Geopolitical Risk: U.S. Equities Tumble as Russia/Ukraine Tensions Rise

News/Markets/Policy Updates: Nov. 19, 2024

— Equities today: Asian and European stock markets were mixed to lower overnight. U.S. Dow opened around 340 points lower, largely on Russia/Ukraine developments. The S&P 500 and Nasdaq Composite lost 0.5% each. Treasurys increased as investors moved into the safe haven, driving yields lower. Gold futures also gained. In Asia, Japan +0.5%. Hong Kong +0.4%. China +0.7%. India +0.3%. In Europe, at midday, London -0.4%. Paris -1.3%. Frankfurt -1.1%.

U.S. equities yesterday: The Dow finished down 55.39 points, 0.13%, at 43,389.60. The Nasdaq rose 111.69 points, 0.60%, at 18,791.81. The S&P 500 gained 23.00 points, 0.39%, at 5,893.62.

Perspective: At $63 trillion, the total value of U.S. stocks is now four times bigger than all of Europe’s bourses combined. Ten years ago, it wasn’t even twice the size. Bloomberg notes that Europe doesn’t have a single public company valued at more than $500 billion. The US has eight worth more than $1 trillion.

— DOJ seeks to break up Google Chrome amid antitrust push. The Department of Justice (DOJ) is pushing to have Google divest its Chrome browser, a major step in its antitrust fight against the tech giant. On Wednesday, DOJ officials will ask a judge — who has previously found Google Search to be an illegal monopoly — to mandate the sale of Chrome, Bloomberg reports. Regulators see the browser as a key entry point for users to access Google Search, cementing its market dominance. While Google intends to appeal, a final ruling isn’t expected until August 2025.

— ADM reports lower Q3 profits amid accounting irregularities. Archer Daniels Midland (ADM) released delayed third-quarter results, citing lower profits due to weakness in the grain business and recently discovered accounting irregularities. ADM restated 2023 and early 2024 financial statements and reaffirmed its earnings per share guidance of $4.50-$5.00. Total operating profit fell 28.3% to $1.04 billion for Q3, with Ag Services & Oilseeds segment profits plunging 43%. Net earnings dropped sharply to $18 million from $821 million a year earlier.

— Walmart raises forecast amid strong Q3 results. Walmart raised its full-year sales growth forecast, anticipating an increase of 4.8% to 5.1%, up from its previous projection of 3.75% to 4.75%. This optimistic outlook follows stronger-than-expected Q3 earnings, with revenue totaling $169.59 billion and earnings per share at 58 cents, surpassing Wall Street estimates. The increase was driven by robust sales of general merchandise, higher consumer spending during store visits, and a 22% boost in U.S. e-commerce. CFO John David Rainey highlighted customer focus on value amid moderated inflation and tariff concerns, particularly as holiday shopping kicks off.

— Boeing to lay off over 2,500 U.S. workers across multiple states. Boeing announced plans to lay off more than 2,500 U.S. workers in Washington, Oregon, South Carolina, and Missouri as part of a broader effort to reduce its global workforce by 17,000, or 10%. Notices were issued to nearly 2,200 workers in Washington state and 220 in South Carolina, with engineers and production workers among those affected. Workers will stay on the payroll until January 17, while additional layoffs are possible in December, according to Reuters.

— Nestlé unveils ambitious growth plan focused on cost-cutting, marketing investment, and structural changes. Nestlé’s new CEO, Laurent Freixe, has announced a revitalization plan to address growth challenges by implementing CHF 2.5 billion ($2.8 billion) in cost-cutting initiatives, increasing marketing investment to 9% of total sales by 2025, and making structural changes like creating a standalone water and premium beverages unit. Freixe also set new growth and profitability targets, focusing on innovation, digital transformation, and addressing underperformance to boost market share and efficiency. This strategy shifts away from previous reductions in marketing spending during the pandemic era.

— Oil prices surged over 3% on Monday as Norway’s Johan Sverdrup oilfield halted production due to a power outage, tightening North Sea supply. Brent crude rose $2.26 (3.2%) to settle at $73.30 per barrel, while WTI gained $2.14 (3.2%) to close at $69.16. Repairs at Kazakhstan’s Tengiz oilfield, cutting output by up to 30%, further supported prices. The escalation of the Russia-Ukraine war also contributed to the rally.

— Ag markets today: Corn and wheat futures mildly extended Monday’s gains during overnight trade, while soybeans failed to find sustained followthrough buying. As of 7:30 a.m. ET, corn futures were trading around a penny higher, soybeans were mostly 2 cents lower and wheat futures were 1 to 3 cents higher. The U.S. dollar index was around 125 points higher and front-month crude oil futures were about 35 cents lower.

Choice boxed beef prices surged $3.94 on Monday to $307.28, while Select fell 69 cents to $275.45. The jump in Choice beef could signal prices have reached a level of value for retailers after the recent sharp drop, though the slowdown in movement on Monday to 109 loads, including 70.5 loads of Choice, suggests the uptick in price may be temporary.

The CME lean hog index is down another 78 cents to $88.49 as of Nov. 15, the sixth decline in the last seven days and the biggest drop during that span. December lean hog futures finished Monday $8.465 below today’s cash quote.

— Agriculture markets yesterday:
• Corn: December corn rallied 5 1/4 cents to $4.29 1/4, closing near the session high and above the 10-day moving average.
• Soy complex: January soybean futures surged 11 1/4 cents to $10.09 3/4, closing on session highs. December meal futures climbed 70 cents to $290.30. December bean oil futures were supported by surging crude oil futures, closing 17 points higher to 45.52 cents.
• Wheat: December SRW wheat rose 10 3/4 cents to $5.47 1/4. December HRW wheat rose 15 1/4 cents to $5.55 1/4. Both markets closed nearer their session highs. December spring wheat rose 12 3/4 cents to $5.85.
• Cotton: December cotton fell 18 points to 66.62 cents, hit a three-month low and closed nearer the daily low.
• Cattle: December live cattle rose $1.15 to $184.10, near the daily high. January feeder cattle rose $2.275 to $249.50, near the session high and hit a 3.5-month high.
• Hogs: December lean hog futures climbed 52.5 cents to $80.025, though closed mid-range.

— Farm income declines as land prices rise in the central Plains. A Kansas City Federal Reserve survey (link) revealed that farm income in the central Plains dropped during the third quarter of 2024, with 60% of surveyed ag bankers reporting lower income compared to the previous year. While strong cattle prices provided some support, weak crop prices hurt crop producers’ profits, weakening farm balance sheets and increasing demand for financing. However, land values saw modest increases: nonirrigated cropland rose 5%, irrigated cropland by 0.3%, and ranchland by 1.6%. Cash rents largely remained stable, but ranchland rents experienced a 4% rise and increased volatility.

— Quotes of note:

• “Many investors are making the bet that this administration is going to take a free market approach to M&A.” — Alex Clayton, a partner at Meritech Capital, on hopes for a resurgence in dealmaking under a new Trump administration.

• Warning sign. “In our baseline macro outlook, the economy and earnings continue to grow and bond yields remain around current levels. But event risk remains high heading into 2025, including from the potential threat of an across-the-board tariff and the potential risk from even higher bond yields.” — David Kostin, Chief US equity strategist, Goldman Sachs.

Market perspectives:

— Outside markets: The U.S. dollar index was firmer with the euro, yen, British pound, and most foreign currencies weaker against the greenback. The yield on the 10-year U.S. Treasury note was lower, trading around 4.36%, with a negative tone in global government bond yields. Crude oil futures remained lower, with U.S. crude around $68.80 per barrel and Brent around $73 per barrel. Gold and silver futures were sharply higher, with gold around $2,642 per troy ounce and silver around $31.48 per troy ounce.

— Markets react to nuclear tensions and treasury speculation. U.S. Treasuries rallied on Tuesday amid speculation surrounding Donald Trump’s potential Treasury Secretary pick, Kevin Warsh. Simultaneously, geopolitical tensions flared as Russia issued nuclear threats in response to U.S. weapons support for Ukraine, causing a “safety bid” in markets (see related item in Russia/Ukraine section). Sovereign debt, gold, and Japan’s yen rose, while European stocks and the euro slipped. Treasury yields retreated, with two-year yields hitting an 11-day low. Markets also eyed Warsh, a former Fed governor, as the frontrunner for the Treasury role, reflecting possible shifts in economic policy under a new administration.

— Maersk’s pioneering methanol conversion of a large containership. Maersk has achieved a major milestone in sustainable shipping by converting the Maersk Halifax, a 15,226 TEU container vessel, to operate on methanol fuel. The retrofit, completed at the Zhoushan Xinya Shipyard in China over 88 days, marks the first-ever methanol conversion of a large containership. The project involved extensive modifications, including engine conversion by MAN Energy Solutions, hull expansion, and increased capacity. Maersk’s said its efforts underscore its commitment to reducing emissions and pave the way for more retrofits, contributing to the shipping industry’s green transformation and broader adoption of methanol as a marine fuel.

— Ag trade update: Jordan passed on a tender to buy up to 120,000 MT of optional origin milling wheat. Algeria tendered to buy up to 240,000 MT of corn to be sourced from Brazil or Argentina.

— NWS outlook: Powerful Pacific low-pressure system to produce significant high wind impacts and heavy mountain snow across the Northwest, while a strong atmospheric river takes aim at northern California by Wednesday... ...Potent storm system over the northern Plains to produce gusty winds and locally heavy snow throughout the region before a redeveloping area of low pressure brings unsettled weather to the Great Lakes, central Appalachians, and Northeast from midweek onward... ...Heavy rain and flash flooding potential continues throughout portions of the central and eastern Gulf Coast today.

(NWS)

Items in Pro Farmer’s First Thing Today include:
• Light followthrough buying in corn, wheat overnight
• Choice beef surges
• Seasonal pressure building in cash hog index
• Cordonnier increases Brazilian soybean crop forecast
• HRW CCI rating improves, SRW crop slips
• Euro zone consumer inflation rises in October

— GOP considers cuts to safety net programs to offset tax reductions. President-elect Trump and congressional Republicans are discussing overhauling Medicaid and food stamp programs to balance the cost of extending Trump’s 2017 tax cuts, projected to add over $4 trillion to the national debt, the Washington Post reports (link). Proposed changes include new work requirements, spending caps, and eligibility checks. While framed as measures to reduce wasteful spending, potential cuts to programs serving over 70 million low-income Americans raise political concerns within the GOP. Past attempts to cut Medicaid met public backlash, complicating efforts to navigate tax policy reforms amidst growing debt concerns.

— The discovery of large caches of Russian weapons by Israeli troops in Lebanon points to a significant upgrade in Hezbollah’s military capabilities, raising concerns over the group’s level of armament and potential strategic intentions. This confirmation implies that Hezbollah may have received more sophisticated Russian weapons systems, altering the balance of power and potentially elevating tensions in the region. Such developments could have serious implications for Israeli security considerations, international diplomatic efforts, and broader regional stability, particularly with respect to how Russia’s involvement or indirect influence might shape ongoing conflicts in the Middle East.

— Russia updates nuclear doctrine amid escalating tensions. Russian President Vladimir Putin has revised the country’s nuclear doctrine following the U.S. granting Ukraine permission to use American weapons for strikes inside Russian territory. The updated policy, announced today, asserts that Moscow may consider an attack by a non-nuclear state — if aided by a nuclear power — as a collective act of aggression on Russia. Kremlin spokesperson Dmitry Peskov emphasized that Russia reserves the right to respond with nuclear weapons if faced with conventional attacks against itself or Belarus. Meanwhile, as conflict in Ukraine intensifies, NATO allies Sweden and Finland have started distributing wartime survival guides to citizens, instructing them to stockpile essentials such as diapers, medication, and baby food.

— Ukraine targets Russian arsenal with ATACMS missiles in reported first strike. Kyiv reportedly targeted a Russian arsenal near Karachev, Bryansk, marking what could be Ukraine’s first use of U.S.-supplied ATACMS missiles on Russian soil, according to two Ukrainian media outlets cited by Reuters. While there was no official confirmation from Kyiv, the strike allegedly triggered significant secondary explosions. The move follows recent U.S. approval allowing Kyiv to use American weapons to strike deeper into Russia. Russia, for its part, claimed the downing of multiple Ukrainian drones and reported extensive countermeasures. The development comes amid rising tensions, including Russia’s use of North Korean ground forces.

— Ukraine wheat, corn plantings to rise for 2025 harvest. Ukrainian Agriculture Minister Taras Vysotskiy told Reuters the country’s winter wheat plantings could increase to 5 million hectares for next year’s harvest from 4.6 million for this year. That may increase production to 25 MMT from 22 MMT this year. Vysotskiy also said corn plantings next spring are expected to increase 500,000 hectares to 4.4 million hectares, while soybean area will decline. The area seeded to sunflowers is expected to hold around 5.5 million hectares in 2025.

— Beijing, Shanghai announce tax breaks to boost ailing property sector. Beijing and Shanghai have announced tax breaks to spur home purchases as distress in the property sector continues to drag on the economy. Beijing and Shanghai residents looking to sell an existing property will be exempt from paying the value-added tax so long as they have held onto it for more than two years, statements from local authorities said. The two cities also raised the standard for levying deed taxes to properties larger than 140 square meters (1,500 square feet), up from 90. Other major Chinese cities are widely expected to follow suit.

— Can Trump’s hardball tactics on China ease America’s fentanyl crisis? President-elect says he will punish China if it doesn’t choke off the flow of ingredients, but Beijing could balk if relations sour. Link to more via the Wall Street Journal.

— The Economist: America and China’s trade war will rock the world. Countries that had previously managed to sit out the spat will be dragged into it. Link for details.

— Mexico’s push for self-sufficiency in dry bean production under President Sheinbaum may reduce U.S. imports, shifting trade dynamics and potentially challenging USMCA agreements, despite no formal embargo on U.S. dry beans. Mexico has not formally imposed an embargo against U.S. dry beans, but recent agricultural policies under President Claudia Sheinbaum indicate a significant shift toward self-sufficiency in bean production that could reduce reliance on U.S. imports. This initiative is part of a broader strategy aimed at revitalizing domestic agriculture and ensuring food sovereignty, reminiscent of practices from the 1980s.

Increase in domestic production: The Sheinbaum administration aims to boost bean production by approximately 30% over the next six years. This includes establishing research facilities to develop higher-yield bean seeds and providing support to farmers.

Reduction of imports: The government’s focus on enhancing domestic production may lead to a decrease in bean imports from the U.S., which has historically been a key supplier. This shift could potentially strain trade relations with the United States, as it contradicts the principles of free trade established under the U.S.-Mexico-Canada Agreement (USMCA) by prioritizing domestic production through government interventions.

Under previous agreements like NAFTA, Mexico eliminated import licensing requirements for U.S. dry beans, allowing for duty-free access up to certain quotas. However, the recent push for self-sufficiency might lead to changes in these arrangements.

Potential trade conflicts: If Mexico’s agricultural policies result in reduced market access for U.S. beans or if they implement protective measures such as price supports, this could lead to trade disputes under the USMCA framework. Such actions may be perceived as protectionist and could provoke legal challenges or retaliatory measures from the United States. This especially would be the case once President-elect Donald Trump assumes his second term.

Bottom line: While there is no outright embargo on U.S. dry beans, Mexico’s strategic shift towards self-sufficiency in bean production may significantly impact its import patterns and trade relations with the United States. The emphasis on domestic agriculture reflects a broader trend in Mexican policy that could challenge existing trade agreements and alter the dynamics of agricultural exports between the two countries.

— House GOP solicits feedback on biofuel credits amid expiring provisions. House Republican tax writers are reaching out to biofuel supply chain stakeholders for input as existing tax credits near expiration, with no replacement guidance yet from the Treasury. The focus is on the 45Z credit established in the 2022 tax-and-climate law. GOP Reps. Adrian Smith (R-Neb.) and Randy Feenstra (R-Iowa) lead the initiative, seeking stakeholder insights on maximizing the impact of biofuel provisions for energy production and rural development. Industry calls for extending existing credits have increased amid bipartisan interest in updates for biodiesel and sustainable aviation fuel incentives, alongside broader discussions on new credit parameters.

— California tightens Low Carbon Fuel Standard (LCFS). Shortly after the recent U.S. elections, California’s Air Resources Board (CARB) approved significant updates to the state’s Low Carbon Fuel Standard (LCFS), a program that generated $2.8 billion in regulatory credits last year. The new measures will make it harder for biofuel producers to earn credits while favoring electric vehicle (EV) charging infrastructure, anticipated to become the main beneficiary by 2030. Funding for EV initiatives, estimated at $500 million to $1.4 billion annually, will be supported by fossil-fuel suppliers. The shift, designed to stabilize credit prices and reduce credit oversupply, will intensify emissions reductions targets for transport fuels and impose stricter standards on biofuels. As a result, biofuel producers may need to adapt by lowering carbon intensity or adopting new technologies to stay competitive. This evolving policy is expected to influence similar initiatives globally.

— Concerning H5N1 genetic mutations identified. The genetic sequencing of the H5N1 virus infecting a hospitalized teenager in British Columbia revealed mutations that increase its potential for human infection. The teenager remains critically ill, contrasting with typically milder recent H5N1 cases linked to poultry exposure. Despite no evidence of human-to-human transmission, researchers note the virus likely mutated during infection, highlighting its adaptability. Experts caution against overreaction but recognize the potential threat of transmissibility among humans. Analysts say this case stresses the need for vigilant global monitoring and public health preparedness.

— Booker urges EPA to ban dicamba herbicide amid crop damage concerns. Sen. Cory Booker (D-N.J.), a member of the Senate Ag Committee, is calling on the Environmental Protection Agency (EPA) to halt the use of dicamba, a herbicide he said is known to drift and cause damage to millions of acres of sensitive crops. In a letter to EPA Administrator Michael Regan, Booker urged the denial of three pending applications for dicamba product re-approval, stating that past attempts to mitigate its harmful effects have consistently failed. Dicamba has been used for decades on various crops and non-agricultural areas like lawns and turf, according to the EPA. Link to Booker letter.

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