Biden to Tap Final 15 Mil. Barrels of 180 Million SPR Release, but Could Go Further

Republican midterm prospects brighten | Putin declares martial law in four regions of Ukraine

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October 19, 2022 08:29 AM

Republican midterm prospects brighten | Putin declares martial law in four regions of Ukraine

In Today’s Digital Newspaper

Besides announcing the last 15 million barrels tranche from the 180 million barrels tapped from the Strategic Petroleum Reserve, the White House announced new details on its plan to replenish the emergency stockpile, which has the capacity to hold about 714 million barrels and contained 405.1 million barrels as of Oct. 14. The administration plans to initiate purchases when West Texas Intermediate crude prices are at or below $67 to $72 per barrel, according to a senior administration official.

Russia’s invasion is faltering in southern Ukraine, but missile strikes are taking a toll. Russia’s top military commander in Ukraine signaled Moscow’s hold on the southern city of Kherson was weakening, telling state television Tuesday that the priority in the south was preserving civilians and military personnel. The comments came as Russia launched a fresh volley of missiles at Ukraine’s critical infrastructure that Kyiv said has damaged nearly a third of the country’s power plants, raising concerns of countrywide blackouts.

Russian President Vladimir Putin declared martial law in the four regions of Ukraine that Moscow illegally annexed. Draft legislation indicates it may involve restrictions on travel and public gatherings, tighter censorship and broader authority for law enforcement agencies.

The U.K.’s annual rate of inflation returned to double digits in September, hitting 10.1% and cementing expectations of another rise in the Bank of England’s key interest rate.

There’s a “good chance that we have a recession in the United States,” Goldman Sachs CEO David Solomon said Tuesday, becoming the latest investment bank honcho to offer a gloomy economic outlook as inflation hovers at its highest level in more than 40 years.

Record high inflation translated to some big hikes in the Internal Revenue Service’s dozens of new inflation adjustments affecting individual income tax brackets, deductions and credits for 2023. Estate tax threshold increases to $12.92 million for 2023; double for spouse.

On the election front, analysts from both parties say Republicans are increasingly likely to gain well over the net five seats needed to retake the majority in the House, which they lost in 2018, while control of the 50-50 Senate could still fall to either party. Cook Political Report’s David Wasserman said two potential GOP pickups in the Senate could come in Nevada and Arizona, while the Democrats could garner a switch in Pennsylvania.

Election Day 2022 is 20 days away. Election Day 2024 is 748 days away.

MARKET FOCUS

Equities today: Global stock markets were mixed overnight, with Asian shares mostly weaker and European shares mostly firmer. U.S. stock indexes are pointed to slightly lower openings. Today brings earnings reports from IBM, Tesla, Procter & Gamble, Travelers, Citizens Financial, Abbott Laboratories, Northern Trust, Nestlé, Nasdaq, Baker Hughes, Ally Financial, ASML, Lam Research, Prologis, and Alcoa. In Asia, Japan +0.4%. Hong Kong -2.4%. China -1.2%. India +0.3%. In Europe, at midday, London +0.1%. Paris +0.6%. Frankfurt +0.2%.

U.S. equities yesterday: The Dow finished with a gain of 337.98 points, 1.12%, at 30,523.80. The Nasdaq roes 96.60 points, 0.90%, at 10,772,40. The S&P 500 was up 42.03 points, 1.14%, at 3,719.98.

Agriculture markets yesterday:

Corn: December corn fell 2 1/2 cents to $6.81, the contract’s lowest closing price since $6.75 1/2 on Oct. 6.
Soy complex: November soybeans fell 13 1/4 cents to $13.72, the contract’s lowest settlement since Oct. 7. December soymeal fell $9.20 to $401.80. December soyoil rose 190 points to 68.74 cents, the highest close since June 21.
Wheat: December SRW wheat fell 11 1/2 cents to $8.49 1/2, the contract’s lowest close since $8.30 1/2 on Sept. 19. December HRW wheat fell 7 1/2 cents to $9.44 1/2, a three-week low. December spring wheat rose 3/4 cent to $9.56.
Cotton: December cotton fell 80 points to 82.29 cents, the lowest settlement for a nearby contract since May 2021.
Cattle: December live cattle rose 57.5 cents to $149.775, the highest closing price since Sept. 21. November feeder cattle rose $1.425 at $177.825.
Hogs: December lean hogs surged $1.525 to $86.475, the contract’s highest close since Sept. 20.

Ag markets today: Soybean futures extended Tuesday’s losses overnight, while corn traded lower for a fourth straight day. Wheat futures rebounded from Tuesday’s losses. As of 7:30 a.m. ET, corn futures were trading 3 to 4 cents lower, soybeans were mostly 10 to 12 cents lower and wheat futures were mostly 4 to 6 cents higher. Front-month crude oil futures were around 75 cents higher and the U.S. dollar index was more than 750 points higher this morning.

Technical viewpoints from Jim Wyckoff:

On tap today:

• U.S. housing starts are expected to fall to an annual pace of 1.47 million in September from 1.575 million one month earlier. (8:30 a.m. ET)

• Federal Reserve releases its Beige Book report at 2 p.m. ET.

• Fed speakers: Minneapolis’s Neel Kashkari on the economic outlook at 1 p.m. ET, Chicago’s Charles Evans on the economic outlook at 6:30 p.m. ET, and St. Louis’s James Bullard gives opening remarks at a St. Louis Fed event at 6:30 p.m. ET.

The Fed can’t pause its campaign of monetary policy tightening once its benchmark interest rate reaches 4.5% to 4.75% if “underlying” inflation is still accelerating, Minneapolis Fed President Neel Kashkari said. “Core services inflation — which is the stickiest of all —keeps climbing, and we keep getting surprised on the upside,” Kashkari said Tuesday during a panel discussion hosted by the Women Corporate Directors Minnesota Chapter. Investors currently see a peak around 4.9% early next year, according to prices of futures contracts. The Minneapolis Fed chief, who before the pandemic was known as the Fed’s most outspoken dove, has emerged this year as its biggest hawk.

The Internal Revenue Service will allow Americans to shield more of their income from taxes in 2023, raising income thresholds for all tax brackets. The top tax rate of 37% will apply to individuals with income exceeding $578,125 and married couples filing jointly with income more than $693,750. Both of those amounts are up 7% from 2022 to track with increases in the consumer price index.

The standard deduction — the baseline amount of income that filers can collect tax free — will increase to $13,850 for individuals and $27,700 for married couples. It is the largest adjustment to deductions since 1985, when the IRS began annual automatic inflationary adjustments.

The U.K.’s annual rate of inflation returned to double digits in September, cementing expectations of another rise in the Bank of England’s key interest rate early next month. The Office for National Statistics said on Wednesday that consumer prices were 10.1% higher than a year earlier, a faster rate of inflation than the 9.9% recorded in August and back to July’s level, which was the highest in 40 years.

Market perspectives:

• Outside markets: The U.S. dollar index is stronger. The yield on the 10-year US Treasury note moved higher, trading at 4.1%. Crude oil futures were higher, after declining inventories reported by the American Petroleum Institute (API). U.S. crude was trading around $83.80 per barrel and brent around $90.50 per barrel. Gold and silver futures were registering losses, with gold under $1,639 per troy ounce and silver under $18.39 per troy ounce.

• Hurricane Ian caused as much as $1.56 billion in agricultural losses in Florida, with citrus, cattle, vegetable and melon farms among the hardest hit, the University of Florida said. Link for details via the Associated Press.
• Ag trade:
South Korea passed on a tender to buy up to 95,000 MT of optional origin feed wheat but purchased 30,000 MT of optional origin feed barley. Pakistan tendered to buy 500,000 MT of optional origin wheat. Iraq tendered for a nominal 50,000 MT of optional origin (excluding Russia) hard milling wheat. Japan received no offers to its tender to buy 70,000 MT of feed wheat and 40,000 MT of feed barley.

• NWS weather: Record breaking cold to impact the Southeast through Thursday; warm air in Northwest spreads into Great Plains... ...Freeze warnings and frost advisories are in effect from portions of the Southern/Central Plains to the Mid-Atlantic.

Items in Pro Farmer’s First Thing Today include:

• Followthrough selling in corn and beans, wheat rebounds
• Russia ag ministry proposes 25.5 MMT grain export quota
• Eurozone inflation revised down, but still record high
• China to sell more pork stocks
• All indications point toward notably higher cash cattle trade
• Hogs continue their charge higher

RUSSIA/UKRAINE

— Russia’s strikes on Ukrainian energy infrastructure have damaged nearly one-third of power stations and left 1,162 towns facing blackouts and power outages, officials said. To cope, many businesses have been forced to conserve energy while long queues have formed for fresh water supplies.

Russian President Vladimir Putin introduced martial law in the illegally annexed Ukrainian region. Martial law will be introduced in Donetsk, Luhansk, Kherson and Zaporizhzhia. Martial law is often introduced as a temporary measure when civil authorities are deemed to be in crisis and struggling to function.

Germany has dismissed Arne Schönbohm, the country’s top cybersecurity official, over his potential links to Russia; an investigation is now underway. Claims of Russian ties have “permanently damaged the necessary public trust in the neutrality and impartiality” of Schönbohm, although he is assumed to be innocent until the investigation concludes, said Britta Beylage-Haarmann, Germany’s Interior Ministry spokesperson.
Ukrainians are going home even as the war rages on. More than 6 million people who fled have since come back, with most returning from other parts of the country and around a fifth from abroad, according to U.N. estimates.
Russia faces a sharp and prolonged slump in its real income as international sanctions over President Vladimir Putin’s invasion of Ukraine leave deep scars on its economy, according to a study by two Chinese academics.
Russia ag ministry proposes 25.5 MMT grain export quota. Russia’s agriculture ministry has proposed setting the country’s grain export quota at 25.5 MMT from mid-February until the end of June, Interfax news agency reported. The quota is equal to the one proposed by the Russian Grain Union earlier this month, when it said such a level would be not restrictive to shipments. The ministry didn’t give a breakdown by commodity, though wheat would be the bulk of the quota.

ENERGY & CLIMATE CHANGE

— Biden administration to release another 15 million oil barrels from strategic reserve to be delivered in December. The White House is touting the release of 15 million barrels of oil from the country’s Strategic Petroleum Reserve (SPR) — expected to officially be announced by President Biden on Wednesday — as it faces election headwinds from high gasoline prices. The additional barrels are the final part of a 180-million-barrel release announced in March and does not constitute a further release. However, a White House fact sheet (link) listed the action as one that would “take additional action to strengthen energy security, address the supply crunch, and lower costs.”

The White House detailed a new strategy for eventually purchasing oil to replenish the stockpile. It said it would aim to do so when prices are at or below the $67 to $72 per barrel range. Currently, the U.S. benchmark for crude oil — a major factor in the price of gasoline — is around $84 per barrel.

Asked about the possibility of restricting fuel exports during a call with reporters, an administration official said they were keeping all of their options open but did not explicitly endorse or condemn the idea.

Biden has lashed out at energy companies that he said have not lowered prices at the pump as oil prices have gone down. An administration official who spoke to reporters on background ahead of Biden’s announcement said those corporations’ actions are “adding 60 cents to the average gallon of gas, and have kept pump prices higher than they would be otherwise.”

— Hyundai pleads case to ease U.S. rule on EVs, saying sales at risk. Hyundai Motor and the South Korean government are ratcheting up lobbying to loosen restrictions that sometimes centrist Sen. Joe Manchin (D-W.Va.) fought to include in this year’s U.S. climate law, arguing the rules could blunt the automaker’s rapid growth in the market. At issue is a requirement to limit a $7,500 consumer tax credit to electric vehicles built in North America, since Hyundai won’t have an EV plant there until 2025.

HEALTH UPDATE

— Summary:

Global Covid-19 cases at 625,797,965 with 6,570,892 deaths.
U.S. case count is at 97,023,298 with 1,065,841 deaths.
Johns Hopkins University Coronavirus Resource Center says there have been 627,854,963 doses administered, 265,111,489 have received at least one vaccine, or 81.47% of the U.S. population.

— The Biden administration has stopped paying to mail out free Covid-19 tests and expects to end free vaccines. The shift comes after Congress dropped billions of dollars for such efforts from a government funding bill last month, the Wall Street Journal reports. People familiar with the matter said the administration’s Covid-19 task force will remain in place ahead of an expected uptick in cases in the coming winter months.

POLITICS & ELECTIONS

— Record numbers vote first day in Georgia. According to Georgia Secretary of State Brad Raffensperger, more than 131,000 people cast ballots on Monday, the first day of early voting, up from 71,000 in 2018. Twin runoff elections in 2021 delivered the Senate to Democrats. Now it is once again in focus, with a potentially pivotal Senate race Dec. 6 between Democratic incumbent Raphael Warnock and former college football hero Herschel Walker that could decide which party controls the chamber. While citizens can vote early for parts of the next three weeks, polls must be closed on the final weekend before the campaign and on the day before Election Day in November.

Voters already are starting to cast ballots in three other swing states: More than 370,000 ballots have been cast in Michigan, nearly 237,000 in Pennsylvania and nearly 160,000 in Wisconsin.

— Cook Political Report with Amy Walter shifts ratings for three Senate races: The changes:

Florida: Lean R to Likely R
Washington: Solid D to Likely D
Iowa: Solid R to Likely R

— Data from the new Politico-Morning Consult poll that shows the national political landscape shifting more firmly toward the Republican Party. Twenty days out from Election Day, voters are overwhelmingly focused on the economy and inflation, Republicans are more trusted to handle those issues, and crime beats out abortion as a second-tier issue. In our poll, as in others, the GOP has also gained on the congressional ballot test.

— President Biden said he would fast-track a bill to codify abortion rights into law if Democrats fare well in the midterms. The president said that if Democrats maintain control of the House and the Senate, it would be the first bill he will push in the next Congress, with the goal of signing the bill around the 50th anniversary of the 1973 Roe v. Wade ruling

CONGRESS

— Biden seeks power from Congress to expedite Ukraine weapons. The Biden administration is pressing Congress for new authorities to speed up production and transfer of weapons for Ukraine and allies as part of the annual defense policy bill.

— Senate skeptics of Kroger-Albertsons merger announce hearing. Two US senators said they will hold a hearing in November on Kroger’s planned $24.6 billion takeover of Albertsons that would highlight its impact on competition among grocery stores. Sens. Amy Klobuchar (D-Minn.) Mike Lee (R-Utah), the top Democrat and Republican on the Senate Judiciary antitrust panel, expressed “serious concerns about the proposed transaction” in a statement announcing the hearing Tuesday.

Separately, in a joint letter to the U.S. Federal Trade Commission (FTC), Klobuchar and two other Senate Democrats also asked the agency to closely scrutinize the deal, saying it “raises considerable antitrust concerns… The grocery industry is essential to daily life, and Americans need the benefits that robust competition bring,” they wrote.

The Senate antitrust panel has no authority over merger reviews, but often holds hearings on high-profile deals. It also makes recommendations on the FTC’s funding for antitrust enforcement actions. Klobuchar and Lee back legislation that would increase the amount of money that companies pay for merger reviews to better fund antitrust enforcement.

Background. The two grocery chains announced the proposed tie-up last week, pledging to divest as many as 375 stores to appease antitrust regulators. Kroger is the second-largest grocer in the US after Walmart Inc., according to data from Numerator, with Albertsons coming in fourth behind Costco Wholesale Corp. “We welcome the opportunity to outline how this transaction will benefit America’s consumers by expanding access to fresh, affordable food and establishing a more compelling alternative to large, non-union retailers,” Kroger said in a statement.

The deal is likely to face a tough review at the FTC where Chair Lina Khan has expressed skepticism about grocery mergers that rely on spinoffs to preserve competition in select markets. The agency in 2015 allowed Albertsons to buy Safeway Inc. on condition that it divest 168 stores.

— Rep. Kevin McCarthy (R-Calif.) suggested the GOP would threaten to not lift the U.S. debt ceiling, according to comments head with to Punchbowl News. If Republicans win control of the House, they will use the debt limit as leverage to enact spending cuts, including for entitlement programs, said McCarthy. That of course is worrying the already worried ag sector lobbyists who recall similar ideas when Republicans controlled the House.

OTHER ITEMS OF NOTE

— The U.S. launched a new immigration plan for Venezuelans. A new parole program is due to accept 24,000 asylum seekers, but arrivals via the southern border will be sent back to Mexico.

— Workers at an Amazon warehouse near Albany, N.Y., reject unionization. Employees voted two-to-one against organizing, dealing another blow to the upstart Amazon Labor Union. The group has now lost two elections since winning a vote to organize a Staten Island warehouse in April.

KEY LINKS

Policy Updates