marginal wells and enhanced oil recovery. This bill comes after the House passed a bill last week that would give the Federal Trade Commission sharper teeth in preventing alleged gas price gouging by oil companies. The price gouging bill has hardly any chance of success in the Senate, where the Commerce Committee has a mark up on its own version of the price gouging bill Wednesday.

— Governments around the world need to do more to spur faster growth in electric vehicles, according to the International Energy Agency. “Electric-car sales continue to break records, but mineral supply constraints are looming,” the IEA said in its latest EV outlook. “Much more needs to be done to support charging infrastructure and heavy-duty vehicles.” The agency suggested officials ease bottlenecks for battery materials, enhance support for EV purchases and take action to kickstart the market for heavy-duty electric vehicles. Such efforts may help reach their goal of a 350 million global EV fleet. As it stands now, EVs aren’t selling fast enough for the world to have a realistic chance of avoiding the worst impacts of climate change, the group said Monday.

— North Korean state media reported that the Covid-19 outbreak in the country was “stable” and that no new “fever” deaths were reported as of Monday evening. North Korea has not released the number of confirmed cases of covid and instead reports the number of people with fever symptoms — thought to be due to a lack of testing supplies. Analysts have expressed doubts over the figures.

— Primary elections are being held in Alabama, Arkansas, Georgia and Texas today. In Georgia, former Vice President Mike Pence has been rallying support for Gov. Brian Kemp, the Republican incumbent, who is well ahead in the polls. Former President Donald Trump has endorsed Kemp’s primary opponent, former GOP Sen. David Perdue. On the Democratic side, Stacey Abrams is running unopposed, setting up a potential rematch with Kemp following a previous loss to him in 2018. Early voting has surged to record levels in the Georgia primary, with more than 800,000 ballots cast ahead of today’s contests.

Also in Georgia, three Democrats are challenging House Agriculture chairman David Scott for the party’s nomination in a suburban Atlanta congressional district. The challengers include former state Sen. Vincent Fort, who says the district needs someone who is a progressive, in contrast to Scott. In southwestern Georgia, six candidates seek the Republican endorsement to run against Rep. Sanford Bishop, a 15-term Democrat.

— A House ethics panel is investigating Rep. Madison Cawthorn (R-N.C.) for allegedly engaging in an improper relationship with a staffer and promoting a cryptocurrency in which he had an undisclosed interest.

It will also probe whether Rep. Ronny Jackson (R-Texas) illegally used campaign funds for personal expenses, after a nonpartisan ethics office said it has “substantial reason to believe” he did.

— Monkeypox: In response to a global outbreak of monkeypox cases, the U.S. is working to release a vaccine from the nation’s Strategic National Stockpile to combat the rare virus. There is one confirmed case of monkeypox and four suspected cases in the U.S., the CDC said. The confirmed case is in a man in Massachusetts, and the four other suspected cases are in men in New York, Florida and Utah. A leading adviser to the World Health Organization described the unprecedented outbreak of monkeypox in developed countries as “a random event” that might be explained by sexual behavior at two recent raves in Europe.

— New York City said goodbye to an icon yesterday, uprooting the last public pay phone in the city from its home on Seventh Ave. and West 50th St. It’s headed to the Museum of the City of New York to be part of an exhibit showing what the city was like before computers.