First Take: Sept. 29, 2024

• This week in Congress. Here is a (link) to the details of the week ahead as lawmakers are gone and will return mid-November.

• U.S. officials hope the death of Hezbollah’s leader, Hassan Nasrallah, may push the militant group to resurrect cease-fire negotiations with Israel. Link for details. National Security Spokesperson John Kirby joined CNN’s State of the Union Sunday morning, where he said Israel’s recent strikes that killed Hezbollah leaders were “good for the world” and called for a cease-fire. “I think having decimated the command structure of Hezbollah certainly works to the Israeli’s advantage,” Kirby said. “It’s actually good for the region, good for the world.”

• Starting Nov. 1, homeowners in China will be able to renegotiate their mortgage terms with their current lenders. This includes the option for those with fixed mortgage rates to adjust their loans based on the latest loan prime rate, which serves as a benchmark for mortgage loans. The People’s Bank of China (PBOC) said these initiatives are expected to lower average mortgage rates for individual borrowers by 50 basis points. This reduction is estimated to decrease annual interest costs by approximately 150 billion yuan ($21 billion).

Meanwhile, three of China’s largest cities eased rules for homebuyers. Trading hub Guangzhou became the first tier-1 city to remove all restrictions, saying it will stop reviewing homebuyer eligibility and no longer limit the number of homes owned, according to a statement late Sunday. Both Shanghai and Shenzhen said they will allow more people to purchase residences in suburban areas, as well as allow others to buy more homes. Shanghai and Shenzhen also announced they were lowering minimum downpayment ratios for first and second homes to 15% and 20%, respectively, in a bid to boost demand.

Major banks should announce detailed rules no later than Oct. 12 and complete the mortgage refinancing before Oct. 31.

Market impacts: Hong Kong’s Hang Seng Index spiked 13%, the best weekly gain since 1998. Alibaba shot up nearly 20%. The Shanghai exchange will be closed all week for national holidays, but Hong Kong will only be shut on Tuesday. Meanwhile, copper futures rose more than 2%, perhaps on the ongoing China stimulus.

• Japan’s Nikkei falls over 4% as new PM Ishiba takes office. Japan’s Nikkei 225 tumbled over 4% and the yen weakened against the dollar as traders reacted to the results of the ruling Liberal Democratic Party election last Friday. Analysts are warning of potential economic turbulence ahead of Shigeru Ishiba’s swearing-in as Japan’s new prime minister on Oct. 1. Ishiba, a critic of the Bank of Japan’s aggressive stimulus policies and an advocate for higher corporate taxes, has raised concerns among investors. While he softened his tone after winning the leadership contest, stating that monetary policy should remain accommodative, uncertainty around his stance on interest rates is expected to cause market volatility, analysts told the Financial Times (link).

• President Joe Biden said Sunday he wouldn’t intervene in any dockworkers strike. Resolving the dispute is a matter for collective bargaining, he told reporters in Delaware. Biden expressed his opposition to using the Taft-Hartley Act, saying, “I am not a proponent of the Taft-Hartley Act.” Biden’s approach contrasts with his handling of the 2022 freight rail workers’ dispute, where he faced criticism for mandating a contract. While the President has ruled out direct intervention, the White House is taking other steps to address the situation. Top Biden administration officials met Friday with the United States Maritime Alliance (USMX) to urge good faith negotiations in the ongoing labor dispute with the International Longshoremen’s Association (ILA). A government task force, formed in 2021 to address supply-chain challenges, is ready to respond in case of a prolonged strike.

Monday’s Updates will provide any news regarding this topic. A potential strike looms at East Coast and Gulf of Mexico ports starting Oct. 1 if no deal is reached. The ILA represents 45,000 dockworkers at 36 ports along the U.S. East Coast and Gulf of Mexico. Negotiations have stalled over wage issues and concerns about automation. The current contract expires on Sept. 30.

While a strike could have significant economic consequences, the administration believes the economy and supply chains are more resilient now than during the pandemic. Still, Oxford Economics estimates that a strike would cost the U.S. economy $4.5 billion to $7.5 billion a week.

• Port of Montréal longshoremen are set to begin a three-day strike Monday morning that would freeze cargoes at two terminals at Montréal Port operated by Terminal Termont Inc., one of the country’s busiest seaports. On Saturday, grain terminal workers at the Port of Vancouver started returning to work following a tentative agreement to end a four-day strike that disrupted crop exports during the critical harvest season. The settlement was reached under the guidance of a federal mediator. Labor Minister Steven MacKinnon, in a post on X, thanked both sides for putting in the work needed to reach a deal and for the support provided by mediators. This will likely put similar pressure regarding the potential strike at the Port of Montréal.

• India resumes non-basmati white rice exports amid surging inventories. India on Sunday approved the resumption of non-basmati white rice exports as inventories grow and farmers prepare for the upcoming harvest. This decision, combined with a new export floor price of $490 per metric ton and a reduction of the export tax on white rice to zero, is expected to boost global rice supplies and lower international prices. India’s easing of export restrictions comes after a series of measures to address rising local stocks and follows improved monsoon rains that have led to increased rice planting across the country.

• A $14 billion ag disaster relief bill was introduced in Congress. Link to full text of bill. Link to one-page summary of bill. More details in The Week Ahead.

• USDA Secretary Tom Vilsack will speak at the Global Dairy Summit at World Dairy Expo in Madison, Wis., on Friday, Oct. 4.

• Vice presidential debate. Sen. JD Vance (R-Ohio) and Minnesota Governor Tim Walz participate in a debate hosted by CBS News. Most expect Vance to focus more of his remarks on Democratic presidential candidate Kamala Harris. Rep. Tom Emmer (R-Minn.) said Walz, the Democratic nominee for vice president, is “like Gavin Newsom in a flannel shirt” in a Sunday interview. Emmer stated in the interview on ABC’s This Week that Walz lost the previous congressional district he used to be a representative for in the House “in both of his gubernatorial races.”

• Tuesday is the 100th birthday of former president Jimmy Carter.

• The week’s main economic/financial event will be the jobs report on Friday. Economists’ consensus estimate is for an increase of 145,000 nonfarm payrolls in September, slightly more than in August. The unemployment rate is expected to hold steady at 4.2%. Americans’ average hourly earnings are forecast to be up 3.8% from a year earlier. Also: Fed Chairman Jerome Powell will discuss the U.S. economic outlook at a National Association for Business Economics (NABE) conference on Monday.

• Key U.S. grain stocks data out Monday (Sept. 30). USDA’s Quarterly Grain Stocks Report will set final 2023-24 ending stocks for corn and soybeans. The report has a history of surprises, especially for corn, with analysts routinely missing those estimates by a wide margin. USDA will also issue its final estimates for 2024 wheat production, though only modest changes are expected. Also, the United Nations’ monthly food price index will be released Friday.

• Canada’s gov’t on Tuesday imposes 100% surtax on all Chinese-made EVs, including electric and certain hybrid passenger automobiles, trucks, buses and delivery vans. The Biden administration on Friday imposed higher levies on a range of Chinese-made products: up to 100% on electric vehicles, 50% on solar cells and semiconductors, and 25% on EV batteries, steel, critical minerals and more. The decision, which President Joe Biden’s administration first announced in May, stemmed from a review of the tariffs initially slapped on China by Donald Trump when he was in the White House.

• Claudia Sheinbaum’s presidency of Mexico begins Tuesday, Oct. 1. Sheinbaum blends her background as a climate scientist with her roots in far-left activism. At 61, she is Mexico’s first female president and its first Jewish leader. A long-time ally of current President Andrés Manuel López Obrador, Sheinbaum is both praised for her administrative efficiency and criticized for her authoritarian tendencies. She promotes economic growth and continued collaboration with the U.S., while critics question her independence from López Obrador’s influence. Sheinbaum, however, emphasizes her own leadership and vision for Mexico’s future. She began her political career in 2000 when AMLO appointed her as the environment secretary of Mexico City. Her association with AMLO’s leftist Morena party has been a key factor in her rise to power.

Sheinbaum is likely to approach trade issues with the United States in the following ways:
• Prioritizing USMCA: Sheinbaum has pledged to make the United States-Mexico-Canada Agreement (USMCA) a fundamental pillar of Mexico’s economic growth. The 2026 review of USMCA will be a crucial focus for her administration. This is despite signals that Mexico may be stepping away from continental free trade, such as AMLO’s energy policy violations under the USMCA. Sheinbaum views the USMCA as a “great opportunity” for Mexico, driven by U.S. economic growth in manufacturing and technology, which has positively impacted Mexican imports. She plans to capitalize on this through increased public and private investment in infrastructure across the country.
• Promoting nearshoring: Sheinbaum plans to create “Poles for Wellbeing” to encourage companies to relocate to Mexico, aiming to attract foreign investment and reduce dependence on distant suppliers.
• Balancing relations with China and the U.S.: Sheinbaum will need to carefully navigate Mexico’s economic relationship with China while addressing U.S. concerns about trade enforcement and protectionism.
• Modernizing infrastructure: She plans to focus on projects like the Interoceanic Corridor of the Tehuantepec Isthmus and port infrastructure improvements to facilitate intercontinental trade.
• Engaging with the private sector: Sheinbaum has met with various chambers of commerce to discuss issues such as tariff policies, trade facilitation, and integrating SMEs into international markets.
• Addressing U.S. concerns: Her administration will likely work on aligning strategies to address US worries about trade triangulation and investment from China.
• Preparing for different U.S. administration scenarios: Sheinbaum’s team will need to be ready to engage with either a potentially more confrontational Trump administration or a Harris administration that may be skeptical of trade agreements.
• Focusing on North American economic integration: Consolidating Mexico’s position in North American trade will likely be a top priority for Sheinbaum.
• Leveraging Mexico’s geopolitical position: Sheinbaum recognizes Mexico’s unique access to the U.S. market and will likely aim to capitalize on this advantage.
• Balancing populist policies with pragmatic economic approaches: While maintaining popular social programs, Sheinbaum is expected to diverge from AMLO’s economic policies by seeking a renewed relationship with the private sector to boost growth and fund continued spending on welfare and infrastructure.
• Sheinbaum will have supermajorities in both houses of Mexico’s Congress.
• Capital has been fleeing the country. On June 1 it cost 16.95 pesos to buy a U.S. dollar. Now it costs 19.7 pesos.
• Sheinbaum’s first budget is due Nov. 15 and she will be under pressure from financial markets to bring the 6% budget deficit down to 3% or 3.5%.