House Speaker McCarthy Lays Down Marker in Debt-Limit Debate

China’s Q1 GDP beats expectations | Leaders in meat exports | USDA data users’ confab

Unexpectedly quick growth in China offers fresh hope for the global economy. China’s economy expanded 4.5% in the first quarter of the year compared with the same three months a year earlier, China’s National Bureau of Statistics said Tuesday. It beat the FactSet economists’ consensus for 3.4% growth. Growth was driven by Chinese consumers. More in China section.

House Speaker Kevin McCarthy (R-Calif.) on Monday laid out House Republicans’ demands for agreeing to a debt-limit increase: They want Congress to place limits on federal spending, claw back Covid-19 aid and require Americans to work to receive federal benefits.

“Let me be clear: A no-strings-attached debt-limit increase will not pass,” McCarthy said. More in Policy section.

“Debt limit negotiations are an opportunity to examine our nation’s finances,” Rep. McCarthy said. U.S. debt held by the public is more than $25 trillion. Spending as a share of the economy is 23.7%, the Congressional Budget Office reported in February, and rising to 24.9% by 2033, a level reached only twice since 1946 — in 2020 and 2021 when Congress shoveled money into the pandemic emergency.

USDA data users’ meeting today. USDA will hold its spring data users’ meeting this afternoon. One of the key topics discussed will be the format for the weekly export sales data after the botched release of a new reporting system last August – the Export Sales Reporting and Maintenance System 2.0 (ESRMS 2.0). Based on pre-meeting materials, USDA will continue to use its legacy reporting system for export sales “until FAS addresses concerns and corrects issues identified during the launch of ESRMS 2.0.”

President Joe Biden will sign an executive order today that includes more than 50 directives for various cabinet-level agencies aimed at increasing the affordability of child care and improving access, federal coverage and transparency for home care services, including for veterans.

Ukraine said its crop shipments through the Black Sea safe-passage corridor remained suspended for a second day, adding to uncertainty about future supplies from the key agricultural exporter. Meanwhile, there are differing views on resumption of Ukraine grain export inspections. More in Russia/Ukraine section.

The House today will hold a WOTUS rule vote but the issue is expected to go nowhere because the House and the Senate do not have the votes to override a Biden veto. ‘

Manufacturing executives say they’ve experienced a cutback in credit and tighter loan terms in recent weeks. More in Markets section.

Europe is filling up natural gas storage sites well ahead of normal.

China pork imports increased in March China’s Q1 pork output hits five-year high. Details in China section.

Equities today: U.S. Dow opened slightly lower, largely on less-than-expected earnings report form Goldman Sachs. In Asia, Japan +0.5%. Hong Kong -0.6%. China +0.2%. India -0.4%. In Europe, at midday, London +0.3%. Paris +0.4%. Frankfurt +0.4%.

Earnings reports today include Bank of America (which reported first-quarter earnings topping expectations as profit climbed 15%), Goldman Sachs (missed analysts’ expectations for revenue after taking a $470 million hit tied to the sale of consumer loans), and Bank of New York Mellon (deposits fell less than analysts had expected last quarter).

U.S. equities yesterday: The Dow added 100.71 points, 0.3%, to 33,987.18. The S&P 500 rose 13.68 points, 0.3%, to 4,151.32. The Nasdaq increased 34.26 points, 0.3%, to 12,157.72.

Earnings for S&P 500 companies are expected to have declined 4.8% Y/Y in the first quarter, according to data from Refinitiv, marking the second consecutive drop in year-over-year earnings growth. While that would translate into the first “earnings recession” since the pandemic, it could be show inflation is coming down, which is weighing on pricing and profit margins.

Agriculture markets yesterday:

• Corn: May corn rose 10 1/4 cents to $6.76 1/2, marking the highest close since February 21.
• Soy complex: May soybeans rallied 16 1/2 cents to $15.17. May soybean meal notched $6.00 gains, closing at $465.70. May soyoil rallied 91 points, settling at 54.57 cents.
• Wheat: May SRW wheat gained 14 cents to $6.96 1/2, near the session high and hit a two-week high. May HRW wheat rose 11 cents at $8.89 3/4, near the session high and closed at a seven-week high close. May spring wheat futures rallied 12 3/4 cents settling at $8.89, the session high.
• Cotton: May cotton rose 44-points to 83.30 cents, posting a mid-range close after trading to the highest level since March 7.
• Cattle: June live cattle rose $1.15 to $164.875 and near the session high. Prices last Thursday hit a contract and record high. May feeder cattle surged $2.85 at $210.75, near the session high and hit another contract high.
• Hogs: The expiring April future fell 62 cents to $71.63 in its final day of trading, while the June future rose $1.30 to $88.175.
  

Ag markets today: Soybean futures led a round of followthrough buying during overnight trade. As of 7:30 a.m. ET, corn futures were trading 2 to 3 cents higher, soybeans were 9 to 11 cents higher, SRW wheat futures were around 7 cents higher, HRW wheat was 1 to 2 cents higher and HRS wheat futures were 6 to 7 cents higher. Front-month crude oil futures were modestly weaker, and the U.S. dollar index was around 400 points lower this morning.

Market quotes of note:

• Investors are the most underweight stocks versus bonds since 2009, according to Bank of America’s global fund manager survey. They indicated that fears of a credit crunch have driven up bond allocation to a net 10% overweight, while a net 63% now expect a weaker economy.
  
• Companies are trying to diversify supply chains away from China. Michael Dell told the Financial Times that customers were demanding that his computer company source products from outside China to avoid any supply disruptions. JPMorgan Chase forecasts that Apple will make a quarter of its products outside China by 2025, up from less than 5%.
  

• White House: America’s missing workers are back. “Overall labor force participation is back to its prepandemic forecasted level, and the closely watched prime-age (25-54) labor force participation rate is now a tick above prepandemic levels. Immigration flows, depressed during the pandemic, have also rebounded. Job openings are also moderating somewhat, signaling that labor demand and supply are becoming better aligned, a necessary condition for achieving a path to stable and steady growth,” the Council of Economic Advisers said in a blog post (link).

  
  

• Says grain analyst and trader Richard Crow: “The barge freight keeps falling, which usually signals reduced demand for export grain. Brazil’s basis levels remain well under the U.S. for the export business.”
  
• The lonely bull. The more the S&P 500 goes up — and it’s risen 6% in a month — the less people trust it. Hedge funds have been loading up bets against US stocks, and a model kept by Goldman Sachs shows mutual fund and futures-market outflows suggest that rather than rise, the index should have been down 3% over the past three months. “Being bullish today is a very lonely proposition,” said Eric Diton, president and managing director of the Wealth Alliance.
  

• Traders are betting the worst is over for equity markets — for now, at least. Measures of volatility across a range of asset classes have dropped, a sign that some investors are positioning for the recent calm to persist.

  
  

On tap today:

• U.S. housing starts are expected to fall to an annual pace of 1.4 million in March from 1.45 million one month earlier. (8:30 a.m. ET) UPDATE: Housing starts in the U.S. went down 0.8% month over month to 1.42 million in March, following a 7.3% surge in February, but slightly beating forecasts of 1.4 million. A sharp decline in multifamily starts more than offset a pickup in the construction of single-family homes. Meanwhile, building permits tumbled 8.8% to 1.413 million, missing expectations of 1.45 million and remaining close to December’s 31-month low.
• Federal Reserve governor Michelle Bowman speaks about central bank digital currencies at 1 p.m. ET. Investors will be looking any further clues about May rate hike plans and longer-term policy outlook.

Apple joined the competition for bank deposits on Monday with the launch of a high-yield savings account that pays an annual percentage yield of 4.15%. That rate is more than 10 times the national average, Apple says. The high-yield savings accounts, available in conjunction with Apple’s credit card, are one of the tech company’s latest steps into the financial-services space. The details:

• You can open the savings account via the Wallet app on your iPhone, but you’ll need an Apple Card (Apple’s credit card) to be eligible.
• No minimum deposit is required, the max balance is $250,000, and all of your funds are FDIC-insured.
  

A competitive field of online banks are dangling yields. Marcus by Goldman Sachs offers a 3.9% annual percentage yield, and Wealthfront’s cash account offers 4.3%. Other accounts advertise a more than 5% yield on your cash.

Manufacturing executives say they’ve experienced a cutback in credit and tighter loan terms in recent weeks, according to a new poll of 150 U.S.-based manufacturing executives by Forbes, Xometry and Zogby, yet they remain optimistic. Details:

• 82% say they’ve either moved overseas factories back home or were in the process.
• 3/4 say they’ve already hiked prices this year, many by double-digits.
• Top investment priorities are automation of workflow operations, AI and robotics.
  

Still writing checks? You might want to reconsider as check fraud skyrockets. Last year, banks reported 460,000 cases of check fraud, including “check-washing,” almost double the number the year before, according to the Treasury Department.

On this day in 1933, President Franklin D. Roosevelt said he would bar exports of gold and free the U.S. dollar to float against foreign currencies. The move flushed out gold Americans had squirreled away during the Depression, flooding banks with cash and setting the stage for an economic recovery.

In 1971, President Richard Nixon completely severed the link between the U.S. dollar and gold, ending the possibility of converting dollars into gold by foreign governments. This move marked the end of the Bretton Woods system, which had been in place since 1944 and established the U.S. dollar as the world’s primary reserve currency, pegged to gold.

Market perspectives:

• Outside markets: The U.S. dollar index was lower. The yield on the 10-year US Treasury note fell, trading around 3.58%. Crude oil is lower, with U.S. crude around $80.45 per barrel and Brent around $84.45 per barrel. Gold and silver are seeing gains, with gold around $2,016 per troy ounce and silver around $25.23 per troy ounce.

• Europe is filling up natural gas storage sites well ahead of normal. Across the European Union, stockpiles were 55% full by mid-April — a level reached 11 weeks earlier than in 2021. Many countries are even further ahead, with Austria replenishing its own storage to two-thirds of capacity almost five months sooner than in 2021 — and that’s with almost no piped gas from Russia. Link for details via Bloomberg.

• Ag trade: Japan is seeking 66,377 MT of milling wheat in its weekly tender.

• NWS weather outlook: Snow over the Cascades on Tuesday and Wednesday; moderate snow over parts of the Northern Plains on Wednesday... ...There is a Slight Risk of severe thunderstorms over parts of the Central/ Southern Plains into the Middle Mississippi Valley on Wednesday... ...There is a Marginal Risk of excessive rainfall over parts of the Central Plains, Upper/Middle Mississippi Valley, and Upper Great Lakes on Wednesday.

Items in Pro Farmer’s First Thing Today include:

• Soybeans lead overnight gains
• Condition ratings continue to show two starkly different U.S. winter wheat crops
• Attaché cuts Argentine soybean crop forecast
• Consultant cuts Argentine crop estimates
• Chinese demand for wheat reserves waning
• Cash cattle prices surge
• Waiting on cash hog index to bottom

— The EU warned Hungary and Poland against unilateral trade action after both countries announced bans on imports of Ukrainian grain. A spokesperson for the bloc said individual member states could not make trade-policy decisions. The bans were implemented to protect farmers from a glut of cheap Ukrainian grain.

— Differing views on resumption of Ukraine grain export inspections. Inspections of ships moving grain from Ukraine have restarted, RIA news agency reported, citing Russia’s foreign ministry. A ministry official quoted by RIA blamed Monday’s interruption on Ukraine’s failure to observe agreed procedures but said the issue has been resolved. However, a senior Ukrainian official told Reuters, “Nothing has been resolved. There are no inspections.”

— Poland, Ukraine continue grain transit talks. Ukraine will try to unblock exports of grain through Poland in a second day of talks in Warsaw on Tuesday. Poland, Hungary and Slovakia have recently banned imports of Ukrainian grains to protect their markets from an influx of cheaper supplies. Polish Agriculture Minister Robert Telus told public radio station PR1 on Tuesday talks were set to continue. “We are talking with the EU as well as with Ukraine to find solutions. We want these products to go to Europe, but go deep into Europe,” Telus said.

— Egypt backed off plan to supply Moscow with rockets. “Egypt paused a plan to secretly supply rockets to Russia last month following talks with senior U.S. officials and instead decided to produce artillery ammunition for Ukraine,” the Washington Post reports, citing five U.S. intelligence documents that have not been previously reported.

— A Russian court on Tuesday rejected Wall Street Journal reporter Evan Gershkovich’s appeal against his arrest and pretrial detention on spying charges, as U.S. officials work to secure his release and condemn Russia’s purportedly political motives in pursuing the American journalist. The reporter, who denies any wrongdoing, is under pretrial detention until late May and the appeal would only have determined how he is detained until trial, rather than the nature of the espionage charges.

— Saudi Arabia and the UAE are scooping up Russian oil products at steep discounts. Over U.S. objections, the Gulf countries are using the products internally and exporting their own barrels at market rates, boosting their profits. The countries, especially the UAE, have also become key storage and trading hubs for Russian energy products that the war in Ukraine has made harder to ship around the globe.

— House Speaker lays down market in debt-limit debate. Highlights of House Speaker Kevin McCarthy’s (R-Calif.) speech Monday at the New York Stock Exchange:

• Unless President Joe Biden agrees with conservatives to cut federal spending and debt, the economic consequences of a continued impasse will be on him.
• Has a general plan to resolve a looming debt ceiling crisis but is still working to unite his conference.
• Key quotes: “Debt limit negotiations are an opportunity to examine our nation’s finances… Defaulting on our debt is not an option, but neither is a future of higher taxes, higher interest rates, more dependency on China and an economy that doesn’t work for working Americans.”
• Said in the coming weeks, the House “will vote on a bill to lift the debt ceiling into the next year.”
• House Republicans want to cut spending back to FY 2022 levels, and cap future spending growth at 1% a year over the next decade.
• Said House Republicans are targeting Supplemental Nutrition Assistance Program (SNAP) work requirements. The GOP proposal will “restore work requirements that ensure able-bodied adults without dependents earn a paycheck and learn new skills that grow the economy and help the supply chain.” McCarthy said food assistance work requirements were “weakened” during the Biden administration. During the pandemic, work requirements were relaxed, but go back into full effect on May 11. “Incentives matter. And incentives today are out of whack,” McCarthy said.

Of note: McCarthy invoked a visit to the NYSE in 1985 by then-President Ronald Reagan, the first sitting president to do so. Back then, Reagan also called for a halt to a government spending spree. McCarthy said Monday those words “echo throughout these halls.”

Alternative strategy: House Democrats have discussed a parliamentary tactic called a discharge petition to force a vote on a debt-limit increase without the cooperation of leadership. The idea was shelved earlier this year but is still available. At least five Republicans in addition to all 213 Democrats are needed to support it.

Next step: GOP members will meet today to discuss McCarthy’s proposal. McCarthy has a tough task: He has a slim majority to pass his plan, and the Democratic-led Senate won’t entertain his offer.

Deadline for debt-limit solution: The Bipartisan Policy Center has estimated a summer or early fall deadline for when the government can no longer pay its debt and obligations. The exact timing depends on 2022 tax collections, with tax filing day today. New estimates for the deadline are expected in May.

Upshot: A Wall Street Journal editorial (link) says: “The trillion-dollar question is whether Mr. McCarthy can keep his narrow majority together against this combined assault. If he can pass a debt-ceiling increase with reforms, he’ll be in a stronger negotiating position. If he fails, he’ll bring a rubber knife to an alley fight.

— Grassland signup begins. Landowners can apply through May 26 to enroll land in the Grassland Conservation Reserve Program, which pays an annual rent to preserve grassland while allowing producers to graze livestock and harvest hay from the land. Link for details.

— Nominations hearing. The Senate Banking Committee will hold a hearing to consider the nominations of Jared Bernstein as chairman of the Council of Economic Advisers, Ron Borzekowski as director of financial research at the Treasury Department, and Solomon Jeffrey Greene and David Uejio as assistant secretaries at HUD.

— China Q1 growth rate bests estimates. The Chinese economy advanced 4.5% YOY in Q1 of 2023, accelerating from a 2.9% growth in Q4 and topping market estimates of 4%. It was the strongest pace of expansion since Q1 of 2022, amid efforts from Beijing to spur the post-pandemic recovery. Retail sales growth was at a near 2-year high in March, industrial output rose the most in 5 months, and the surveyed jobless rate fell to its lowest in 7 months. Data released earlier showed exports from China unexpectedly rebounded in March, and the trade surplus came larger due to efforts to deepen trade with developed countries and explore new possibilities with emerging economies. But the statistics agency mentioned in a statement that a complex global environment and insufficient domestic demand mean the foundation for the country’s recovery is “not yet solid.” China set a modest GDP target of around 5% for 2023. Last year, the economy added 3%, missing the government’s goal of about 5.5%.

But big worries persist. The property sector, which has accounted for about a quarter of gross domestic product over the past decade, is still a drag, with the construction of new homes, offices and stores falling 5.8% year on year.

Perspective: Hitting a 5% target this year would make China, alongside India, the largest contributors to global growth in 2023, accounting for about half of the expansion, according to the International Monetary Fund.

— China pork imports increased in March. China imported 150,000 MT of pork in March, up 11.2% from last year. During the first three months of this year, China imported 530,000 MT of pork, up 27.7% from the same period last year.

— China’s Q1 pork output hits five-year high. China’s pork output in the first quarter rose 1.9% from year-ago to 15.9 MMT, the highest quarterly production since the fourth quarter of 2017. A spike in infections of African swine fever earlier this year forced many farms in the world’s top pork producer to cull pigs, pushing up slaughter numbers. China slaughtered 198.99 million hogs in the quarter, up 1.7% from the same period last year. China’s pig herd, though 2% higher than the same period a year earlier, contracted from the prior quarter’s 452.56 million head to 430.94 million.

— Only U.S. electric vehicle brands now qualify for tax credits. Starting today (April 18), the U.S. Treasury enforced stricter criteria to qualify for the full $7,500 clean vehicle credit. In new rules announced last month, the state department split the EV tax break into two: Carmakers can claim one half — $3,750 — if 50% of their vehicle’s battery components are manufactured or assembled in North America. They can claim the other half if at least 40% of its critical minerals — like graphite, lithium and cobalt — are sourced from the U.S. or a trade partner.

Just a dozen EV Models now qualify for the full $7,500 incentive in 2023, according to the Treasury Department’s list (link). Models qualifying for EV tax credits include nearly all of General Motors’ new EV models; six Ford Motor electric and plug-in hybrid models, including the Mustang Mach-E and F-150 Lightning; Tesla Model 3s and Model Ys; and Stellantis NV Jeep and Chrysler plug-in hybrids.

— Despite costing thousands of dollars more than gas-powered vehicles, EVs as a percentage of U.S. cars sold more than doubled in the past two years to 8.5% in February, car-rating business J.D. Power said. The Biden administration wants two-thirds of car sales to be EVs by 2032.

— Japanese automaker Nissan Motor aims to have seven electrified vehicle models by 2026 and 80% of its line-up to be electrified by 2030 in China, chief operating officer Ashwani Gupta said on the sidelines of the Shanghai auto show on Tuesday.

— The electric-vehicle market is brimming with choices, from hatchbacks to trucks to SUVs. The Washington Post cuts through the array of options with a guide (link) on price, battery range and environmental impact.

— Settlement proposed in challenge of RFS. The EPA, to settle a lawsuit over biofuel regulation, said on Monday it would consult with federal wildlife agencies on whether the Renewable Fuel Standard (RFS) adversely affects endangered species. The consultation would be performed before the EPA finalizes the RFS for 2023-23, now expected by June 14.

— Beehives on solar farms. Solar beekeeping — placing beehives on solar sites — can create a new revenue stream for farmers while keeping land in agricultural production and providing habitat for wildlife. Link for details via Center for Rural Affairs.

— New math of carbon emissions. Weyerhaeuser Co. has cut down more trees than any other American company since its founder started logging before the Civil War. Environmentalists have long treated it as an enemy. Now, according to the Wall Street Journal (link), the new math of carbon emissions is enabling the lumber producer to cast itself as something quite different: a force for environmental good. Its 10.6 million acres of U.S. timberland act as a giant sponge for carbon dioxide. It is selling that carbon dioxide storage capacity to other companies.

— Where the European Union gets its energy:

— Brazil was the world’s largest exporter of beef and chicken and the EU was No. 1 in pork exports in 2022. The U.S. was second in beef, pork and chicken.

— USDA is sampling bears in Wisconsin for Covid-19 to see how the virus is spreading among animals and if it’s a risk to humans. Link for details.

— President Biden will sign an executive order this afternoon directing federal agencies to explore whether they can compel companies that receive federal funds to offer their workers easier, cheaper access to child and family care.

— $5.9 million is the average Senate Democrat facing a competitive race, per the Cook Political Report with Amy Walter, had in his or her campaign account at the end of the first fundraising quarter. On average, a vulnerable Senate Democrat raised $2.3 million in the first three months of the year, per campaign finance reports filed Saturday with the Federal Election Commission.

— Senate Republicans said they won’t vote to replace absent Sen. Dianne Feinstein (D-Calif.), 89, with another Democrat on the Judiciary Committee, signaling a continued halt on most of Joe Biden’s nominees. Feinstein is currently at home at home battling a case of shingles. Sen. Susan Collins (R-Maine), one of the most moderate Republicans in the chamber, and Sen. Thom Tillis (R-N.C.), a bipartisan dealmaker on the Senate Judiciary Committee, both rejected Democrats’ plan, making it highly unlikely that there will be 10 Republican votes to approve a committee substitute.

— Securities and Exchange Commission Chair Gary Gensler is set to defend his regulatory agenda today before a House panel that has grown hostile to his plans under Republican leadership of the committee.

— The House will vote on whether to override President Joe Biden’s veto of a WOTUS resolution (HJRes 27) that would invoke the Congressional Review Act to block the Biden administration’s rule defining waters subject to environmental regulation. A two-thirds majority would be required, and the votes are lacking.

— SpaceX plans to launch its Starship rocket on Thursday after a pressurization issue scrubbed yesterday’s attempt. The new launch window for the uncrewed mission — a critical step in its plan to send humans into deep space — will open at 8:28 a.m. local time in Boca Chica, Texas.

— An AI-generated photo won a prize at the Sony World Photography Awards. The German photographer who submitted the piece refused the honor.

— Musk on AI. In an interview with Fox News host Tucker Carlson, Elon Musk said he plans to create an artificial intelligence system called “TruthGPT” that will be a “maximum truth-seeking AI that tries to understand the nature of the universe.” Musk, who recently incorporated a new business called X.AI Corp., described AI as being dangerous but argued it would be less likely to destroy humanity if the system understands it.

— A little known nugget on Tax Day: People 100 years old and older in New Mexico are exempt from the state’s income tax.

— The Phantom of the Opera staged its final show, ending a 13,981-performance run as Broadway’s longest-running production.

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