First Take: Sept. 2, 2024

— Israel paralyzed by nationwide strike over hostage crisis; 800,000 workers protest government’s failure to secure release deal. A nationwide strike in Israel, organized by the Histadrut labor union, has been launched in response to the government’s inability to secure a hostage-release deal with Hamas, following the killing of six hostages in Gaza. The strike, supported by approximately 800,000 workers across various sectors, including healthcare and transportation, has caused major disruptions, notably at Ben Gurion International Airport. The strike aims to pressure Prime Minister Benjamin Netanyahu to negotiate a ceasefire to ensure the release of around 100 remaining hostages. The public outrage reflects widespread frustration with the government’s handling of the crisis, as many accuse Netanyahu of prioritizing military actions over the safe return of hostages.

Netanyahu on Monday reiterated his commitment to continuing the war until Hamas is eliminated. Speaking at a news conference, he dismissed calls for a cease-fire, arguing that yielding under pressure would only embolden Hamas. Despite the pressure, Netanyahu maintained that Israel’s security depends on its continued presence in Gaza.

Of note: With the death of Israeli/American Hersh Goldberg-Polin, there are now seven American hostages still held in Gaza. Goldberg-Polin, 23, a native of California, was among more than 200 people captured by militants in the Oct. 7 attack on Israeli border communities in which almost 1,200 people also died. His parents received a standing ovation after addressing the Democratic National Convention in Chicago last month. President Joe Biden and Secretary of State Antony Blinken have spoken with Rachel Goldberg and Jon Polin, his parents. Biden on Monday said Netanyahu is not doing enough to secure a hostage deal, adding pressure on the Israeli leader to reach a cease-fire agreement.

Egypt and Hamas have so far rejected any proposal that included an Israel Defense Forces deployment along the Philadelphi corridor.

(Oren Alon/Reuters)

— Russia/Ukraine conflict escalates with missile strikes, drone attacks, and calls for expanded military action, with actions on multiple fronts. In Kharkiv, a Russian missile attack injured 47 people, while shelling in Kurakhove and the Sumy region resulted in additional casualties. Ukrainian forces have targeted Russia’s Kursk region, although significant advances are yet to be reported. Russia claims to have intercepted 158 Ukrainian drones across 15 regions, including Moscow. Amid these developments, Ukrainian President Zelenskyy urges allies to allow deeper strikes into Russian territory, while Russia considers revising its nuclear weapons doctrine in response to perceived Western escalations.

— Some private industry U.S. corn and soybean crop estimates are due this week. Over the next few months, we are going to see just how big both crops turn out.

— Congress is still out on its long summer recess and will return on Sept. 9. The Week Ahead (link) discusses some of the issues for the usually late lawmakers, and this is the case, again, with getting an agreement on the coming fiscal year spending. Ditto for a new farm bill.

— The significant downturn in the U.S. ag sector, especially the crops sector, will get more evidence from Thursday’s USDA update on farm income. However, an even more negative assessment is ahead after USDA gets caught up with industry projections relative to supply, demand and pricing topics. That should start showing in the next WASDE report — after the farm income estimates are released.

— Key economic report comes Friday with the Jobs report. While focus is always on the number of jobs, the Fed is likely keying off the unemployment number. This report will help signal how much, not whether, the Fed will lower interest rates at the Sept. 17-18 FOMC confab.

— Many are seeking more info about the 45Z biofuel tax incentive program. The Dept. Treasury and the Internal Revenue Service (IRS) have issued some guidance on the Section 45Z Clean Fuel Production Tax Credit, but have not yet released comprehensive details on all aspects of the program. Notice 2024-49, issued on May 31, 2024, outlined registration requirements for clean fuel producers and encouraged them to apply for registration by July 15, 2024, to ensure processing by Jan. 1, 2025, when the credit becomes available. However, additional guidance on other aspects of the Section 45Z credit, such as emissions rate tables and provisional emissions rate petition procedures, has not yet been provided. The Treasury and IRS plan to release this guidance “at a later date.” Lawmakers and industry groups have urged the Treasury to expedite the release of these details, emphasizing the need for regulatory certainty to facilitate investment and planning in the biofuel sector.

The SAF credit under the Inflation Reduction Act (IRA) is structured to incentivize the production of SAF that achieves significant reductions in greenhouse gas emissions compared to traditional jet fuels. The credit ranges from $1.25 to $1.75 per gallon, depending on the level of emissions reduction achieved. SAF that achieves a minimum 50% reduction in emissions is eligible for the $1.25 credit per gallon, with additional incentives for greater reductions

The additional guidance expected for the Section 45Z biofuel tax incentive program is anticipated to cover several key areas that were not addressed in the initial Notice 2024-49. These include:

• Emissions Rate Table: This table will detail the emissions rates for various types and categories of transportation fuels, which are crucial for determining the eligibility and amount of the tax credit. The emissions rates are expected to be based on lifecycle greenhouse gas emissions.
• Provisional Emissions Rate Petition Procedures: Guidance will be provided on how taxpayers can petition for a provisional emissions rate if their fuel type is not covered in the standard emissions rate table.
• Carbon Intensity Scores: Details on how carbon intensity scores will be assigned to specific fuels and how these scores will impact the credit amount. This is important for incentivizing low-carbon fuel production.
• Safe Harbor Provisions: There is a call for safe harbor provisions that would allow taxpayers to rely on existing carbon lifecycle assessments, such as the GREET model, the federal Renewable Fuel Standard (RFS), or California’s Low Carbon Fuel Standard (LCFS), until a final rule is established.
• Certification Requirements for Sustainable Aviation Fuel (SAF): Additional guidance on certification from an unrelated party for SAF producers, which is necessary to demonstrate compliance with supply chain traceability and other requirements.

Bottom line: These details are crucial for providing regulatory certainty to biofuel producers and ensuring they can effectively plan and invest in the production of qualifying clean fuels.

— Focus on Nov. 5 elections will increase after Labor Day. National and state polls for president and key Senate races will be of note within a week or so. We will be focusing on several polls, including the Real Clear Politics average and those from Nate Silver.

(Nate Silver Bulletin )

— Kamala Harris to oppose Nippon Steel’s $15 billion bid for U.S. Steel, adding major hurdle to acquisition. Democratic presidential candidate Kamala Harris is set to publicly oppose Nippon Steel’s $15 billion bid to acquire U.S. Steel, reinforcing earlier opposition from President Biden. Harris will advocate for U.S. Steel to remain domestically owned, aligning with her support for American steelworkers. The announcement, expected during a Labor Day parade in Pittsburgh, comes as the acquisition faces increasing political and regulatory challenges, including antitrust review and concerns over national security. The growing opposition adds significant uncertainty to the deal, originally set to close by the end of 2024.

Of note: Former president and Republican nominee Donald Trump has said he would stop the deal if he wins a second term. Several members of Congress, including Republican vice-presidential nominee Sen. JD Vance, have also said they are opposed to the deal.

— Democratic Sen. Tammy Baldwin courts rural Trump Supporters and the dairy sector in Wisconsin to secure crucial Senate seat. The Wall Street Journal reports (link) that Sen. Tammy Baldwin of Wisconsin is campaigning hard in rural areas, seeking to win over conservative voters who supported Donald Trump, as she aims for a third Senate term. Baldwin’s efforts are vital for Democrats to retain control of the Senate in a tight race against wealthy banker Eric Hovde. Campaigning in rural areas, and to connect with voters in conservative regions, Baldwin emphasizes her record on fighting against non-dairy “milks,” securing mental health support for farmers, infrastructure and insulin price caps. She’s also talking about abortion and immigration. The outcome of this close race could significantly impact both the Senate majority and the presidential race in Wisconsin.

— China’s agriculture hit hard by extreme weather, flooding devastates crops and drives up food prices. Northern China’s agricultural regions, typically drought-prone, were unprepared for the torrential rains that devastated crops of eggplant, cucumbers, and cabbage this summer, the New York Times reports (link). The unexpected flooding, arriving earlier and extending to normally dry areas, has driven vegetable prices up by 40%, the highest in five years. The extreme weather poses a significant challenge to China’s food security, with leaders emphasizing the need to minimize agricultural losses. China suffered more than $10 billion in losses from natural disasters in July, some 90% of which was caused by heavy rain and floods, the Ministry of Emergency Management reported, while nearly six million acres of crops were damaged. As climate change disrupts traditional weather patterns, China’s government faces increasing pressure to adapt its infrastructure and support struggling farmers to maintain social stability and economic growth.

— China: Official data released over the weekend showed that manufacturing activity contracted further in August, while services activity stayed expansionary for the 20th straight month. Meanwhile, a private survey released Monday showed that the manufacturing sector returned to growth and expanded more than expected last month.

• The official NBS Manufacturing PMI in China fell to 49.1 in August 2024 from 49.4 in the preceding month, missing market estimates of 49.5. It was the fourth straight month of contraction in manufacturing activity and the steepest pace since February, as output shrank after rising in the prior five months (49.8 vs 50.1). Moreover, new orders (48.9 vs 49.3 in July), foreign sales (48.7 vs 48.5), and buying levels (47.8 vs 48.8) all dropped for the fourth consecutive month. At the same time, weakness in employment persisted (48.1 vs 48.3).

• The Caixin China General Manufacturing PMI increased to 50.4 in August 2024 from 49.8 in July, surpassing market expectations. The rise was driven by a return to growth in new orders and faster production expansion, reflecting better demand conditions. However, foreign demand saw a slight decline for the first time this year. Employment stabilized after nearly a year of decline, with backlogs of work increasing for the sixth consecutive month. Despite marginal drops in purchasing activity and extended delivery times due to supply constraints, business sentiment reached a three-month high, bolstered by optimism about improving economic conditions.

— Politico reports (link) that several China EV makers have offered the EU guarantees of maximum import volumes or minimum prices to avoid anti-subsidy duties ahead of a decision in October.

— EU’s growing reliance on Chinese imports contrasts with indirect U.S. dependence, studies show. A paper from the Peterson Institute (link) highlights the European Union’s increasing dependence on imports from China, in contrast to the US. However, a study by economists at the Federal Reserve (link) reveals that America is indirectly becoming more reliant on Chinese goods through other foreign suppliers, indicating a more complex economic relationship with China.

— Global container shipping profits surge to $10 billion in Q2 2024, driven by rising freight rates and Red Sea disruptions. The global container shipping industry saw profits soar to over $10 billion in the second quarter of 2024, nearly doubling from the first quarter. This surge was fueled by record shipping volumes and rising freight rates, particularly due to disruptions in the Red Sea. Major carriers like A.P. Moller-Maersk and Cosco Shipping Holdings reported significant financial gains, driven by strong market demand, strategic rerouting, and tight supply chain conditions. The industry’s performance was bolstered by increased demand, inventory replenishment, and growth in emerging markets. Link for details via Bloomberg.

(McCown Container Results Observer/Blue Alpha Capital, Bloomberg)

— Turkey seeks BRICS membership to broaden global alliances and diversify economic ties. Turkey has formally applied to join the BRICS group, seeking to expand its global influence and forge new alliances beyond its traditional Western partners. Motivated by geopolitical strategy, economic diversification, and frustrations with slow EU membership progress, Turkey aims to engage in a multipolar world while balancing its NATO commitments. The move reflects Turkey’s desire to enhance its international standing and economic opportunities, despite potential challenges related to BRICS’ institutional weaknesses and the need to maintain Western ties. If successful, Turkey’s membership could boost BRICS’ significance on the global stage.

Of note: The Turkish economy managed to grow at 4.5% last year despite the worst inflation crisis in over two decades. But data released on Monday showed the trend was beginning to taper off. GDP growth slowed to 2.5% in the three months to July, compared with the same period last year.