Comparing Trump and Harris’ China Policies

News/Markets/Policy Updates: Oct. 14, 2024

— Equities today: Asian and European stock indexes were mixed overnight. U.S. stock indexes are pointed to mixed to firmer openings following a quiet weekend of news as investors look ahead to the first busy week of Q3 earnings and more important economic data. In Asia, Japan closed. Hong Kong -0.8%. China +2.1%. India +0.7%. In Europe, at midday, London flat. Paris -0.3%. Frankfurt +0.4%. Chinese stocks rose on Monday following Beijing’s efforts to reassure investors about its economic stimulus plans. The government announced intentions to recapitalize local governments and state banks and purchase unsold property, though details were not provided. This follows a stock market rally in late September after monetary stimulus was announced. The CSI 300 benchmark in mainland China closed up 1.9%, driven by high-tech manufacturing groups like Cambricon Technologies, CATL, and BYD. Meanwhile, Hong Kong’s Hang Seng index declined by 0.8%.

U.S. equities last week: All three major indices gained just over 1% for the week. The S&P 500 and Dow both notched their highest closes ever on Friday.

— Banks, semiconductors, interest rates and U.S. retail sales will be in focus this week:

• Tuesday: Bank of America, Citigroup and Goldman Sachs report quarterly results, with investors expected to home in on what executives have to say about the U.S. economy and household finances. Also reporting are United Airlines, Rio Tinto and UnitedHealth Group.

• Wednesday: Morgan Stanley and ASML, a Dutch supplier for the semiconductor industry, are set to issue their latest quarterly reports.

• Thursday: It’s decision day for the European Central Bank, which is expected to cut its benchmark rate by another quarter-percentage point — and to repeat that in December — to try and lift the European Union’s sluggish economy. Elsewhere, the markets will be watching U.S. retail sales data.

Netflix; Blackstone; and TSMC, the world’s biggest chipmaker, report results.

• Friday: Procter & Gamble and American Express close out a busy earnings week.

— Boeing to cut 17,000 jobs, takes $5 billion in charges amid delays and weak sales. Boeing announced plans to cut 17,000 jobs and take $5 billion in charges across its commercial airplanes and defense divisions. The company also delayed the debut of its first 777X jetliner and expects its third-quarter sales to fall significantly below estimates. The company said it expects to report a loss of $9.97 per share in the third quarter. In a memo to staff, CEO Kelly Ortberg said, “restoring our company requires tough decisions and we will have to make structural changes to ensure we can stay competitive and deliver for our customers over the long term.”

— S&P predicts more foreign-currency debt defaults. Meanwhile Fitch cut its outlook for France, and Belgium’s was cut by Moody’s.

— Ag markets today: Corn, soybeans and wheat faced mild followthrough selling overnight after weak closes last Friday. As of 7:30 a.m. ET, corn futures were trading 2 cents lower, soybeans were 3 to 4 cents lower and wheat futures were mostly 1 to 2 cents lower. The U.S. dollar index was around 280 points higher, and front-month crude oil futures were about $1.75 lower.

Will cash cattle rally persist? Cash cattle prices firmed for a fifth consecutive week, though the official price won’t be known until later. With Choice wholesale beef prices strengthening, packer margins have improved to the point where some cash sources expect the string of cash market strength to continue.

Cash hog index, pork cutout remain choppy. The CME lean hog index is down 18 cents to $84.29 as of Oct. 10, remaining within the short-term choppy range from the September low of $84.01 to this month’s high of $84.90. The pork cutout dropped 40 cents to $94.47, holding within the short-term choppy range from the September low of $92.91 to this month’s high of $96.31.

— Agriculture markets Friday and for the week:
• Corn: December corn futures sunk 2 3/4 cents to $4.15 3/4 and settled on session lows. Prices marked an 8 1/4 cent loss on the week.
• Soy complex: November soybeans fell 9 1/4 cents to $10.05 1/2 and marked a 32 1/4 cent weekly loss, while December meal closed $1.00 lower at $315.10, and is down $15.40 on the week. December soyoil slid 43 points to 43.33 cents and is down 64 points week-over-week.
• Wheat: December SRW wheat futures fell 4 3/4 cents to $5.99, nearer the session low and for the week rose 9 1/4 cents. December HRW wheat futures dropped 6 1/2 cents to $6.04 1/2, nearer the daily low, and for the week rose 6 1/2 cents. December spring wheat futures fell 6 1/2 cents to $6.43 3/4, but rose 5 1/4 cents on the week.
• Cotton: December cotton fell 45 points to 72.21 cents, and down 106 points on the week.
• Cattle: December live cattle futures fell 70 cents to $187.575, near the daily low after hitting a nine-week high early on. For the week, December cattle gained 57 1/2 cents. November feeder cattle futures fell 15 cents to $249.80 and nearer the daily low. For the week, November feeders rose 52 1/2 cents.
• Hogs: Expiring October hog futures rose 5 cents to $84.075 Friday, while most-active December climbed 70 cents to $77.65. That close represented a weekly rise of $1.50. T

— Of note:

• “My focus would be on being hedged against an eventual market collapse. We’re more fragile than we were at probably any point in the last twenty years, if not thirty years.” — Nassim Taleb, Black Swan author and Universa Investments distinguished scientific advisor, on Bloomberg Television.

• “These results are consistent with a soft landing.” — JPMorgan Chase Chief Financial Officer Jeremy Barnum, as the bank said the U.S. economy remains strong for both consumers and big companies.

• $28,400: The average selling price of a three-year-old electric vehicle in September, less than that of a gas-engine vehicle of the same age and a 25% drop from the start of 2023, according to car-shopping website Edmunds. Electric cars have gone from pricey purchases to some of the biggest bargains on the used-car lot, as resale values for the vehicles have tumbled.

• 1.6%: Trucking company executives’ average expectations for contract rate increases in the next six months, based on a third-quarter survey by TD Cowen, down from 1.9% in the second-quarter survey.

— Germany is facing a mild recession, with overall economic output expected to remain flat for the year, according to a Bloomberg survey (link). Rabobank’s Erik-Jan van Harn noted that there is “no clear catalyst for a turnaround.” The country’s economy, often regarded as Europe’s industrial powerhouse, has not experienced growth for two consecutive quarters since Finance Minister Christian Lindner and Chancellor Olaf Scholz assumed office in 2021.

Market perspectives:

— Outside markets: The U.S. dollar index was higher. Nymex crude oil prices are lower and are trading around $73.75 a barrel. OPEC has just trimmed its global oil demand outlook. The benchmark 10-year U.S. Treasury note yield is presently fetching 4.10%.

— The latest CFTC Commitments of Traders report on Friday showed gold speculators again reduced their net long futures positions from a 54-month high recorded at the end of September. However, net speculative longs remain at elevated levels. “Conversely, aggregate ETF/ETC flows have turned negative over the last week, with net inflows to U.S. vehicles being more than matched by net outflows elsewhere, perhaps prompted by stale bulls taking profits on local currency gold gains,” said Frank Watson from Kinesis Money.

— Battle over future of olive oil industry as mega farms rise. Southern Spain, the heartland of global olive oil production, is witnessing a commercial struggle between traditional smallholders and rapidly expanding mega farms. Climate change, particularly worsening droughts, is threatening the small farmers’ yields, while large-scale “super intensive” farms are booming by using irrigation and machine harvesting. Mega farms now account for 7% of Spain’s olive-growing land and 11% of its production, offering higher productivity and lower costs. According to the Financial Times (link), Ignacio Silva, chair of Deoleo, noted that “the economic logic of high-mountain olive oil is declining because of the water issue.” Traditional farmers like Manuel Adamuz Comino argue their product is superior in quality despite lower yields, saying that mass-produced oils “lose sight of the fact it is lower quality.” Nonetheless, mega farms offer scale advantages, harvesting quicker and more efficiently while targeting new markets, such as the U.S., where consumers may prefer less intense flavors in olive oil.

— Ag trade update: Saudi Arabia purchased 360,000 MT of wheat from unspecified origins. Egypt tendered to buy an unspecified amount of vegoils from multiple destinations.

— NWS outlook: Rain and snow showers forecast across the Northeast, Great Lakes, and Pacific Northwest over the next few days... ...Well below average temperatures to chill much of the central and eastern United States... ...Summer-like warmth continues over parts of southeast Texas, the northern Rockies, and northern High Plains.

(NWS)

Items in Pro Farmer’s First Thing Today include:

• Grains weaker to open the week
• APK-Inform cuts Ukraine 2024 grain export forecast
• Kazakhstan on track for biggest grain crop in 13 years

— Hezbollah drone strike kills 4 Israeli soldiers, U.S. sends missile defense to Israel. A Hezbollah drone strike on a base in northern Israel killed four soldiers and injured dozens, highlighting concerns about gaps in Israel’s air defenses. Cross-border attacks by Hezbollah persist despite Israeli bombardments of targets in Lebanon. Meanwhile, Israel is also engaged in a war with Hamas in Gaza and was hit by Iranian missiles on Oct. 1. In response, the U.S. is sending an advanced missile defense system and around 100 troops to support Israel. Tensions have also risen in southern Lebanon, where Israeli troops have clashed with UN peacekeepers.

— India has risen to become the second-largest supplier of restricted critical technologies to Russia, according to U.S. and European officials cited by Bloomberg (link). Indian exports of restricted items, including microchips, circuits, and machine tools, surpassed $60 million in April and May, reaching $95 million in July. India now trails only China in supplying these technologies to Russia.

— China’s export growth slows to 2.4% in September, below forecasts; imports rose by 0.3%. In September 2024, China’s exports grew by 2.4% year-on-year to $303.71 billion, below expectations of just over 6% and easing from August’s 8.7% rise. This marks the fifth consecutive month of export growth, though at the slowest pace since April, partly due to a favorable base effect after last year’s steep decline. Key export markets included the U.S. (up 2.2%), ASEAN (up 5.5%), EU (up 1.3%), and Russia (up 16.6%).

For the first nine months of 2024, exports grew 4.3%, driven by strong sales in mechanical and electronic products, household appliances, and integrated circuits.

Imports rose by 0.3% from a year earlier in September, compared to the 0.5% growth seen in August.

Customs spokesman Lu Daliang said the reading had been affected by “short-term incidental factors,” such as frequent typhoons in the port cities, a higher base last year and global shipping congestion. “Some data shows that the peak export season for some Chinese products in previous years was in the third quarter, but this year it has been advanced by more than a month due to the congestion,” Lu said.

(China Customs Wind, South China Morning Post )

— China’s soybean imports slip from all-time high in August. China imported 11.37 MMT of soybeans in September, down 770,000 MT (6.3%) from the record in August but up 4.22 MMT (59.0%) from year-ago. Through the first nine months of this year, China imported 81.85 MMT of soybeans, up 8.1% from the same period last year.

— Goldman Sachs upgrades China growth forecasts. Goldman Sachs upgraded its forecasts for China’s economic growth in 2024 and 2025 after Beijing unveiled a series of measures to shore up its economy. The bank expects China’s GDP to expand 4.9% this year, up from 4.7% previously. It also lifted its growth prediction for next year to 4.7% from 4.3%.

— China’s “hidden” subsidies drive export surge, raising global concerns. China is increasingly using tax rebates and other indirect subsidies to give its strategic industries, such as electric vehicles (EVs) and semiconductors, a competitive advantage globally. Tax refunds to Chinese companies have surged 400% over the past decade, outpacing export growth and fueling concerns about market distortions in the U.S. and Europe, Nikkei Asia reports (link). These rebates, which reached $34 billion in 2023, come on top of direct government subsidies for research and development.

BYD, a leading EV manufacturer, received 37.1 billion yuan in tax rebates over the last five years, nearly four times the direct subsidies it received. Yusho Cho from Nikkei Asia quotes PwC’s Toshiko Sasaki, who notes, “Beijing is clearly trying to support strategic industries with tax rebates.” Many experts argue that these policies are distorting global competition, as China’s rebate rates have grown fivefold while exports only increased by 50%. This has prompted retaliatory tariffs from the U.S. and Europe, escalating trade tensions.

Bottom line: Chinese companies are leveraging these advantages to dominate industries like solar panels and EVs, further intensifying the global economic competition.

(Shanghai DZH, Nikkei Asia )

— China: Major disagreements persist with EU over EV tariffs after eight rounds of talks. China urged the European Union to avoid negotiating tariffs with individual electric vehicle manufacturers after eight rounds of talks in Brussels failed to reach an agreement. The EU plans to raise tariffs on Chinese EVs to 45%, citing unfair subsidies, while China denies the claim and has threatened retaliatory tariffs on European goods. Significant disagreements remain, and China has requested the EU send a technical team for further negotiations.

Of note: Germany is considering fresh subsidies on EVs amid intensifying competition from China and weaker demand.

— New York Post: Google emails reveal cozy ties with U.S. trade officials amid efforts to influence policy. Newly revealed emails show how Google and Amazon used their access to the Office of the U.S. Trade Representative (USTR) to shape policies favoring their interests, including undermining foreign regulations like Canada’s Online News Act. The New York Post reports (link) that Google’s trade policy head, Nicholas Bramble, requested meetings with USTR officials in May 2023 to discuss developments on the Canadian law, which mandates payments to news publishers. Advocacy group Demand Progress criticized the companies for trying to “hijack U.S. trade policy.” Emily Peterson-Cassin of Demand Progress remarked, “It’s not their job to work for the good of Big Tech.”

— SpaceX catches its booster in a historic achievement for the space industry. In a first, the rocket’s more than 20-story tall booster came back to the arms of the launch tower nearly seven minutes after the launch, a key step toward making the rocket system reusable. The Starship rocket entered space and traveled halfway around the Earth before returning and splashing down in the Indian Ocean, as planned. Link to see it.

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