Fuel Company Issues Diesel Shortage Warning

Russia again hits Ukraine infrastructure | U.S. says Putin back to using food as weapon

Russian missiles hammered Ukraine’s capital, Kyiv, on Monday morning as the Kremlin sought to further cripple Ukraine’s utility infrastructure. “There is no water supply in some areas,” said Kyiv’s mayor, Vitali Klitschko. Russian forces targeted facilities in other areas of Ukraine, as well, as they look to disrupt daily life throughout the country. “The Russians targeted energy infrastructure facilities in Dnipro and Pavlohrad. Serious destruction is recorded. All services are working on site,” said a regional Ukrainian military official.

Russia has officially pulled out of the Black Sea Grain Initiative following an alleged Ukrainian drone attack in Crimea. The deal was inked back in July to keep commodities flowing from Ukraine by easing Russia’s naval blockade and reopening key ports. Over the past two months, nearly 400 ships exported 9.2 million metric tons of corn, wheat, sunflower products, barley, rapeseed and soy under the agreement. We have extensively covered the latest developments today and over the weekend via The Week Ahead dispatch. Officials said they would implement a plan that would allow 12 ships to leave Ukrainian ports on Monday. “The coming four months of winter when shortages in fuel, fertilizer and food will be felt most acutely in Europe and in nearby areas of the Middle East and Africa is the sole window of opportunity that remains to the Kremlin to break the European Union’s resolve to support Ukraine,” said Michaël Tanchum of the Middle East Institute.

Ukrainian Foreign Minister Dmytro Kuleba said Russia was using the attack as a “false pretext” for blocking the “grain corridor which ensures food security for millions of people.” President Biden called the move “outrageous,” saying it would increase global starvation, while Secretary of State Antony Blinken accused Moscow of weaponizing food. NATO and the EU have also asked the Kremlin to reconsider its decision.

Financial traders will focus on what the Fed does this week at its Nov. 1-2 confab (FOMC). “Dovish hikes are still hikes. Yes, the Fed may well decrease the intensity of its rate hikes starting in December, but it’s still the terminal rate that really matters, and unless that drops towards (and ideally below) 4.50% there’s no real dovish shift from the Fed,” says the Sevens Report.

Eurozone inflation rate hits 10.7%. The annual inflation rate in the Eurozone continued to break record-high levels jumping to 10.7% in October compared to 9.9% in September and above market forecasts of 10.2%, preliminary estimates showed. Prices of energy continue to have the biggest impact, followed by food, alcohol and tobacco.

Videos showed workers fleeing a huge iPhone-assembly plant in Zhengzhou, in central China, after the facility was locked down to contain a covid-19 outbreak. Reuters reported that the disruption at the factory could result in 30% fewer smartphones being produced there in November. China shows no sign of abandoning its zero-covid policy, despite the damage to its economy.

China’s factory sector unexpectedly contracts in October. China’s official manufacturing purchasing managers index (PMI) unexpectedly fell to 49.2 in October from 50.1 the previous month — the lowest reading since July.

We have several election poll updates in the Politics & Elections section, but it’s clear that while most say the GOP will win the House via a net gain of 12 to 25 seats, the Senate outcome is razor thin.

Brazil’s Supreme Electoral Court has declared leftist Luiz Inácio Lula da Silva as the next president of the country, with 50.9% of Sunday’s vote going to the longtime leftist leader, compared to 49.1% for right-wing incumbent Jair Bolsonaro. On the campaign trail, Lula positioned himself as a pro-democracy candidate by promising to rebuild ties with government institutions, while ending rising levels of poverty and attracting foreign investors to re-industrialize the economy.

Election Day 2022 is 8 days away. Election Day 2024 is 728 days away.

Equities today: Global stock markets were flat to mixed overnight. U.S. stock indexes are headed for lower openings following disappointing inflation data and as Russia suspended grain shipments from Crimea. Major earning reports will continue this week with Pfizer, Starbucks and DraftKings reporting earnings. About a third of the S&P 500 companies will release earnings across five days. In Asia, Japan +1.8%. Hong Kong -1.2%. China +0.8%. India +1.4%. In Europe, at midday, London +0.2%. Paris -0.2%. Frankfurt +0.1%.

U.S. equities Friday: The Dow rose 828.52 points, 2.59%, at 32,861.80. The Nasdaq moved up 309.78 points, 2.87%, at 11,102.45. The S&P 500 added 93.76 points, 2.46%, at 3,901.06.

For the week, the Dow was up 5.7%, the S&P 500 3.9% higher, and the Nasdaq showed a 2.2% gain.

The Dow, as of Friday, was up 14.4% for the month, its best monthly performance since 1976.

Agriculture markets Friday:

• Corn: December corn fell 1 1/2 cents to $6.80 3/4, down 3 3/4 cents on the week.
• Soy complex: November soybeans rose 5 1/2 cents to $13.87 3/4, down 7 3/4 cents on the week and the first weekly decline in four. December soymeal surged $10 to $425.40, a five-week closing high. December soyoil fell 51 points to 71.79 cents.
• Wheat: December SRW wheat dropped 9 1/4 cents to $8.29 1/4, a five-week low and down 21 1/2 cents for the week. December HRW wheat fell 7 1/4 cents to $9.25, down 23 1/4 cents for the week. December spring wheat fell 8 cents to $9.42 1/2.
• Cotton: December cotton fell 300 points to 72.11, the lowest close for a nearby contract since December 2020 and down 702 points from a week ago.
• Cattle: December live cattle futures fell 42 1/2 cents to $153.00, up 57.5 cents for the week. January feeder cattle fell 7.5 cents to $180.375.
• Hogs: December lean hog futures rose 97.5 cents to $86.10, down $3.025 for the week.
  

Ag markets today: Wheat futures led strong overnight price gains in reaction to Russia’s indefinite suspension of the Ukraine grain export deal over the weekend. As of 7:30 a.m. ET, wheat futures were trading mostly 33 to 45 cents higher, corn was 12 to 14 cents higher and soybeans were 4 to 7 cents higher. Front-month crude oil futures were around $1.25 lower and the U.S. dollar index was more than 400 points higher this morning.

Technical viewpoints from Jim Wyckoff:

Key events this week:

• Companies reporting earnings this week include: Moderna, Pfizer, Airbnb, AIG, Maersk, Barrick Gold, BMW, Bharti Airtel, BP, ConocoPhillips, Estee Lauder, Ferrari, ING, Intercontinental Exchange, KKR, Mitsui, Newmont, Petrobras, Qualcomm, Restaurant Brands, Saudi Arabian Oil, SoftBank, Sony, Starbucks, Toyota, Uber and Yum! Brands.

• China manufacturing and non-manufacturing PMI, Monday.
• Eurozone CPI and GDP, Monday.
• Reserve Bank of Australia policy decision, Tuesday.
• U.S. construction spending, ISM manufacturing index, Tuesday.
• EIA crude oil inventory report, Wednesday.
• Federal Reserve rate decision, Wednesday.
• U.S. MBA mortgage applications, ADP employment, Wednesday.
• Bank of England rate decision, Thursday.
• U.S. factory orders, durable goods, trade, initial jobless claims, ISM services index, Thursday.
• ECB President Christine Lagarde speaks, Thursday.
• U.S. nonfarm payrolls, unemployment, Friday.
  

Eurozone inflation grew at a 10.7% annual rate in October, which would be a record for the 19-member bloc, according to Europe’s statistics office. Russia’s war in Ukraine is the main catalyst for the rapid and aggressive price growth. Energy prices jumped 41.9% year-over-year, while food, alcohol and tobacco prices were 13.1% higher on an annual basis. The reading will put even more pressure on the European Central Bank, which raised rates by three-quarters of a point last week — and has pledged more increases.

Trucking companies see brake lights up ahead in what should be the sector’s peak shipping season. Domestic U.S. shipping demand is receding and freight rates are falling, the Wall Street Journal reports (link), in a sign that shifting demand by overstocked retailers is unraveling traditional seasonal shipping patterns. The changes are cascading across freight operations, cutting into inbound shipping volumes and bringing fewer goods onto the roads, according to the WSJ. Trucking executives say the biggest impact so far has been on spot-market business, where one measure shows rates falling from August to September for the first time since 2015. Larger carriers that depend more on long-term contract business are more insulated. But the weakness in spot demand is filtering into the bigger contract market. Trucking executives expect demand to pick up as those excess inventories are sold off, even if that doesn’t happen until after the holidays.

Meanwhile, port truckers in Southern California are scrambling for loads with container imports declining, according to the New York Times (link).

Market perspectives:

• Outside markets: The U.S. dollar index is firmer, with the euro and British pound both weaker against the greenback. The yield on the 10-year U.S. Treasury note was firmer, trading around 4.04%, with a firmer tone in global government bond yields. Crude is under pressure ahead of U.S. trading, with U.S. crude around $86.40 per barrel and Brent around $92.30 per barrel. Gold and silver futures were seeing mild pressure, with gold around $1,642 per troy ounce and silver around $19.12 per troy ounce.

• Fuel company issues diesel shortage warning, says U.S. ‘rapidly devolving’. A major fuel supply company has issued an alert about diesel fuel shortages in several Southeastern U.S. states. States that are expected to experience shortages include Alabama, Georgia, Tennessee, North Carolina, Virginia, and South Carolina, Mansfield Energy said in an alert. The company also noted “extremely high prices in the Northeast.” “Poor pipeline shipping economics and historically low diesel inventories are combining to cause shortages in various markets throughout the Southeast,” the company said (link). “These have been occurring sporadically, with areas like Tennessee seeing particularly acute challenges.” It noted that fuel prices are 30 to 80 cents higher than the posted market average due to “tight” supply, while saying that “fuel suppliers have to pull from higher cost options, at a time when low-high spreads are much wider than normal.” Fuel carriers are now having to go to “multiple terminals to find supply, which delays deliveries and strains local trucking capacity,” it said. While gasoline prices have dropped since they posted record highs in June, diesel hasn’t decreased nearly as much and currently stands at $5.31 per gallon, according to AAA. Oct. 21 data from the Energy Information show that the country had 25.9 days of diesel left.

• Drought in the U.S. is expanding eastward, affecting nearly 53% of the country and some 146 million people, all the while causing historically low water levels for the Mississippi River that threatens $20 billion in economic damage and supply chain impact. This level of drought takes a toll on much of the land where America’s crops are grown, potentially driving up food prices into next year. Link to Forbes item on the topic.

• Climate change-driven heat waves have taken at least a $16 trillion toll on the global economy since the early 1990s, according to a new study. Those extreme costs have not been borne evenly around the world, with the poorest countries often suffering the most, even as wealthier nations typically contribute more to rising temperatures.

• NWS weather: Widespread rain and high elevation snow moving into the Pacific Northwest followed by much of the Northern/Central Rockies through mid-week... ...Unsettled weather will spread across the eastern U.S. through Tuesday... ...Cooler temperatures will arrive in the West by mid-week while the northern Plains warms.

Items in Pro Farmer’s First Thing Today include:

• Grains surge after Russia suspends grain export deal
• Another firm expects sharp drop in 2023 Russian wheat production
• China again sells 100% of wheat put up for auction
• Will beef packers stay aggressive?
• Cash hog index slides again

— Summary: Russian forces launched a barrage of strikes in Kyiv and across Ukraine that knocked out electricity and water supplies in parts of the country, as the Kremlin intensified its attacks on the country’s civilian infrastructure.

• WSJ: West could confiscate more than $300 billon in Russian reserves frozen by sanctions.” In a commentary item (link), the Wall Street Journal writes: “The West could also begin the legal process to confiscate the more than $300 billion in Russian reserves that were frozen by sanctions when the war began. Robert Zoellick explained that option in these pages last week. Mr. Putin’s strategy to save his misbegotten war is to pressure Ukraine and the world with the misery of energy and food shortages. The $300 billion could be transferred to help Ukraine get through the winter and then rebuild.”

• Secretary of State Antony Blinken accused Russia of “weaponizing food.” German Foreign Minister Annalena Baerbock said “whether families in Lebanon, Niger, or Bangladesh can afford their next meal should not depend on the Russian president’s war plans.” Ukrainian Foreign Minister Dmytro Kuleba argued that Russia had planned its move “well in advance.”

  The loss of the Black Sea corridors renews pressure to reroute Ukraine exports by rail, road or waterway transport — via so-called solidarity lanes. Poland vowed Sunday “to work further to help Ukraine and those in need to transport essential goods.”

  Limited throughput. Ukraine Deputy Minister for Agrarian Policy Markiyan Dmytrasevych said earlier this month that the solidarity lanes had reached their maximum export capacity of 3 million tons per month, and remained beset by logistical problems.

  The U.N., Ukraine and Turkey pushed forward with a plan that will see 16 Ukrainian grain vessels move through Turkish waters today, despite the Russian withdrawal, according to the Joint Coordination Center in Istanbul.

— “Good energy policy is the number one thing we can do to fix inflation in this country,” Rep. Austin Scott (R-Ga.) said on “On Offense: Policy for the People,” a Just the News television special sponsored by Heritage Action for America airing on Real America’s Voice. “And so when we talk about food inflation, just remember we put seeds in the ground with diesel — I mean that’s a diesel tractor that’s pulling the planters, it’s a diesel tractor that’s spraying the fields, it’s a diesel tractor that’s doing the harvest, and it’s a diesel semi that is getting that harvest to ... the company that’s making the cereal that we eat, or the bread that we eat, or any of the other things that we eat. Diesel, the cost of diesel has a tremendous impact on inflation. It doesn’t have to be this way. You can do things that are good for the environment, and be energy independent at the same time.”

— IRS gets a new acting chief. The Treasury Department announced Friday that Internal Revenue Service Deputy Commissioner Douglas O’Donnell was appointed acting commissioner, replacing Charles Rettig, whose appointment expires Nov. 2. The Treasury described O’Donnell as a “career IRS employee” with more than 36 years of experience at the agency, most recently heading its large business and international division.

— Workers flee the world’s biggest iPhone plant in China to escape a Covid lockdown. Video footage posted online purportedly showed Foxconn employees jumping the fence surrounding the Zhengzhou factory, after an unknown number of Covid cases were reported there. It was one of the most dramatic acts of rebellion yet against China’s zero-Covid policies.

— House Republicans vow to investigate China and the spread of Covid if they take control of the chamber in the November midterms. Link to more via Bloomberg.

— China’s factory sector unexpectedly contracts in October. China’s official manufacturing purchasing managers index (PMI) unexpectedly fell to 49.2 in October from 50.1 the previous month — the lowest reading since July. Strict Covid restrictions in several major cities caused output, new orders and export sales to fall. The Caixin/Markit manufacturing PMI highlighting activity in smaller, privately owned factories in October will be released Monday evening.

Details: This was the lowest reading since July, amid strict Covid restrictions in several big cities with output (49.6 vs 51.5 in September), new orders (48.1 vs 49.8), and export sales (47.6 vs 47.0) all falling. Buying activity also declined following an increase in September (49.3 vs 50.2), while employment dropped at a steeper rate (48.3 vs 49.0). Meantime, delivery time lengthened the most in five months (47.1 vs 48.7). Turning to prices, input cost rose the most since May (53.3 vs 51.3); while output charges decreased at a softer pace (48.7 vs 47.1). Finally, business sentiment eased from September’s three-month high (52.6 vs 53.4).

— China’s hog herd expands in September. China’s sow herd grew 2% in September versus the prior month to 43.62 million head, according to the country’s ag ministry. The hog herd increased 3.1% from the prior month to 443.94 million head and was up 1.4% from year-ago.

— President Joe Biden can hardly contain himself regarding the huge profits being reported by oil companies. The size of Big Oil’s latest quarterly profits — nearly $31 billion combined by Exxon Mobil and Chevron — has revived calls from politicians and consumer groups to impose more taxes on the companies or restrict gasoline exports. According to Bloomberg, Exxon Mobil, Chevron, Shell and TotalEnergies are paying nearly $100 billion to shareholders annually in the form of buybacks and dividends while reinvesting “just $80 billion“ in their core businesses this year.

Biden last week again scolded oil companies for their high earnings and accused them of gouging motorists, while singling out Exxon after Friday’s dividend increase. “Can’t believe I have to say this, but giving profits to shareholders is not the same as bringing prices down for American families,” he tweeted. “Those excess profits are going back to their shareholders and their executives instead of going to lower prices at the pump and giving relief to the American people, who deserve it and need it.”

Senate Majority Leader Chuck Schumer (D-N.Y.) has also called the earnings “unconscionable,” while Rep. Ro Khanna (D-Calif.) introduced legislation that would ban American gasoline exports whenever the domestic price (over the prior seven days) averages at least $3.12 a gallon. That was the average cost of gas in 2019, before the coronavirus pandemic and Russia’s war in Ukraine.

A Wall Street Journal commentary (link), says: “If Democrats lose next week’s election, one reason will be soaring energy prices. The lesson that an electoral defeat should drive home is that this is the result of their own policies.” Keep in mind that oil majors’ current profits follow steep losses in the pandemic, the WSJ noted. “As oil prices plunged amid lockdowns, companies and OPEC nations pared investment and shut in wells. Demand for oil then bounced back much quicker than supply, which has driven up prices—and profits. That’s Econ 101.”

Exxon Mobil lost a board proxy fight in 2021 after large public pension funds and asset managers criticized it for investing too much in oil and generating too little profit, the WSJ item recalls. Exxon and its board need to assess “the possibility that demand for fossil fuels may decline rapidly in the coming decades,” BlackRock said.

The International Energy Agency warned only last week that “no one should imagine that Russia’s invasion can justify a wave of new oil and gas infrastructure in a world that wants to reach net zero [greenhouse-gas] emissions by 2050.” It added that “any new projects would face major commercial risks” that may result in failing “to recover their upfront cost.”

The WSJ concludes: “Biden and fellow Democrats simply refuse to understand the economic consequences of their assault on American fossil fuels. They have come to believe that climate is a crisis and that banishing oil and gas is urgent. But that means higher prices, which they now blame on the very companies they want to go out of business. Economic logic won’t persuade them, but maybe a rout at the ballot box will.”

— NYT: Outspoken defender of meat has industry funding his research, files show. A UC Davis professor runs an academic center that was conceived by a trade group, according to records, and gets most of its funding from farming interests. Link to NYT item. The Clear Center has acknowledged receiving philanthropic gifts, including from IFeeder, but the extent of the private funding and collaboration were not previously known. There is no indication that Dr. Frank Mitloehner or the Clear Center violated disclosure requirements.

— Mexico finds HPAI on farm near U.S. border. Mexico confirmed the H5N1 strain of highly pathogenic avian influenza (HPAI) in a commercial farm of 60,000 birds in Nuevo León state near the U.S. border, the country’s second confirmed case of HPAI after it notified the World Organization for Animal Health (OIE) of a case in a wild bird in the Metepec district west of Mexico City.

— Summary:

• Global Covid-19 cases at 630,280,725 with 6,589,498 deaths.
• U.S. case count is at 97,450,667 with 1,070,268 deaths.
• Johns Hopkins University Coronavirus Resource Center says there have been 636,871,557 doses administered, 266,031,472 have received at least one vaccine, or 80.74% of the U.S. population.

— Return to a red wave? Republicans are pouring cash into House districts that voted for President Biden by as much as 20 points, targeting under-the-radar battlegrounds amid growing signs of a red wave. The Cook Political Report with Amy Walter recently moved six Democratic-held seats toward Republicans — all in blue districts that Biden handily carried.

— NYT/Siena poll: Senate control hinges on neck-and-neck races. The contests are close in Arizona, Georgia, Nevada and Pennsylvania. Many voters want Republicans to flip the Senate, but prefer the Democrat in their state — a sign that Republicans may be hampered by the shortcomings of their nominees. Republican challengers in Nevada and Georgia are neck-and-neck with Democratic incumbents, and the Democratic candidate in Pennsylvania is clinging to “what appears to be a tenuous advantage,” the poll found. The bright spot for Democrats in the four key states polled was in Arizona, where Senator Mark Kelly is holding a small but steady lead over his Republican challenger, Blake Masters.

The Pennsylvania poll was largely conducted before the debate, with only one night of interviews made afterward.

— Undecideds breaking to GOP. A new USA Today/Suffolk University poll of likely voters (link) found Republicans hold a four-point lead on the congressional generic ballot (49%-45%), marking a turnaround from the July polling, when Democrats led by four points. Most of the 16% of voters who were undecided ended up breaking toward supporting Republican candidates, according to the poll. Only 6% remain undecided.

Of note: The poll found 40% of Hispanic voters supporting Republicans, with 21% of African American voters backing the GOP. In 2020, Trump won 37% of the Hispanic vote and 10% of the Black vote, according to analysis from the Democratic data firm Catalist.

— More than 21 million Americans have cast absentee ballots or voted in person in the midterm elections as of Oct. 30, according to researchers. Almost 12.8 million have cast mail-in ballots while more than 8.3 million have voted early and in person, data from the University of Florida’s Election Project show. The project compiles voting data for states that report early voting. Florida, California, and Texas are leading the way, with more than 2 million votes cast apiece. “One in five active voters have already gotten their vote in, and we will hit the 2-million-mark next week,” Georgia Secretary of State Brad Raffensperger said in a statement. “The strength of our voter registration system and our county election directors are on full display.”

— Inflation and the economy are top issues for U.S. voters heading into the midterm elections, with a majority of registered Republicans prioritizing economic issues, according to an ABC News/Ipsos poll. The results “may be welcome news for Republicans as we close in on the midterms,” Ipsos said in a summary of the poll.

A combined 50% of registered voters listed economic issues as their single most important issue, with 28% citing the economy and 22% naming inflation — with 73% of Republicans naming one of the two as their top concern. Among registered Democrats, abortion rights led the list with 29%, essentially tied with the 28% who said the economy or inflation.

Half of independent voters also cited the economy or inflation as their most important issue, according to Ipsos. The Oct. 28-29 poll of 621 registered voters has a margin of error of plus or minus 3.9 percentage points.

— Brazil’s Lula da Silva wins third term as president in contested run-off vote. The leftist former President, widely known as “Lula,” has gained 50.83% of the votes, with over 98% of the votes counted in a fiercely contested run-off election on Sunday. It was a tight race, with incumbent Jair Bolsonaro mustering 49.17% votes. The country is currently struggling with high inflation, limited growth and rising poverty.

— The president of South Korea, Yoon Suk-yeol, declared a period of national mourning as the death toll from a crush during Halloween celebrations in Seoul, the capital, rose to 154. Another 149 were injured and the city has reportedly received thousands of missing-person reports. Yoon promised an official investigation into the tragedy, which took place in a popular nightlife district.

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