IMF: Downside Risks Dominate Economic Outlook; Inflation to Persist Amid Sluggish Growth

15 million Americans have voted early, reflecting post-pandemic shift

•

October 22, 2024 08:50 AM

News/Markets/Policy Updates: Oct. 22, 2024

— Xi to meet Putin in Russia to strengthen BRICS and defy Western pressure. Chinese President Xi Jinping is meeting Russian President Vladimir Putin in Kazan for their third meeting this year, attending a BRICS summit aimed at countering U.S. and Western influence. Despite efforts to isolate Russia, more countries, including Malaysia, Thailand, and Pakistan, are seeking BRICS membership. Beijing is focused on maintaining close ties with Moscow, with Chinese state media highlighting their cooperation to unite the Global South. Putin is expected to push for an alternative international payments system and stronger BRICS collaboration in grain trade, but internal disagreements over de-dollarization may limit major economic announcements.

— IMF chief warns high prices will persist amid sluggish growth. IMF Managing Director Kristalina Georgieva cautioned that elevated prices are likely to remain, adding pressure on consumers and businesses worldwide. Speaking at the Bretton Woods Conference, Georgieva highlighted the challenges of “slow growth and high debt,” with trade expanding slightly below global growth levels. The IMF’s updated forecast anticipates global real GDP growth of 3.2% in 2024 and 3.3% in 2025, aligning with the ongoing IMF and World Bank fall meetings this week. (See more on the IMF forecasts below.)

The IMF’s forecast shows that while global inflation is expected to decline, it will do so gradually:
2023: 6.8%
2024: 5.9%
2025: 4.5%

This slow decline in inflation rates suggests that the impact of high prices will continue to be felt across economies for the foreseeable future.

— Cook Political Report shifts Pa. Senate to ‘Toss-Up,’ Neb. race to ‘Lean Republican.’ The Cook Political Report with Amy Walter reclassified the Pennsylvania Senate race as a “toss-up,” with incumbent Democrat Bob Casey narrowly leading Republican David McCormick within the margin of error. Pennsylvania now joins Arizona and Nevada in the toss-up category. In Nebraska, Cook moved the Senate race from “likely” to “lean Republican” as GOP Sen. Deb Fischer faces a surprisingly competitive challenge from independent candidate Dan Osborn. Fischer received a $3 million boost from the Senate Leadership Fund, reflecting concerns among Republicans. With control of the Senate at stake, races in Montana, Ohio, and Wisconsin remain pivotal battlegrounds.

— 15 million Americans have voted early, reflecting post-pandemic shift. With two weeks until Election Day, more than 15 million people have already voted, underscoring the lasting impact of pandemic-era voting habits. Record early voting numbers have been reported in states like North Carolina and Louisiana. Though Democrats continue to dominate mail voting, Republicans are closing the gap and embracing in-person early voting, particularly in battleground states like Georgia. Analysts note that early voters are mostly high-propensity partisans, leaving questions about overall turnout and partisan advantages unresolved. Women are also casting early ballots at higher rates than men across key states, mirroring 2020 trends.

— Link to a Financial Times list of Harris’ top economic advisers, and who might be elevated to her cabinet if she wins in November.

— Dem Senators seek McDonald’s pricing decisions info. Democratic Senators Elizabeth Warren (Mass.), Bob Casey (Pa.) and Ron Wyden (Ore.) requested more information on McDonald’s pricing decisions in a letter, saying price hikes have outpaced inflationary pressures and input costs. “While McDonald’s is not the only fast food restaurant that has increased prices significantly in recent years, its dominant market position as the largest fast food chain in the United States has an outsize impact on American consumers,” the lawmakers write.

— Supreme Court declines case on presidential power to fire agency heads, potentially including the Federal Trade Commission and Securities and Exchange Commission. The U.S. Supreme Court rejected an appeal seeking to grant the president greater control over independent agencies like the FTC and SEC. The case, brought by Consumers’ Research and By Two LP, aimed to overturn a 1935 precedent protecting agency leaders from removal without cause. The decision leaves intact current rules safeguarding the independence of agencies such as the Consumer Product Safety Commission.

— Kamala Harris town hall draws criticism for pre-screened questions. At a Michigan town hall with Vice President Kamala Harris and former Congresswoman Liz Cheney, moderator Maria Shriver confirmed only “pre-determined questions” would be allowed, sparking backlash on social media. A woman at the Oakland County event was denied the chance to ask a question, with Shriver explaining that the questions were pre-selected but promising to raise relevant topics. Critics on social media characterized the event as staged, with some calling it a “pep rally” and a “prepped answer show.” The event, which only included three audience questions, drew further comparisons to scripted campaign productions. Harris later held a similar event with Cheney in Wisconsin.

MARKET FOCUS

— Equities today: Asian and European stock indexes were mixed to weaker overnight. U.S. Dow opened around 130 points lower. In Asia, Japan -1.4%. Hong Kong +0.1%. China +0.5%. India -1.2%. In Europe, at midday, London -0.8%. Paris -0.8%. Frankfurt -0.4%.

U.S. equities yesterday: The Dow and S&P 500 opened the week with losses while the Nasdaq managed to finish higher after a late push pulled the index into positive territory. The Dow was down 344.31 points, 0.80%, at 42,931.60, never able to trade in positive territory all session. The Nasdaq rose 50.45 points, 0.27%, at 18,540.00. The S&P 500 ended down 10.69 points, 0.18%, at 5,853.98.

— GM raises 2024 guidance after beating Q3 earnings expectations. General Motors exceeded Wall Street’s third-quarter estimates, reporting adjusted earnings of $2.96 per share, above the expected $2.43, and revenue of $48.76 billion, surpassing the $44.59 billion forecast. Strong pricing helped offset challenges in China and higher labor and warranty costs. In response, GM raised its full-year adjusted EBIT forecast to $14-$15 billion, or $10-$10.50 per share, marking its third guidance update this year.

— Oil prices rebounded on Monday, settling nearly 2% higher after last week’s significant losses. Brent crude futures rose by $1.23 (1.68%) to $74.29 per barrel, while U.S. West Texas Intermediate (WTI) futures increased by $1.34 (1.94%) to $70.56 per barrel. These gains come after both benchmarks dropped over 7% last week, their largest weekly losses since early September.

— Ag markets today: Corn, soybeans and wheat traded on both sides of unchanged while holding in relatively tight ranges during the overnight session. As of 7:30 a.m. ET, corn and soybean futures were trading fractionally higher, while wheat futures were mostly 2 to 4 cents lower. The U.S. dollar index was more than 100 points lower, and front-month crude oil futures were around 65 cents higher.

Torrid beef rally continues. Wholesale beef prices continued to surge with Choice rising $2.21 to $322.86 and Select up $2.01 to $296.21 on Monday. Estimated packer margins improved to more than $61.00 per head above breakeven on Monday, according to HedgersEdge.com, despite cash cattle prices rising for a sixth consecutive week.

Cash hog fundamentals strengthen. The CME lean hog index is up 27 cents to $84.23 as of Oct. 18, marking consecutive daily gains after falling to a new seasonal low late last week. The pork cutout firmed $1.65 on Monday amid strong gains in all cuts except primal bellies and picnics.

— Agriculture markets yesterday:
• Corn: December corn rose 4 3/4 cents to $4.09 1/2, marking the highest close since Oct. 11.
• Soy complex: November soybeans climbed 11 cents to $9.81 and settled near session highs. December meal futures rallied $2.70 to $318.30, nearer session highs. December bean oil futures firmed 57 points to 42.39 cents.
• Wheat: December SRW wheat rose 1/2 cent to $5.72 1/4 and nearer the daily low. December HRW wheat gained 1 1/2 cents to $5.82 1/4 and nearer the session low. December spring wheat futures fell 2 1/2 cents to $6.14.
• Cotton: December cotton rallied 121 points to 72.20 cents, ending the session above the 100-, 40- and 10-day moving averages.
• Cattle: December live cattle fell 50 cents to $186.825, nearer the session low. November feeder cattle lost $1.00 to $246.60, nearer the daily low.
• Hogs: December lean hog futures closed 45 cents higher and near the session high at $78.275 despite trading lower early in the session.

— Quotes of note:

• Fed’s Daly expects more rate cuts to safeguard labor market. San Francisco Fed President Mary Daly expects the U.S. central bank to continue reducing interest rates to protect the labor market, following a half-point cut last month. Speaking at the Wall Street Journal’s TechLive conference, Daly emphasized that the economy is nearing the Fed’s 2% inflation target, justifying further easing. While recent economic data revealed stronger-than-expected hiring, Daly noted the decision to cut rates by half a point was a “close call.” Fed officials, including Dallas Fed’s Lorie Logan and Minneapolis Fed’s Neel Kashkari, suggested a more gradual approach to future rate cuts amid economic uncertainties, hinting at a smaller, quarter-point cut at the upcoming November meeting.

• “I think the stock market will do best if we basically vote for gridlock — that whoever is in the White House doesn’t have an open season to do whatever they want.” — Ed Yardeni Founder, Yardeni Research. Link to more via Bloomberg.

• Larry Fink, the CEO. of BlackRock, the world’s largest money manager, thinks that politics will have only a limited effect. “I’m tired of hearing this is the biggest election in your lifetime. The reality is over time, it doesn’t matter.”

• Goldman Sachs analysts have forecast annualized nominal returns of 3% for the S&P 500 over the next decade, or just 1% when inflation is considered. By contrast, the benchmark index notched 13% gains over the past decade. “Investors should be prepared for equity returns during the next decade that are toward the lower end of their typical performance distribution,” Goldman analysts wrote in a research report published this weekend.

• “The general trend of lower, more affordable energy prices is valid.” — Patrick De Haan, head of petroleum analysis at GasBuddy.

— The IMF projects global economic growth to remain steady at 3.2% in both 2024 and 2025, unchanged from 2023. This reflects a slight acceleration in advanced economies offset by a modest slowdown in emerging markets and developing economies.

Global inflation is forecast to decline steadily:
6.8% in 2023
5.9% in 2024
4.5% in 20251

Advanced economies are expected to return to their inflation targets sooner than emerging market and developing economies. Core inflation is projected to decline more gradually compared to headline inflation.

Advanced economies growth: Expected to rise from 1.6% in 2023 to 1.7% in 2024 and 1.8% in 2025.
Emerging market and developing economies growth: Projected to slow from 4.3% in 2023 to 4.2% in both 2024 and 2025.
U.S. growth: Strong at 2.8% in 2024, but expected to revert toward potential in 2025.
Advanced European economies: A modest growth rebound is expected in 20254

The forecast for global growth five years from now is 3.1%, which is at its lowest level in decades. This lower predicted growth stems from persistent structural frictions preventing capital and labor from moving to productive firms.

The IMF notes that downside risks dominate the outlook, including potential escalation of geopolitical conflicts, increased trade protectionism, and financial market turbulence. To address these challenges, the IMF recommends a “policy triple pivot":
Monetary policy: Central banks to pivot towards providing more support to economic activity where inflation is under control
Fiscal policy: Implement credible consolidation in a growth-preserving manner
Structural reforms: Boost medium-term growth by increasing productivity and labor supply

Bottom line: While the global economy has shown resilience and inflation is moderating, the IMF emphasizes the need for careful policy management to achieve price stability and replenish diminished economic buffers.

— European car sales drop in September amid economic slowdown. Car sales in Europe fell by 4.2% in September, marking the first consecutive monthly decline in over two years as economic stagnation and high interest rates curb consumer spending, according to the European Automobile Manufacturers’ Association. While electric vehicle (EV) sales increased, they couldn’t offset declines in combustion-engine models. Stellantis NV, owner of Fiat and Peugeot, saw a sharp 26% drop in registrations. Automakers, including Volkswagen and Mercedes-Benz, have scaled back EV ambitions amid waning demand, raising concerns about meeting stricter emission rules next year. (China EV exports to EU soared ahead of tariffs — see China section for details.)

Market perspectives:

— Outside markets: The U.S. dollar index was lower, with the euro gaining ground against the greenback. The yield on the 10-year U.S. Treasury note fell, trading around 4.19%, with a positive tone in global government bond yields. Crude oil futures were higher, with U.S. crude around $71.30 per barrel and Brent around $74.80 per barrel. Gold and silver futures were up, with gold around $2,747 per troy ounce and silver around $34.58 per troy ounce.

— Maersk raises profit forecast again amid Red Sea supply chain disruptions. A.P. Moller-Maersk upgraded its full-year profit forecast for the fourth time in six months, projecting underlying EBITDA of $11-11.5 billion for 2024. The shipping giant credits the boost to higher freight rates and supply chain disruptions caused by Houthi attacks in the Red Sea, which have forced vessels to reroute around Africa. Maersk also raised its global container demand growth outlook to 6% for this year, up from a previous estimate of 4-6%. However, analysts warn of potential overcapacity risks by 2025-26 once the conflict stabilizes, tempering Maersk’s medium-term outlook.

— Indonesia plans new rice plantings, aims for food self-sufficiency. Indonesia’s new administration is targeting 750,000 to 1 million hectares of new rice plantings in 2025, with the goal of achieving food self-sufficiency. Agriculture Minister Andi Amran announced plans to enhance output from existing fields through water pump distribution and other efficiencies. President Prabowo Subianto’s administration also aims to expand farmland by 3 million hectares over the next five years to boost staple crop production. The push comes after Indonesia imported over 3 MMT of rice in the past two years due to drought-impacted yields. Potential expansion areas include Sumatra, Borneo, and Papua.

— Indonesia reaffirms plan to implement B40 in early 2025. Indonesia’s agriculture minister reaffirmed the country’s plan to implement a 40% mandatory biodiesel mix with palm oil-based fuel, known as B40, starting in January. The government is also working toward implementing B50 in the future.

— India’s cotton output to fall on lower area, excess rain. India’s cotton production in 2024-25 (Oct.-Sept.) is likely to fall by 7.4% from a year ago to 30.2 million bales due to lower planted area and crop damage from excessive rainfall, the Cotton Association of India said. It noted the drop in production could lift cotton imports to 2.5 million bales in 2024-25 from 1.75 million bales last year.

— USDA daily export sale:
• 359,500 MT corn to Mexico, 2024-2025 marketing year.

— Ag trade update: Exporters reported no tenders or sales, though results are awaited on Tunisia’s tender to buy up to 125,000 MT of optional origin soft milling wheat and Jordan’s tender to purchase 120,000 MT of optional origin milling wheat.

— NWS outlook: Rain showers across Upper Midwest/Great Lakes today... ...Snow showers for the Northern Rockies... ...Well above-average temperatures continue over the Central and Eastern U.S.

Items in Pro Farmer’s First Thing Today include:

• Light and choppy grain trade overnight
• Weather improving for soybean planting in Brazil
• Crop Progress Report highlights

ISRAEL/HAMAS CONFLICT

— Blinken pushes for hostage talks, faces hurdles in Gaza negotiations. Secretary of State Antony Blinken is in Israel and the Middle East to advance efforts for releasing Israeli hostages and ending the Gaza conflict. However, the recent killing of Hamas leader Yahya Sinwar has left uncertainty over the group’s leadership, complicating the potential for progress in negotiations. Hamas remains firm in its stance on hostage and ceasefire terms, dampening hopes of a breakthrough. Blinken is set to meet with Israeli Prime Minister Benjamin Netanyahu, but U.S. officials anticipate more progress on addressing Gaza’s humanitarian crisis than on resolving hostage issues.

RUSSIA/UKRAINE

— Russia’s 2025 wheat production could fall for third straight year. Russia’s 2025 wheat production could decline for a third straight year, according to the first projections released by leading Black Sea consultancies IKAR and SovEcon. IKAR forecasts production in a range of 80 MMT to 85 MMT. SovEcon put its first crop projection at 80.1 MMT, which would be the smallest since 2021-22. The official estimate for this year’s wheat harvest stands at 83 MMT. Unfavorable weather, including heavy rain in some regions and drought in others, has complicated winter grain sowing across Russia, but IKAR said there “is still time for vegetation to emerge through November.” SovEcon said, “The poor condition of winter wheat raises concerns about an increased risk of winter kill and crop failure.”

— Ukraine’s winter grains 83.5% seeded. Ukrainian farmers had sown 4.33 million hectares of winter grains for the 2025 harvest as of Oct. 21, or 83.5% of the expected area of 5.19 million hectares, the agriculture ministry said. Plantings included 3.85 million hectares of winter wheat, or 85.9% of the projected 4.5 million hectares. Farmers also seeded 421,300 hectares of winter barley and 62,500 hectares of rye.

POLICY UPDATE

— USDA will begin distributing approximately $2.14 billion in payments to eligible agricultural producers and landowners through key conservation and safety-net programs. The $2.14 billion in payments is divided as follows:
• Conservation Reserve Program (CRP) and CRP Transition Incentive Program (CRP TIP): More than $1.7 billion.
• Agriculture Risk Coverage and Price Loss Coverage (ARC/PLC) programs: Over $447 million (the ARC and PLC payments are related to 2023 crops).

The CRP’s current enrollment is nearly 26 million acres. The combination of the general signup (199,214 acres), continuous signup for fiscal year (FY) 2023 (693,920 acres) and new Grasslands CRP enrollments (1.44 million acres) and acres exiting the program will put CRP acreage at 26 million. At the end of August, there were 24.7 million acres in the program. USDA currently cannot take in any new CRP enrollments at this time as the authority for such activities expired Sept. 30, 2024, with the expiration of provisions in the 2018 Farm Bill. However, USDA data shows that nearly contracts on nearly 186,000 acres for FY 2024 enrollment via continuous signups were approved prior to that date.

The top five states for CRP acreage are:
1. Colorado: 2,978,741 acres
2. South Dakota: 2,626,430 acres
3. Nebraska: 2,423,361 acres
4. Texas: 2,225,310 acres
5. Kansas: 2,040,412 acres

USDA has also allocated $21 million for projects to enhance the monitoring, assessment, and evaluation of the Conservation Reserve Program.

— USDA launches initiative to preserve wildlife corridors across public and private lands. USDA agencies, including the Forest Service and Farm Service Agency, will collaborate with state, tribal, and federal partners to protect wildlife corridors on public and private lands, officials announced Monday. The initiative emphasizes voluntary, incentive-based conservation programs to promote habitat connectivity. USDA Secretary Tom Vilsack directed the agencies to integrate wildlife corridor considerations into their planning processes. With 193 million acres of federal forests and 880 million acres of private farmland at stake, the effort aims to break down bureaucratic barriers and ensure sustainable conservation across jurisdictions.

CHINA UPDATE

— From whine to wine: Australian wine exports surge 34% as China lifts tariffs Australia’s wine exports rose by 34% over the past year, reaching A$2.4 billion, the highest since August 2021. The boost comes after China, a key market, lifted tariffs, driving a surge in shipments, according to Wine Australia. The recovery signals improved trade relations and renewed demand for Australian wine in the Asian market.

— China EV exports to EU soar ahead of tariffs. China exported the second highest volume of electric vehicles (EVs) to the European Union in September ahead of additional tariffs expected to take effect in November. Chinese makers shipped 60,517 EVs to the EU last month, up 61% from last year, according to customs data. The previous peak of 67,455 vehicles was in October 2023, when the European Commission announced it was launching an anti-subsidy investigation into China-made EVs.

ENERGY & CLIMATE CHANGE

— The Supreme Court agreed to hear a case that will determine the appropriate venue for challenges to EPA small refinery exemption decisions under the Renewable Fuel Standard (RFS) program. This decision comes amid legal battles surrounding the implementation of the RFS and the granting of exemptions to small refineries.

Background. The Renewable Fuel Standard program, established by the Clean Air Act, requires refineries to blend certain amounts of renewable fuels into their gasoline and diesel products. Small refineries can apply for exemptions from these requirements if they can demonstrate that compliance would cause them economic hardship.

The venue question. Currently, there is a debate over which courts have jurisdiction to hear challenges to EPA decisions regarding small refinery exemptions:
• D.C. Circuit Court of Appeals: Some argue that all challenges should be heard exclusively in this court.
• Other federal appeals courts: Others contend that challenges should be allowed in regional appeals courts.

The outcome of this case could have significant impacts:
• Access to courts: It may affect the ability of refineries and biofuel producers to challenge EPA decisions in courts closer to their operations.
• Consistency in rulings: Limiting cases to the D.C. Circuit could lead to more consistent interpretations of the law.
• Strategic considerations: The venue can influence the outcome of cases, as different circuits may have varying precedents or interpretations of environmental laws.

This case comes in the context of recent legal activity surrounding the RFS:
• In July 2024, a federal appeals court overturned the Biden administration’s decision to reverse small refinery exemptions granted by the previous administration.
• Renewable fuels groups have expressed support for the Supreme Court’s decision to hear this case, viewing it as an opportunity to clarify the legal landscape surrounding small refinery exemptions.

The Supreme Court’s decision to hear this case is part of a larger debate about the venue for challenging EPA rules. The Court will consider whether critics of environmental rules that aren’t “nationally applicable” can sue in courts they might consider more favorable to their positions.

— Maryland halts utility-run EV charging program to re-evaluate strategy. Maryland recently made a significant change to its electric vehicle (EV) charging infrastructure program. The Maryland Public Service Commission (PSC) halted a utility-run program that allowed electric utilities to install and operate EV charging stations. This decision marks a notable shift in the state’s approach to expanding EV charging infrastructure. The suspension comes as officials aim to reevaluate the program’s effectiveness and impact. Some factors that likely contributed to this decision include:
• Concerns about utility companies competing with private businesses in the EV charging market
• Questions about the most efficient use of ratepayer funds
• The need to assess the program’s alignment with current market conditions and technological advancements

While the program has been suspended for new installations, existing utility-operated charging stations will continue to function. And ongoing projects that have already been approved will be completed,

Of note: This decision comes at a time when Maryland has been actively promoting EV adoption: The state aims to have 300,000 EVs on the road by 2025. Pepco, a major utility, has been installing 250 EV chargers across Montgomery and Prince George’s Counties. In April 2024, Maryland became the first state to pass vehicle-to-grid (V2G) legislation with the DRIVE Act, requiring utilities to develop interconnection processes for bidirectional chargers, As Maryland reevaluates its approach to EV charging infrastructure, several possibilities emerge:
• Increased private sector involvement: The state may shift focus to encouraging more private businesses to invest in charging stations.
• New public-private partnerships: Alternative models combining public oversight with private sector efficiency might be explored.
• Technology-driven solutions: The reevaluation could lead to greater emphasis on advanced technologies like V2G capabilities, which are already being researched in the state.
• Policy adjustments: The review may result in updated regulations to better balance utility involvement with market competition.

LIVESTOCK, NUTRITION & FOOD INDUSTRY

— CDC deploys team to Washington state after suspected human avian flu cases. The CDC is sending a team to Washington state following reports of four suspected human infections of highly pathogenic avian influenza (HPAI) among workers involved in poultry depopulation. If confirmed, Washington would become the sixth state with human HPAI cases, adding to the 27 cases previously reported. California and Washington are vaccinating farm workers to reduce the risks of both HPAI and seasonal flu. The CDC noted inconsistent use of protective gear at the affected site, where over 800,000 birds were culled. While the public health risk remains low, exposure to infected animals increases the chance of contracting HPAI.

— USDA expands D-SNAP to more counties in Georgia and Florida after hurricanes. USDA expanded the availability of the Disaster Supplemental Nutrition Assistance Program (D-SNAP) to additional counties in Georgia and Florida in response to the impacts of Hurricanes Helene and Milton.

Georgia expansion. USDA has added five more counties in Georgia to the list of areas eligible for D-SNAP benefits. The newly added counties are Dodge, McIntosh, Taliaferro, Thomas and Warren. This expansion brings the total number of eligible areas in Georgia to 112 counties and one Tribe. The D-SNAP program in Georgia will be implemented in four phases, with specific application dates for different groups of counties.

In Florida, approximately 407,733 households across 24 counties are estimated to be eligible for D-SNAP relief. The state will operate its D-SNAP application process in three phases, though specific dates were not provided in the search results.

D-SNAP is designed to provide food assistance to low-income households that suffer food loss or damage resulting from a natural disaster. Key points about the program include:
Eligibility: Households must live in an identified disaster area, have been affected by the disaster, and meet certain D-SNAP eligibility criteria.
Benefit amount: Eligible households receive one month of benefits equal to the maximum monthly amount for a SNAP household of their size.
Usage: Benefits can be used to purchase groceries at SNAP-authorized stores or from select retailers online.

USDA is also providing various forms of support to the affected areas:
• Supplemental benefits: Current SNAP households in identified counties will automatically receive supplemental benefits to bring their allotment up to the maximum amount for their household size.
• On-ground support: USDA has deployed 165 first responders and support staff to work with FEMA in clearing debris and providing recovery resources.
• Program flexibilities: The department has issued flexibilities and waivers across its farm service, nutrition, and community support programs.

KEY LINKS