COP27: Two Days Longer with Few Results

Disney brought back Bob Iger as CEO and fired Bob Chapek after poor results

Countries reach a climate funding deal but stop short of other big details. Officials from nearly 200 countries agreed to create a new fund to pay poor nations over the damages they experience from climate change. The deal came at the COP27 conference in Egypt. Nations also agreed to stick with their goal to keep the global temperature increase to the threshold of 1.5 degrees Celsius above pre-industrial period levels. The agreement also drew some criticism. “COP27 has kept alive the goal of 1.5C. Unfortunately however, it has not delivered on a commitment by the world’s major emitters to phase down fossil fuels, nor new commitments on climate mitigation,” European Commission President Ursula von der Leyen said in a statement.

Walt Disney company’s board of directors on Sunday night replaced Chief Executive Bob Chapek with Robert Iger, its former chairman and CEO who left the company at the end of last year. Disney shares jumped 8.1% premarket.

The huge pile of savings that consumers built up during the Covid-19 pandemic is shrinking. Economists expect it will run out in nine to 12 months, the Wall Street Journal reports.

“The final move of the bear market probably comes next year in the first quarter, when the earnings finally catch up to where we think they’re going to be next year,” Mike Wilson, Morgan Stanley’s Chief U.S. Equity strategist, told CNBC.

China recorded its first Covid deaths in six months as the world’s second-largest economy continues to struggle with rising Covid cases and lockdowns. Reports said infections in Beijing have more than doubled the past few days. Three and a half million residents in Beijing’s most populous district were asked to stay home from Monday, in a bid to contain rising Covid-19 infections. China’s capital reported nearly 1,000 new cases on Monday, a day after acknowledging fatalities for the first time since May. Parts of Guangzhou, a giant southern city, were also locked down. The government recently eased some Covid-control policies.

Ukraine came close to nuclear disaster as shells hit near reactors and radioactive waste storage facilities at the Zaporizhia power plant on the weekend, according to the International Atomic Energy Agency. Russia and Ukraine blamed each other for the attack on the facility, which is in Russian-controlled territory. Volodymyr Zelenskyy said that Russian forces launched almost 400 strikes on eastern Ukraine on Sunday.

Equities today: Global stock markets were mostly lower overnight. U.S. stock futures fell early Monday, as global economic outlook worsened amid concerns that China could tighten Covid-19 restrictions. Best Buy, Nordstrom, Dollar Tree and Dick’s all report quarterly earnings Tuesday, and Friday is Black Friday, traditionally a huge driver of sales for stores. In Asia, Japan +0.16%. Hong Kong -1.87%. China -0.41%. India -0.84%. In Europe, at midday, London -0.08%. Paris -0.64%. Frankfurt -0.30%.

Disney shares are jumping premarket after its chief executive was ousted over the weekend, with former CEO Robert Iger being handed back the reins of the company. Iger, 71, was previously CEO for 15 years and has agreed to serve for two years while helping find a permanent replacement. He will be charged with reversing the steep decline in Disney shares, which have fallen about 41% this year.

U.S. equities Friday: The Dow ticked up 199.37 points, 0.6%, to 33,745.69. The S&P 500 gained 18.78 points, 0.5%, to 3,965.34, while the Nasdaq edged up 1.10 points, or less than 0.1%, at 11,146.06.

Treasury yields are inverted, with short-term U.S. government borrowing costs above longer-term yields. That dynamic has, in the past, often been predictive of a recession. The yield on the 10-year Treasury note rose to 3.817% from 3.774% Thursday.

Agriculture markets Friday:

• Corn: December corn rose 1/4 cent to $6.67 3/4, the contract’s highest close since Nov. 7 and a gain of 9 3/4 cents for the week.
• Soy complex: January soybeans rose 11 1/4 cents to $14.28 1/4, still down 28 3/4 cents for the week. December soymeal rose $4.70 to $410.40, up $3 on the week. December soyoil rose 61 points to 72.74 cents.
• Wheat: December SRW wheat futures fell 3 1/2 cents to $8.03 1/4, down 10 1/2 cents for the week. December HRW wheat dropped 3 3/4 cents to $9.34 1/4, down 9 1/4 cents for the week. December spring wheat fell 2 1/4 cents to $9.51 1/2.
• Cotton: December cotton fell 205 points to 84.99 cents, down 391 points for the week.
• Cattle: December live cattle rose 32.5 cents to $153.075, up $1.55 for the week. January feeder cattle rose 80 cents to $180.775, up $1.20 for the week.
• Hogs: December lean hog futures fell 75 cents to $84.225, down 12.5 cents for the week and the lowest close since Nov. 4. The CME Lean Hog Index fell 8 cents to a nine-month low of $88.14. Today’s quote is expected to drop another 37 cents.
  

Ag markets today: Corn, soybean and wheat futures faced pressure overnight from Chinese Covid concerns and outside markets. As of 7:30 a.m. ET, corn futures were trading 2 to 3 cents lower, soybeans were 3 to 5 cents lower, SRW wheat was 9 to 11 cents lower, HRW wheat was 3 to 5 cents lower and HRS wheat was 2 to 3 cents lower. Front-month crude oil futures were around 50 cents lower and the U.S. dollar index was more than 900 points higher this morning.

Technical viewpoints from Jim Wyckoff:

On tap today:

• Federal Reserve Bank of Chicago releases its National Activity Index for October. (8:30 a.m. ET)
• USDA Grain Export Inspections report, 11 a.m. ET.
• USDA Crop Progress report, 4 p.m. ET.

European Central Bank President Christine Lagarde said Europe will need to face higher interest rates. In her view, a potential recession won’t be enough to tame inflation on its own. Policymakers currently are weighing whether to slow down the pace of rate hikes at the December meeting.

The huge pile of savings that consumers built up during the Covid-19 pandemic is shrinking. Economists expect it will run out in nine to 12 months, the Wall Street Journal reports (link). Government stimulus and constrained spending opportunities allowed households to accumulate a large amount of excess savings, of which between $1.2 trillion and $1.8 trillion remain. The savings buffer has helped Americans keep spending elevated despite historically high inflation and rapidly rising interest rates. As those savings dwindle, signs of financial stress could reappear, such as rising default rates on loans. That stress could get more pronounced if the labor market slows. Economists surveyed by the Wall Street Journal expect employers will start cutting jobs in the second and third quarters of next year.

Market perspectives:

• Outside markets: The U.S. dollar index was sharply higher. Nymex crude oil prices were weaker and trading around $79.75 a barrel. The yield on the benchmark U.S. 10-year Treasury note is presently 3.833%.

• Goldman Sachs cut its price forecast for crude oil in the fourth quarter, pointing to potential slowdowns coming from Covid outbreaks in China and uncertainty over the G-7′s plans to put a cap on Russian oil prices as the Kremlin presses its war in Ukraine. Goldman now expects $100 a barrel, down $10 from its previous forecast. “Investors have been left disappointed by higher than expected production and export flows from Russia. This is despite just two weeks remaining before the EU embargo takes effect on crude, alongside the G7 price cap, for which more details are set to be announced next week,” Goldman said in a note. WTI crude was trading below $80 on Monday morning.

• U.S. railroads and their shipping customers face a crucial question over labor relations in the bedrock sector of the American freight economy. Two of the country’s largest railroad unions are to reveal today whether their members have accepted a wage deal brokered by the White House. The Wall Street Journal reports (link) a rejection would move major freight railroads closer to a strike that could disrupt the flow of goods around the country. The unions representing engineers and conductors are the final two of the 12 unions reporting the ratification votes in the contentious and protracted labor dispute. If they don’t ratify the pact, the big unions will go back to the bargaining table with a Dec. 4 deadline looming for a possible strike, but most participants have agreed no strike would take place until after Dec. 9. Congress could also intervene to head off a strike that the industry says could cost the U.S. economy $2 billion a day.

• Ag trade: Jordan tendered to buy 120,000 MT of optional origin milling wheat.

• NWS weather: Temperatures will be 10 to 20 degrees below average across the Deep South... ...Temperatures moderate a bit ahead of Thanksgiving.

Items in Pro Farmer’s First Thing Today include:

• Grains under pressure to open the week
• China keeps interest rates unchanged (details in China section)
• China tells banks to step up credit support for economy
• Turkey to ship flour produced from Russian wheat
• IKAR raises Russian wheat export forecast
• China again sells all wheat put up for auction
• Supportive Cattle on Feed Report
• Cash hog index continues to drop

— Summary: Russia has used more than 4,700 missiles in Ukraine since the beginning of war Feb. 24, Ukrainian President Volodymyr Zelenskyy said Sunday in an address to members of the International Organization of La Francophonie.

• Kyiv said it is preparing to help civilians in newly liberated Kherson voluntarily evacuate the city ahead of the winter. Russian forces had largely knocked out the city’s power and water supplies, leaving some residents to resort to stockpiling wood for heat. Nearly half of Ukraine’s power grid is down, according to Ukrainian officials.
  

— Hong Kong leader tests positive for Covid after meeting Xi Jinping. Hong Kong’s chief executive tested positive for Covid-19 just days after interacting with his boss, President Xi Jinping of China, at the Asia Pacific Economic Cooperation forum in Bangkok. John Lee was seated next to Xi during a meeting on Nov. 18 and stood next to him at an event on Nov. 17, potentially one of Xi’s closest known brushes with the virus since the start of the pandemic. Xi was not wearing a mask at dinner with John Lee. “[John Lee is] undergoing isolation,” the Hong Kong government said on Monday. Lee tested positive upon his return to the Chinese territory on Sunday.

— Hope that China is loosening its Covid curbs dissipated after a city near Beijing that was rumored to be a test case for all virus restrictions has suspended schools, locked down universities and asked residents to stay at home for five days. The move came just over a week since China issued a suite of guidelines aimed at making its Covid approach more targeted. As a result, risk aversion returned to markets.

— China keeps interest rates unchanged. China kept its benchmark lending rates unchanged for the third straight month on Monday, as a weaker yuan and persistent capital outflows continued to limit Beijing’s ability to ease monetary conditions to support the economy. The one-year loan prime rate (LPR) was kept at 3.65%, while the five-year LPR was unchanged at 4.30%. The steady LPR fixings came after the People’s Bank of China (PBOC) partially rolled over maturing medium-term policy loans last week and kept the interest rate unchanged for a third straight month. Widening policy divergence with other major economies, particularly the U.S., could worsen fund flows. The yield gap between China and the United States hovered at the widest level in 15 years, and the yuan has lost more than 10% against the dollar so far this year and looks set for the biggest annual drop since 1994.

— The latest U.N. climate summit, or COP27, has a bigger name than its accomplishments. The results were unveiled Sunday morning, as grueling debates over a historic fund and fossil fuel emissions forced negotiations to drag on almost two days longer than expected. One major breakthrough: the agreement to set up a “loss and damage” fund, which would offer vulnerable nations financial assistance in grappling with the climate crisis. But countries failed to commit to phasing out, or even phasing down, all fossil fuels.

The U.S. will be part of a new fund to pay reparations to poor countries. This is separate from the $100 billion a year that rich countries have promised to help poor countries reduce emissions and adapt to climate change.

Europe hopes the “loss and damage” fund will induce poor countries to reduce emissions to meet the Paris target of limiting global warming to 1.5 degrees Celsius compared to pre-industrial levels. Details about the reparations fund — including which countries will pay, how much, and which countries will benefit — will be fleshed out over the next year.

House Republicans won’t appropriate money for the fund, but the Biden administration could tap international development banks that the U.S. funds.

A Wall Street Journal editorial notes: “Countries might also shake down U.S. fossil-fuel producers in their own courts. Climate reparations will merely serve as another form of global income redistribution. The Biden Administration’s surrender shows again that the religion of climate change is progressive penance for the sin of being prosperous.”

— EPA nears final rule on canola oil pathways under the RFS. The Office of Management and Budget (OMB) completed their review of EPA’s final rule on canola oil pathways for renewable diesel, jet fuel, naptha, liquefied petroleum gas and heating oil under the Renewable Fuel Standard (RFS). The final rule covers their analysis of the lifecycle greenhouse gas (GHG) emissions produced from canola/rapeseed oil. With another RFS announcement pending by Nov. 30 for RFS levels for 2023 and beyond, it is possible the agency may hold off on the canola pathways announcement until then.

— Lawmakers seek extension of USDA proposed rule on livestock, poultry marketing. A bipartisan group of senators is asking (link) USDA to extend the comment period on their proposed rule for “Inclusive Competition and Market Integrity Under the Packers and Stockyards Act.” The comment period is set to end Dec. 2 and Sens. Chris Coons (D-Del.) and Roger Wicker (R-Miss.) along with 17 others called on USDA to extend the comment period for 180 days as the rule has “novel regulatory concepts, which would have wide-ranging impacts on the contracting of poultry, cattle and hogs.” An extension would allow for the agency to receive the “most substantive comments possible” from stakeholders and constituents. The lawmakers said the proposed rule is in effect linked to a proposed rule on poultry grower contracting and tournaments and a yet-to-be released plan to clarify the scope of the Packers and Stockyards Act. Given the linkage of all three regulatory actions, the lawmakers said the lengthy comment period extension is needed so that those affected can “consider USDA’s competition agenda in its entirety.”

— Summary:

• Global Covid-19 cases at 638,140,984 with 6,621,092 deaths.
• U.S. case count is at 98,309,031 with 1,077,031 deaths.
• Johns Hopkins University Coronavirus Resource Center says there have been 650,810,290 doses administered, 267,476,279 have received at least one vaccine, or 81.18% of the U.S. population.

— Protection from 4th dose of Covid vaccine wanes completely within months: Study. An Israeli study found that antibody levels after a fourth dose of the Pfizer BioNTech Covid-19 vaccine returned to similar levels as after the 3rd dose after about four months.

— Possible new House speaker on stripping power from some Democrats. During a private intraparty meeting ahead of leadership elections, Rep. Kevin McCarthy (R-Calif.) reportedly promised he would strip power from some Democrats, vowing to kick Minnesota Democratic Rep. Ilhan Omar off the House Foreign Affairs Committee, and California Reps. Eric Swalwell and Adam Schiff off the House Intelligence Committee.

— Coming House investigations. As House Republicans gear up to investigate President Joe Biden’s family business dealings, problems at the U.S./Mexico border, Covid’s origins and more, three House Democrats are vying to be one of their party’s key figures in this effort. Democratic Reps. Gerry Connolly (Va.), Jamie Raskin (Md.) and Stephen Lynch (Mass.) are all running to be ranking member on the House Committee on Oversight and Reform. Democrats will pick their committee leaders in December. Whoever comes out on top of this contest will go up against incoming Oversight Committee Chair James Comer (R-Ky.).

— On Saturday, Elon Musk reinstated Donald Trump’s Twitter account. It’s not clear whether the former U.S. president will start posting again. In the aftermath of the January 6, 2021, attack on the U.S. Capitol, Trump was banned from Twitter and several other platforms on the grounds of inciting violence. Musk claimed to base his decision to reverse the ban on a Twitter poll.

— A 5.6-magnitude earthquake has hit Indonesia’s West Java province. At least 46 people have died and more than 700 are injured, according to the country’s National Agency for Disaster Management.

WASDE | Crop Production | USDA weekly reports | Crop Progress | Food prices | Farm income | Export Sales weekly | ERP dashboard | California phase-out of gas-powered vehicles | RFS | IRA: Biofuels | IRA: Ag | Student loan forgiveness | Russia/Ukraine war, lessons learned | Election predictions: Split-ticket | Congress to-do list | SCOTUS on WOTUS | SCOTUS on Prop 12 | New farm bill primer | China outlook |