House Exits Early; Stabenow Meeting with G.T. Thompson Postponed

Biden hits Israel with arms embargo | Effort to oust Johnson fails | China gets good trade news

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May 09, 2024 04:40 AM

Biden threatens Israel with arms embargo | Effort to oust Johnson fails | China gets good trade news

Today’s Digital Newspaper

Modified format today as I am off early to St. Louis to attend a family wedding. On Monday I journey to Chicago for a speech at a Fastmarkets conference.

— Equities on Wednesday: The Dow ended higher while the Nasdaq and S&P 500 were lower, unable to spend much time in positive territory during the session. The Dow was up 172.13 points, 0.44%, at 39,056.39. The Nasdaq lost 29.80 points, 0.18%, at 16,302.76. The S&P 500 eased 0.03 point, 0.00%, at 5,187.67.

— Hedge funds are betting the yen will weaken to 160 in coming weeks, option traders said, though the drop is contained by intervention fears.

— Federal Reserve Bank of Boston President Susan Collins signaled interest rates will likely need to be held at a two-decade high for longer than previously thought to damp demand and reduce price pressures. Collins, who noted the lack of disinflationary progress in 2024, said slower economic growth will be necessary to make sure inflation remains on a sustainable path to the Fed’s 2% goal. She didn’t offer an estimate on when rate cuts may happen. Meanwhile, the Fed’s Lisa Cook said the growth in private credit has not hurt the financial system’s resilience.

— U.S. mortgage rates fell for the first time since late March, to 7.18% for a 30-year fixed loan, giving some relief to homebuyers and lifting applications for purchases and refinancing.

— Key items ahead:

Initial jobless claims for the week ending May 4 are released at 8:30 a.m. today.
Supreme Court is scheduled to deliver opinions today.
The Bank of England is expected to keep its key rate at a 16-year high of 5.25% today, As with its counterpart the European Central Bank, traders are eyeing the June meetings as the first likely cut to interest rates.
House GOP farm bill papers to be released today or Friday.
House Ag Committee markup of GOP farm bill proposals, May 23.
Stabenow meeting with G.T. Thompson postponed as House exits early.
University of Michigan’s preliminary consumer sentiment index for May will be released Friday.
Consumer price index for April is released at 8:30 a.m. ET May 15.
Senate Intelligence Committee will hold a hearing May 15 on foreign threats to the 2024 election.
Next FEC deadline for campaign finance reports from presidential candidates, PACs and parties is May 20.
Republican convention is July 15-18 in Milwaukee.
Democratic convention is Aug. 19-22 in Chicago.

— Agriculture markets yesterday:

Corn: July corn fell 8 1/2 cents to $4.58 1/2, ending near the session low.
Soy complex: July soybeans fell 18 3/4 cents to $12.27 3/4. July soybean meal closed down $4.70 at $378.50. July bean oil dropped 71 points to 43.79 cents. Prices in all three markets closed near their session lows.
Wheat: July SRW wheat fell 8 3/4 cents to $6.34 but ended well off the session low. July HRW futures closed 15 1/2 cents lower at $6.48 1/2, ending just above the session low. July HRS futures fell 16 1/4 cents to $7.02 3/4.
Cotton: July cotton closed up 256 points at 80.06 cents today and near the session high.
Cattle: The cattle complex turned downward Wednesday. June live cattle fell $1.15 to $176.475, while August feeder futures tumbled $2.025 to $252.40.
Hogs: June lean hog futures rallied 40 cents to $98.725 though the contract settled well off session highs.

— House lacks votes to oust Johnson as Dems save him. A weakened Rep. Marjorie Taylor Greene (R-Ga.) brought up her motion to oust Speaker Mike Johnson (R-La.) and asked for a vote. Greene brought up the so-called motion to vacate as privileged. The motion would have had to be voted on within two legislative days, but House Majority Leader Steve Scalise (R-La.) moved immediately to table, or set aside Greene’s resolution right after it was read into the record by the House clerk. It was the second attempt to depose a speaker within around eight months. Democrats have promised to head off an attempt to topple Johnson. But Democrats voted with GOP to table the move

Of note: The vote was 359-43-7. Only 32 Democrats and 11 Republicans — including Greene and rebel GOP Reps. Chip Roy, Andy Biggs and Thomas Massie — voted to advance the effort, while seven Democrats voted present, emphasizing the lack of support Greene’s motion had. The House was set to leave on Wednesday evening — after passing a short-term extension on the Federal Aviation Administration — when Greene stood up in the House chamber. She began reading her motion as members in her own party booed her.

The full list of Republicans voting to oust Johnson: Greene (Ga.), Massie (Ky.), Gosar (Ariz.), Biggs (Ariz.), Roy (Texas), Burlison (Mo.), Crane (Ariz.), Davidson (Ohio), Mooney (W.Va.), Moore (R-Ala.) and Spartz (Ind.). (Note: Some of those Republicans who voted against tabling the motion would’ve also supported Johnson if an actual motion to vacate came up for a vote.)

Johnson said again this week that he intends to run again for the House’s top spot if Republicans keep the majority.

“Hopefully this is the end of the personality politics and the frivolous character assassination that has defined the 118th Congress,” Johnson told reporters after the vote.

— The House of Representatives passed a one-week extension for the Federal Aviation Administration (FAA), allowing it more time to operate and collect taxes as Congress works through delays in the Senate regarding a long-term bill. The temporary bill, HR 8289, extends the deadline from May 10 to May 17, marking the fourth such extension since September. This move is necessary to prevent a lapse in FAA’s authority, which could result in the loss of tens of millions of dollars a day from uncollected ticket and fuel taxes.

The Senate still needs to approve this measure to avoid disruption.

Meanwhile, House and Senate committee leaders have agreed on a compromise text for a comprehensive FAA bill (HR 3935), but Senate negotiations have been hindered by demands for votes on amendments and discussions about shortening debate. Rep. Sam Graves (R-Mo.), who was involved in negotiating the measure, stated that the extension is crucial due to the Senate’s delays in passing the comprehensive FAA legislation in time for the House to vote before their deadline.

— Dynamics within the House of Representatives are poised for some shifts due to upcoming special elections and recent developments. The current narrow GOP majority of 217-213, exacerbated by the swearing-in of Democrat Tim Kennedy (D-N.Y.), has left Republican leaders with minimal room for defections on party-line votes. This close margin is the tightest in the 118th Congress thus far.

Looking ahead, three special elections are scheduled in districts that traditionally lean Republican, potentially expanding the GOP’s majority:

California’s 20th District: This election is to fill the vacancy left by former Speaker Kevin McCarthy. The candidates are Vince Fong, a state assemblyman and former McCarthy aide, and Mike Boudreaux, a county sheriff. Both are also contenders in the general election scheduled for November 5.
Ohio’s 6th District: Voters are likely to replace former Rep. Bill Johnson with state Sen. Michael Rulli, who is also running in the fall election.
Colorado’s 4th District: The seat vacated by former Rep. Ken Buck is likely to go to Greg Lopez, a former mayor. Although Lopez is not pursuing a full two-year term, he is expected to win the special election. Meanwhile, Rep. Lauren Boebert is vying for the Republican nomination for this district in the regular primary.

Bottom line: These elections could potentially increase the Republican tally to 220 seats, assuming no further changes occur. This situation could provide some much-needed flexibility for the Republican leadership in managing party-line votes and advancing their legislative agenda.

— A rebound in China’s export growth in April exceeded market expectations and signals a potential upturn in overseas orders despite geopolitical uncertainties. Highlights:

Export and import figures: In April, China’s exports increased by 1.5% to $292.5 billion, contrasting a 7.5% decline in March. Imports also showed a robust recovery, rising by 8.4% after a decline of 1.9% in March.
Trade surplus: The trade surplus widened to $72.4 billion in April from $58.6 billion in March, reflecting a stronger export performance.
Economic context: The positive export figures are seen as vital for China’s economic stability, especially against domestic challenges like the property slump and low household spending. Economists like Larry Hu from Macquarie Capital highlight the role of rising global demand and a recovering tech cycle in supporting China’s exports. This is expected to be a significant driver for China’s economic growth in 2024.
Geopolitical and market shifts: Despite ongoing geopolitical tensions, the export destinations are diversifying, with increased shipments to Southeast Asia and Mexico, although the U.S. remains a major final destination. Notably, exports to traditional partners like the U.S., the EU, and Russia have declined.
Global trade outlook: The Organization for Economic Cooperation and Development (OECD) and the International Monetary Fund (IMF) forecast a positive trend in global trade, expecting growth to rebound in the coming years, which should benefit Chinese exports.

— CBO: Cost to extend Trump tax cuts could hit $4.6 trillion, more than doubling initial estimate. The Congressional Budget Office (CBO) has significantly increased its projection for the cost of extending the 2017 tax cuts enacted under President Donald Trump to $4.6 trillion over the next decade. This figure is over double the initial cost of the tax cuts, which totaled $1.9 trillion. The potential extension, which includes reductions in individual tax rates and an expansion of the child tax credit, is becoming a major fiscal challenge as parts of the cuts are set to expire by the end of 2025.

Of note: Extending the personal income tax cuts will cost $3.8 trillion alone. Other tax cuts set to expire in 2025 include restrictions on the estate tax and valuable write-offs for small business owners.

Phillip Swagel, the CBO Director, highlighted the “daunting” outlook for the U.S. fiscal situation, with the 2024 deficit now expected to approach $2 trillion. This worsening financial scenario is driven in part by recent costly measures, including a $95 billion aid package for Ukraine, Israel, and Taiwan, a bank rescue by the FDIC, and expanded federal student loan forgiveness.

The looming expiration of these tax cuts is pressing lawmakers to consider measures to offset the deficit, possibly through spending reductions or scaling back the tax cuts.

Of note: This is a key reason why farm-state lawmakers and farm groups should push for a new farm bill this year rather than punt the issue again into 2025 or even later when “fiscal cliff” issues could force lawmakers to search for budget cuts.)

Meanwhile, President Joe Biden has proposed nearly $5 trillion in new tax increases targeting businesses and high earners. On the other hand, Donald Trump, the presumptive Republican nominee, has committed to renewing the tax cuts but has not yet detailed his plan.

The CBO warns that without timely intervention to manage the deficit, the necessary adjustments could become more severe. Projections indicate that by 2034, deficits could rise to $2.6 trillion, or over 6% of GDP, a level comparable to other major national crises. Public debt is also expected to reach an unprecedented 116% of GDP by the same year. This fiscal trajectory underscores the urgent need for strategic and sustainable financial management to maintain economic stability.

Immigration: Swagel also addressed the economic effects of immigration, pointing to CBO research that found the influx of foreign workers is expected to boost GDP by about $7 trillion over the next decade by swelling the labor force and increasing demand. While those findings spurred fresh number-crunching among Wall Street economists, prompting some to revise up their economic forecasts, Swagel said the impact from immigration on inflation has so far been limited.

— Taking the gloves off on Senate farm bill framework. Sen. Tommy Tuberville (R-Ala.) criticized the Democrats’ farm bill framework, led by Senate Ag Committee Chair Debbie Stabenow (D-Mich.), as a partisan document that neglects essential agricultural priorities in favor of spending on nutrition and climate-related conservation.

Tuberville contends that the proposal fails to adequately support farmers, foresters, and producers by not addressing needed increases in reference prices and crop insurance protections. Instead, he says, it diverts more than $20 billion to “partisan priorities” such as expanding SNAP eligibility to Puerto Rican residents and linking conservation efforts to climate change initiatives.

Sen. Tuberville expressed appreciation for a contrasting farm bill framework by Chairman GT Thompson (R-Pa.) of the House Ag Committee, which he believes provides vital support for southern commodities. He emphasized the importance of the farm bill in national food security and expressed his commitment to continuing to advocate for the needs of Alabama’s agricultural sector.

— USDA requests info on development of vaccine against HPAI for use in cattle. USDA’s Animal and Plant Health Inspection Service (APHIS) issued a request for information concerning the development of a vaccine against Highly Pathogenic Avian Influenza (HPAI) for use in cattle. This request, detailed in the Center for Veterinary Biologics Notice 24-09, seeks to gather insights from manufacturers about their ability to develop, license, and manufacture a vaccine that meets U.S. standards for safety and efficacy.

The initiative represents a significant step in addressing the spread of HPAI, particularly concerning its potential impact on cattle, an area currently underexplored. Interested manufacturers are encouraged to provide information on their capabilities to contribute to this public health effort. The full details and the official notice can be accessed through this link. USDA said this move by APHIS underscores the ongoing efforts to broaden preventive measures against HPAI beyond the traditional focus on poultry, acknowledging the complex interconnections within animal health and public safety.

— Just one human is infected by bird flu in the US, but more cases are likely. The U.S. is facing a concerning outbreak of avian flu (H5N1) that has begun to spread among mammals, including cows, skunks, mountain lions, and red foxes. Despite this, only one human case has been officially reported, likely due to the limited testing being conducted, according to a Bloomberg assessment (link). State governments and farm owners have not invited the Centers for Disease Control and Prevention (CDC) to perform necessary on-the-ground surveillance, which hampers the federal response to what could be a significant threat.

The reluctance of dairy workers to undergo testing is a major barrier in tracking the virus’s spread, the article notes. Many workers, often immigrants, fear losing their jobs or distrust government officials, making them hesitant to participate in testing. Additionally, private farms are wary of the economic repercussions of detecting the virus within their herds.

CDC Director Mandy Cohen emphasized the agency’s readiness to deploy testing teams, but the lack of cooperation from states and farms is a significant obstacle. The virus’s presence in 1 in 5 retail milk samples, albeit neutralized by pasteurization, indicates widespread infection among cattle. This situation, combined with underfunding and a lack of comprehensive surveillance, leaves the U.S. unprepared for a potential pandemic scenario, reminiscent of early Covid-19 challenges. Public health experts are concerned that without a change in testing and surveillance strategies, the country might miss the opportunity to control this outbreak effectively.

— EPA, FDA and USDA jointly announced a plan to revise and improve their regulatory framework for biotechnology products. This announcement comes in response to President Biden’s Executive Order 14081, aimed at advancing biotechnology and biomanufacturing to foster a sustainable, safe, and secure American bioeconomy. Link for info.

The plan outlines efforts to enhance public confidence in biotechnology through greater transparency, predictability, and efficiency of the regulatory system. It includes:

Clarifying and streamlining regulations for genetically engineered plants, animals, and microorganisms.
Enhancing communication and coordination between the agencies through updates and expansions in information sharing.
Launching a pilot project focused on modified microbes to evaluate the development of a web-based tool that helps developers understand regulatory responsibilities.

The agencies have focused on five key areas of biotechnology products:

Modified plants
Modified animals
Modified microorganisms
Human drugs, biologics, and medical devices
Cross-cutting regulatory issues

— India not ready to decide on sugar exports. India’s government is not ready to decide about whether it will allow sugar exports this year and will need several months to assess the issue, a government official said. India has banned sugar exports since June 2022 with the aim of ensuring adequate domestic supplies for human consumption and ethanol production. The official said sugar exports were unlikely to resume before the government had guarantees that there would be enough sugar to satisfy local demand plus stocks for at least two and a half months. Ethanol production is a priority over exports.

India’s sugar industry body ISMA recently asked the government to allow exports of 2 MMT.

Meanwhile, the global sugar market is heading to a small surplus of 1.62 MMT in the 2024-25 season (Oct.-Sept.), after a projected deficit of 1.79 MMT this year, as production in Thailand recovers, consultancy Datagro said.

— EU aid to Ukraine. EU diplomats agreed to allocate approximately €3 billion ($3.224 bil.) from the interest generated by frozen Russian state assets to support Ukraine, aiding both military supplies and reconstruction efforts. This decision comes amid ongoing negotiations and concerns among EU officials about the broader implications of seizing assets outright.

Since the 2022 invasion by Russia, around €210 billion in assets from the Moscow central bank have been frozen, primarily held at the Euroclear depositary in Belgium. The plan to utilize the interest from these funds, which is estimated to be around €3 billion annually, was supported by both the EU and the G7. This funding is part of a broader strategy to bolster Ukraine’s military capabilities, complementing the €89 billion recently committed by the U.S. Congress.

However, Ukrainian officials have urged the EU to take more decisive action by fully confiscating the Russian assets, arguing that Russia should fully bear the cost of the conflict. This proposal has met with resistance from EU and European Central Bank officials who fear that such a move could set a dangerous precedent and potentially undermine the euro’s stability.

The agreement also specifies that Euroclear will retain a 10% provisional buffer from the profits to cover potential litigation costs and will receive a 0.3% incentive fee, while 90% of the funds will be directed through the European Peace Facility to support Ukraine’s military expenditures.

Furthermore, Belgian Prime Minister Alexander De Croo has committed to sending an additional €1.5 billion directly to Ukraine, derived from corporate taxes on Euroclear’s windfall profits from managing these frozen assets.

The EU is also setting conditions for Ukraine to meet to access a separate €50 billion in EU grants and loans, aimed at supporting the country’s broader needs during the conflict. This structured financial support illustrates the EU’s multifaceted approach to aiding Ukraine while navigating complex international financial and legal considerations.

— Biden: Will stop weapons shipments if Israel invades Rafah. President Biden said in an interview with CNN that civilians in Gaza have been killed by U.S. weapons as Israel has gone after “population centers.” Biden continued: “If they go into Rafah, I’m not supplying the weapons that have been used historically ... to deal with the cities.” His acknowledgement that U.S. weapons have been used to kill civilians in Gaza and conditioning of support to the American ally is a notable change from his previous public comments on Israel’s military operation.

— Key GOP leaders urge Biden to accelerate security aid to Israel. House Speaker Mike Johnson (R-La.) and Senate Republican Leader Mitch McConnell (R-Ky.) have urged President Biden to expedite security assistance to Israel, expressing concern over delays in weapons shipments. In their letter, they emphasized the urgency of the assistance, prompted by media reports suggesting a hold-up in the administration’s delivery of military support to Israel. The Republican leaders are seeking clarification from the President, including assurances that no further shipments will be paused. This action highlights their prioritization of U.S. support for Israel’s security amidst ongoing geopolitical tensions.

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