Boris Johnson Pulls Out of U.K. PM Race; Rishi Sunak Now the Favorite

Election watch | Diesel: supply, demand & price problems | Student loan forgiveness

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October 23, 2022 09:36 PM

Election watch | Diesel: supply, demand & price problems | Student loan forgiveness

Washington Focus

The last stretch is here before Nov. 8 midterms and momentum in both House and Senate races appears to favor Republicans, based on polls that most voters still do not trust. Voters believe the biggest election issues are the inflation/economy, followed by crime, topics which Republicans score better on. Higher gas prices including surging diesel, and continued food price inflation, are an everyday occurrence for American shoppers.

Inside Elections shifted 13 races toward Republicans and eight toward Democrats. It changed Sen. Chuck Grassley’s (R-Iowa) race to Likely Republican. Other moves: Rep. Tom Malinowski (D-N.J.) from toss-up to tilting GOP, the open New York 19th and Oregon 6th moving from tilting Dem to toss-up, and Reps. Mary Peltola (D-Alaska) and Jared Golden (D-Maine) from toss-up to tilting Dem.

Inside Elections’ latest predictions:

House: “Republicans are expected to gain between 8 and 25 seats in the House, a slight revision higher for the GOP from our previous range of R +8-20. If late-deciding voters break against Democrats, or if Democratic enthusiasm drops a bit, Republicans could see larger gains. But that dynamic is difficult to pick up considering the candidates, parties, and outside groups stop polling in the final days because their strategic decisions have already been made.”
Senate: “The fight for the Senate is much closer, creating a dissonance with the situation in the House. Democrats still have a slight advantage to retain control (including another 50-50 Senate), with a most likely range of a Democratic gain of a seat to a Republican gain of a seat.”

Republican Scott Jensen is now just ahead of Minnesota Gov. Tim Walz (D) in a new Alpha News/Trafalgar Group survey, 46.3% to 45.8%.

Federal Reserve policy has been the focus ever since the Fed waited too long to start hiking rates following their aborted “transitory inflation” mistake. U.S. equities on Friday shot higher after Federal Reserve Bank of San Francisco President Mary Daly said future interest rate increases could come in smaller increments to achieve the Fed’s target neutral rate. While the Fed seems set to again lift its benchmark rate by 75 basis points at the November 1-2 policy meeting, there may be some debate among Fed officials over whether to slow down aggressive rate hikes thereafter.

Record 2.4 million migrants illegally crossed southwestern border in fiscal year (FY) 2022, almost 4 million total under Biden. Southern border encounters reached a record of nearly 2.4 million for fiscal year 2022, according to new Customs and Border Protection (CBP) data released late Friday. In September, the number of migrant encounters at the border was 227,547, which represents a 12% increase over August. “Of those, 19% involved individuals who had at least one prior encounter in the previous 12 months, compared to an average one-year re-encounter rate of 14% for FY2014-2019,” according to CBP’s monthly operational update for September. “Almost three-fourths (71%) of all southwest land border encounters were single adults, with 161,381 encounters in September, a 15% increase compared to August,” the CBP reported.

Facts and figures. The total encounters border patrol had with migrants at the border during the fiscal year 2022 was 2,378,944. For comparison, 2021 was 1,734,686 and 2020 was 458,088, which was the last full fiscal year of former President Trump’s term. In 2019, there was 977,509.

Illegal entries into the U.S. are a major concern for upcoming midterm election voters, based on polls.

Student loan forgiveness plan on hold for now. The Biden administration was set to begin forgiving student loan debt, but the 8th Circuit Court of Appeals on Friday blocked the Biden administration from doing so until the court rules on an emergency request by Republican-led states to stop the program. The White House said Friday that 22 million federal student loan borrowers have applied for forgiveness under the program.

Diesel fuel is currently priced at about its level that prevailed when crude was well over $100 per barrel. Diesel permeates the transportation network for goods, particularly foodstuffs; ditto for construction and farming; and home heating oil is a primary heat source in various parts of the country. The onset of winter could precipitate outright shortages of diesel and even higher prices. Consider that existing stockpiles represent only 25 days’ supply, and the current level is the lowest ever recorded for this time of year. Because most food and grocery items are transported via truck, cost structures will remain troubling and limit relief for consumers.

Facts and figures. Currently, the U.S. has just 106 million barrels of diesel and heating oil in commercial stocks; the last time inventories were that low in mid-October was in 1951, when Democrat Harry Truman was in the White House. Typically, inventories should be 30% higher this time of the year.

Wholesale diesel prices in the spot market of New York harbor, a key pricing point, surged this past week to more than $200 per barrel. Bloomberg notes that excluding a three-week period from late April into mid-May, that would be a record high. Result: American refiners have the best-ever diesel margins, with the profit of turning a barrel of crude into one of diesel hitting a record high of $86.5 per barrel, up about 450% from the 2000-2020 average of $15.7 per barrel.

President Biden will have a ready and often-used excuse for the surge in prices: Russia. The U.S. was importing a significant amount of Russian fuel oil before the war, which its Gulf of Mexico-based refiners turned into diesel. The trade ended after the White House sanctioned Russian petroleum exports.

White House has limited options. It intervenes, they could release a small reserve of diesel that the government keeps for emergencies. The Northeast Home Heating Oil Reserve only has one million barrels. That’s not much. Releasing more crude from the Strategic Petroleum Reserve would do little to resolve the problem, since the bottleneck is refining.

A sensitive White House option: restrict or even ban diesel exports. If that move is taken, it will not please Mexico, Brazil and Chile who are short of diesel. In July, the last month with available full data, U.S. diesel exports to Latin America hit a record high of 1.2 million barrels, double the amount a decade ago.

Another option: Force oil companies to build up stocks quickly ahead of the winter by setting a minimum inventory level, similar to what the European Union did for natural gas stockpiles. Problem again is that this would lead to surging prices in Latin America as it would force American refiners to import more or reduce their exports — or both.

Former British Chancellor of the Exchequer Rishi Sunak announced his candidacy Sunday to become the next prime minister of the United Kingdom in a bid to “turn around” the country’s economy and “unite” the Conservative party. “There will be integrity, professionalism and accountability at every level of the government I lead, and I will work day in and day out to get the job done,” Sunak said in a statement. Sunak has the backing of more than 140 Conservative lawmakers, according to unofficial tallies by the BBC and Sky News. That is well ahead of the 100 nominations required to qualify.

Sunak is the frontrunner in the Conservative Party’s race to replace Liz Truss as prime minister, forging ahead of a main rival — ex-Cabinet minister Penny Mordaunt.

Former British Prime Minister Boris Johnson announced Sunday he will step back from the contest. Johnson, who had not formally placed his hat in the running, said in a statement Sunday there is “a very good chance” he would be successful in the election, claiming to have cleared the 100 nominations from Conservative members of Parliament required to make it onto the ballot for party leader (British media outlets have refuted this claim and reported the number of MPs who publicly backed Johnson was closer to 60).

The Conservative Party wants to finalize nominations Monday and install a new prime minister — the country’s third this year — within a week. Mordaunt has until Monday afternoon to garner 100 nominations. The party’s 172,000 members will then get to decide between the two finalists in an online vote. The new leader is due to be selected by Friday.

On the China front, the Party Congress is over and key officials selected. Chinese leader Xi Jinping, 69, received an unprecedented third five-year term (if not longer) and was re-elected as the general secretary of the Communist Party, confirming his status as the country’s most powerful leader since Mao Zedong. He saw that his most trusted loyalists got high positions while maneuvering his rivals into retirement.

On Sunday, Xi said the country “will strive harder to achieve the Chinese dream of national rejuvenation,” a term that largely means transforming the nation into a global power with higher standards of living and advanced technologies comparable with those in the West. He made the comments after introducing the new seven-member Politburo Standing Committee, the country’s most powerful decision-making body, to a room filled with carefully selected journalists at Beijing’s Great Hall of People. The elevation of Shanghai Party Secretary Li Qiang was important, China watchers note, because Li, who has never held a senior central government post, appeared right next to Xi before the leader addressed reporters on Sunday. Li is mostly known for overseeing the month-long lockdown of Shanghai earlier this year, which triggered widespread public anger.

Xi laid out his vision for the country’s relationship with the self-governing island of Taiwan. The “wheels of history” were moving towards reunification, he said, and “complete reunification of the motherland must be achieved and can definitely be achieved.” Xi during his speech emphasized that faced with “gross provocations of external (U.S.) interference in Taiwan affairs,” China will continue to “strive for peaceful reunification with the greatest sincerity and the utmost effort,” but “will never promise to renounce the use of force, and we reserve the option of taking all measures necessary.” At the end of the party congress Saturday, the Communist Party also approved an amendment to its charter opposing Taiwan independence for the first time.

A U.S. Navy official has warned that Xi may attempt to take back Taiwan by 2027, the People’s Liberation Army’s (PLA) 100th birthday. And a Taiwanese official this past week said Beijing could coerce Taiwan into accepting unfavorable terms for unification as early as next year.

Xi said that per-capita GDP would rise to the level of a “medium-developed country” in a “giant new leap” by 2035. Xi focused on economic development that he said would not sacrifice national security. Importantly, he announced no changes to his zero-Covid policy.

In some unusual drama, Hu Jintao, the 79-year-old predecessor to Xi, was unexpectedly escorted out of the closing session of the party congress. Although Hu appeared to be reluctant to leave, the official Xinhua News Agency later reported via Twitter that Hu left due to health reasons, and he is feeling much better after resting.

Meanwhile, the Chinese economy grew 3.9% from a year earlier in the third quarter of the year, quickening from the 0.4% growth recorded in the second quarter as Beijing imposed widespread lockdowns to prevent Covid-19 spread. The result topped the 3.5% economic growth expected by economists. For the first nine months of the year, China’s GDP expanded 3.0% from a year earlier, well below the 5.5% annual growth target set earlier by the government.

Monday, Oct. 24:

SEC Chair Gary Gensler. At the Securities Industry and Financial Markets Association’s annual meeting, speakers include Securities and Exchange Commission Chair Gary Gensler, Commodity Futures Exchange Commission Chairman Rostin Behnam and Treasury Secretary Janet Yellen.
Blockchain and cryptocurrency regs. Kathy Kraninger, former director of the Consumer Financial Protection Bureau and now vice president of regulatory affairs at Solidus Labs, will join the Bipartisan Policy Institute on Monday to discuss “Blockchain and Cryptocurrencies: Regulatory Architecture.”
Wall Street Journal Tech Live will take place Monday through Wednesday. Among the themes for this year’s conference will be regulatory crackdowns on the tech industry, freedom of speech and “the staying power of the pandemic’s tech darlings.” Some of the notable speakers set to attend are Intel Corp. Chief Executive Pat Gelsinger, Waymo co-CEO Tekedra Mawakana, Boston Dynamics CEO Robert Playter, Snap Inc. CEO Evan Spiegel and Lyft Inc. co-founder and President John Zimmer.
Business conditions. The National Association for Business Economics (NABE) hold a discussion on “The NABE October 2022 Business Conditions Survey.”
U.S., Japan and ASEAN. The Wilson Center’s Asia Program holds a virtual discussion on “Recalibrating US-Japan Indo Pacific Strategies Toward ASEAN” (Association of Southeast Asian Nations).
IDB and Latin America. The Center for Global Development (CGD) holds a virtual discussion on “Latin America and the Caribbean at a Crossroads: What Agenda and Role for the Inter-American Development Bank (IDB)?”
Russian war in Ukraine. The George Washington University (GWU) Elliott School of International Affairs holds a discussion on “Putin and War: How He Sees the World and How This Led to Ukraine.”
Infrastructure. New America holds a discussion on “Good Jobs: Making the Most of Infrastructure Investments.”
China Party Congress. The Quincy Institute for Responsible Statecraft holds a virtual discussion on “What Does the 20th Party Congress Tell Us About the Future of China?”

Tuesday, Oct. 25:

State of labor. Secretary of Labor Marty Walsh joins CNBC’s Work Summit to discuss the state of labor in the United States.
Infrastructure. Mitch Landrieu, senior adviser to the president, will discuss the impact of the Infrastructure Investment and Jobs Act at the American Enterprise Institute.
Bloomberg CFO foum. Nasdaq Inc. CFO Ann Dennison and Fannie Mae CFO Chrissa Halley will join a Bloomberg CFO forum to discuss topics including the U.S. economy and environmental, social and governance frameworks.
New America’s Open Technology Institute is hosting an event titled “LEO Satellite Constellations: Why Smart Sharing Rules Matter in Space,” and will include keynote remarks from Commissioners Geoffrey Starks (D) and Nathan Simington (R) of the Federal Communications Commission. The event is set to focus on low earth orbit satellites, which companies such as SpaceX and Amazon.com Inc. are using to expand wireless broadband networks globally, and how regulations will play a role in satellite spectrum sharing and space debris. In addition to the FCC commissioners, there will be a discussion panel featuring Julie Zoller, head of global regulatory affairs at Amazon’s Project Kuiper, and David Goldman, senior director of satellite policy at SpaceX.
A Moscow regional court has set Oct. 25 as an appeal date for WNBA star Brittney Griner, who was sentenced to nine years of jail time in early August for deliberately smuggling drugs into Russia. She was arrested with less than 1 gram of cannabis oil in her luggage at Moscow’s Sheremetyevo International Airport on Feb. 17.
Pa. debate. Pennsylvania Democratic Senate nominee John Fetterman and Republican candidate Mehmet Oz will face each other in a televised debate in Harrisburg, Pennsylvania. Fetterman, who had a near-fatal stroke more than five months ago, has faced several questions about transparency surrounding his health and recovery.
The Fed’s inflation fight. The American Enterprise Institute for Public Policy Research (AEI) holds a virtual discussion on “The Federal Reserve’s Big Inflation Fight.”
2023 air and ocean freight outlook. The National Association for Business Economics (NABE) hold a discussion on “The 2023 Air and Ocean Freight Outlook.”
China Party Congress. The Center for Strategic and International Studies (CSIS) holds a virtual discussion on “Unpacking the 20th Party Congress.”
Russia hydrogen efforts. The German Marshall Fund of the United States (GMFUS) holds a virtual discussion on “How Its War on Ukraine Killed Russia’s Hydrogen Ambitions.”
Russia war impacts on Poland. Washington Post Live holds a virtual discussion with Polish Prime Minister Mateusz Morawiecki on “the course of the Russia/Ukraine war, fears of a growing energy crisis this winter and his country’s relationship with the European Union.”
Russia/China cooperation. The Atlantic Council holds a virtual discussion on “European perspectives on Russian-Chinese strategic convergence.”
U.S. elections. The American Enterprise Institute for Public Policy Research (AEI) holds a discussion on “Are We Ready to Run Our Elections?”
Climate change and population. The Wilson Center’s Environmental Change and Security Program and the Population Institute hold a virtual discussion on “Climate Change, Population, and the Shape of the Future.”
Europe foreign policy. The Carnegie Endowment for International Peace (CEIP) holds a virtual discussion on “Temperature Check: The State of German and European Foreign Policy.”
North Korean nuclear efforts. The National Committee on North Korea holds a discussion on the “Korean Peninsula Nuclear Update.”
PFAS issues. The American Association for the Advancement of Science (AAAS) holds a virtual discussion on “Listing PFAS under Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).”
U.S./Canada trade relations. The Wilson Center’s Canada Institute holds a virtual discussion on “Amplifying Inclusive and Sustainable U.S./Canada Trade Relations.
Emergency executive powers. The Federalist Society for Law and Public Policy Studies holds a virtual discussion on “What Are the Limits of Emergency Executive Powers?”

Wednesday, Oct. 26:

ESG. Mark Carney, United Nations special envoy on climate action and finance, and Jo Taylor, CEO of the Ontario Teachers’ Pension Plan, will also discuss ESG at the Financial Times Moral Money Summit Americas conference Wednesday and Thursday.
Nuclear power. The International Atomic Energy Agency will meet for the International Ministerial Conference on Nuclear Power in the 21st Century on Wednesday and Thursday in Washington, D.C.
CODEX meeting prep. U.S. Codex Office holds a virtual meeting of the Codex Alimentarius Commission to provide information and receive public comments on agenda items and draft U.S. positions to be discussed at the 45th Session of the Codex Alimentarius Commission (CAC).
Midterm elections. The American Enterprise Institute for Public Policy Research (AEI) holds an event on “AEI Election Watch: The 2022 Midterms — Two Weeks to Go.”
Energy rail service issues. Surface Transportation Board holds a meeting of the Rail Energy Transportation Advisory Committee to facilitate discussions regarding issues including rail service, infrastructure planning and development, and effective coordination among suppliers, rail carriers, and users of energy resources.
Antimicrobial resistance. The Center for Global Development (CGD) holds a virtual discussion on “Six Years Later: Achievements, Limitations, and Future of the UN General Assembly (UNGA) Declaration on antimicrobial resistance (AMR).”
Venezuela sanctions. The Wilson Center’s Latin American Program holds a virtual discussion on “US Policy Options on Venezuelan Sanctions.”
Supply chains and infrastructure. The Atlantic Council holds a virtual discussion on “Leveraging supply chain concentration for infrastructure security.”
Energy and climate. The Middle East Institute (MEI) holds a virtual discussion on “Climate Progress in the Energy Sector.”
SEC meeting. Securities and Exchange Commission holds a virtual meeting to consider various rules.
U.S. drug policy. Washington Post Live holds a virtual discussion with White House Office of National Drug Control Policy Director Rahul Gupta on “the ongoing opioid epidemic and the Biden administration’s recent steps to decriminalize marijuana possession.”
Electricity meeting. Energy Department holds a meeting of the Electricity Advisory Committee with updates on the US electric grid, NERC winter assessment and energy storage issues.
China issues. The Johns Hopkins University Paul H. Nitze School of Advanced International Studies (SAIS) holds a discussion on “Overreach: How China Derailed its Peaceful Rise.”

Thursday, Oct. 27:

The FCC will hold its monthly open commission meeting. Among the items on the agenda are the consideration of the use of the 12.7 GHz band for wireless services, a potential inquiry into caller ID authentication on non-internet protocol networks, and improvements to the security of the Emergency Alert System and Wireless Emergency Alerts.
CODEX meeting prep. US Codex Office holds a virtual meeting of the Codex Alimentarius Commission to provide information and receive public comments on agenda items and draft US positions to be discussed at the 45th Session of the Codex Alimentarius Commission (CAC).
EV trade issues. The Washington International Trade Association (WITA) holds a virtual discussion on “Red Light, Green Light, 1,2,3 - Trade, Climate and Electric Vehicles.”
Electricity issues. Final day of the meeting of the Electricity Advisory Committee including the Energy Information Administration 2022 Outlook; Improving Planning Process for EV Infrastructure Deployment Panel; Smart Grid Subcommittee Update; and Grid Resilience for National Security Subcommittee Update.
IMF/World Bank report. The Center for Global Development (CGD) holds a virtual discussion on “The IMF’s Fiscal Monitor and World Bank’s Poverty and Shared Prosperity Reports.”
Global water issues. The Wilson Center’s China Environment Forum holds a virtual discussion on “Seeking Innovative Solutions for Thirsty Rivers in China, U.S. and the Middle East.”
Nuclear energy issues. The International Atomic Energy Agency (IAEA) holds its fifth Ministerial Nuclear Power Conference on “Nuclear Power in the 21st Century,” including U.S. Assistant Energy Secretary for Nuclear Energy Kathryn Huff discussing on “Enabling Environments: Creating the Conditions for Wider Deployment of Nuclear Energy.”
Blockchain and crypto regs. The American Bar Association (ABA) holds a virtual conference on “Blockchain and Cryptocurrency.”
Election impacts on foreign policy. The Business Council for International Understanding (BCIU) holds a virtual briefing on “how Washington’s Asia policy may be altered by the outcome of the Midterm elections and how private sector operations in the region, including in Taiwan, could be impacted.”
Views from retiring politicians. Politico holds a virtual “Exit Interview” discussion with retiring members of Congress on “why they decided to leave office and what challenges face their parties.”

Friday, Oct. 28:

Twitter Inc. and Elon Musk have until Friday to close his $44 billion acquisition of the company, or else the trial over the deal in Delaware Chancery Court will resume. Bloomberg reported that Twitter’s and Musk’s bankers and lawyers are preparing paperwork for the buyout by the Friday deadline. Meanwhile, the Biden administration is considering whether it should conduct national security reviews regarding some of Musk’s ventures, including his Twitter deal and SpaceX’s Starlink. U.S. officials have reportedly been uneasy over Musk’s threat to pull Starlink satellite service for Ukraine as well as his seemingly Russia-friendly views in recent tweets. The White House has held talks with Musk about potentially providing SpaceX’s Starlink internet service in Iran, as the Biden administration considers ways to support the recent protest movement in the country.
Climate and technology issues. Washington Post Live holds a virtual discussion on “Protecting Our Planet: The Role of Technology,” focusing on “reducing greenhouse gas emissions and creating a more sustainable economy.”
Nuclear power issues. Final day of the International Atomic Energy Agency (IAEA) fifth Ministerial Nuclear Power Conference on “Nuclear Power in the 21st Century,” including remarks from Nuclear Regulatory Commission Chairman Chris Hanson on “Enhancing Confidence: Effective Regulatory Oversight for the Future of Nuclear Energy.”
U.S. power generation. The United States Energy Association (USEA) holds a virtual briefing on “The Transmission Shortfall and How to Tackle It.”
COP27 and climate solutions. The Environmental and Energy Study Institute (EESI) holds a virtual discussion on “Natural Climate Solutions,” as part of the What Congress Needs to Know About COP27 series.
Clean power roadblocks. The American Enterprise Institute for Public Policy Research (AEI) holds a discussion on “Stopping Clean Power: Local Roadblocks and Energy Permitting.”

Economic Reports for the Week

Earnings reports are ample this week, with every sector sending in heavyweights to spill numbers. Key reports come from Apple, Amazon, and Microsoft. Elon Musk’s acquisition of Twitter is closing on its deadline date Oct. 28.

Financial reports: The preliminary estimate for Q3 U.S. GDP growth, durable goods orders, and flash PMI readings taking central stage. Also, investors will closely follow central bank meetings in the Euro Area, Japan, Canada, Brazil, and Russia and fresh Q3 GDP growth figures for China, Germany, France, Spain, and South Korea. Finally, flash PMI figures for the Euro Area, U.K., Japan, and China should provide some insights into the economic activity in October.

Monday, Oct. 24

S&P Global releases its Manufacturing and Services Purchasing Managers’ Indexes for October. Consensus estimates are for a 51 reading for the Manufacturing PMI and a 49.5 for the Services PMI. This compares with 52 and 49.3, respectively, in September.

Tuesday, Oct. 25

S&P CoreLogic releases the Case-Shiller National Home Price Index for August. Expectations are for a 13.8% year-over-year rise in home prices, following a 15.8% increase in July. Housing activity has slowed markedly this year as mortgage rates have spiked, but home prices remained elevated.
FHFA House Price Index
Richmond Fed Manufacturing
Consumer Confidence

Wednesday, Oct. 26

MBA Mortgage Applications
Census Bureau reports new residential sales statistics for September. The consensus call is for sales of new single-family homes to come in at a seasonally adjusted annual rate of 560,000. That would be 125,000 fewer than August’s 685,000, which surprised to the upside by nearly 200,000.
International Trade in Goods
Wholesale Inventories

Thursday, Oct. 27

Jobless Claims
Bureau of Economic Analysis (BEA) releases its advance estimate of gross-domestic-product growth. Economists forecast a seasonally adjusted annual growth rate of 1.7% for the third quarter. GDP contracted by 1.6% and 0.6% in the first two quarters of the year, meeting one definition of a recession.
Durable Goods Orders
KC Fed Manufacturing
Fed Balance Sheet
Money Supply

Friday, Oct. 28

BEA reports personal income and consumption data for September. Income is expected to rise 0.3% month over month, while spending is seen increasing 0.4%. Both estimates would match the August figures.
Employment Cost Index
Consumer Sentiment
Pending Home Sales Index

Key USDA & international Ag & Energy Reports and Events

Tuesday brings another USDA look at food prices. The European Commission will publish its monthly crop conditions report Monday. ADM and Bunge will report earnings during the week, while a conference starting Wednesday in Singapore will showcase the latest innovations in sustainable food production in Asia.

On the energy front, major oil and gas companies report earnings throughout the week, including Exxon Mobil, Shell, TotalEnergies and Chevron. EU environment and energy ministers meet in Luxembourg Monday and Tuesday respectively. Singapore International Energy Week starts Tuesday. The IEA publishes its World Energy Outlook on Thursday.

Monday, Oct. 24

Ag reports and events:

Export Inspections
Crop Progress
Cold Storage
Poultry Slaughter
MARS monthly EU crop conditions report
Holidays: India, Singapore, Malaysia, New Zealand, Thailand