China watching House legislation | Biden to speak today about Omicron | Congress returns
In Today’s Digital Newspaper
Market Focus:
• Markets taking a breather today as Covid outlook dictates economic markets
• WTI crude oil prices rebounded more than 5% this morning
• U.S. export supply chains choking on empty containers
• Dockworkers and marine terminals gird for talks on new labor contract
• Online retail sales over holiday weekend didn’t increase from prior year
• Canada taps emergency spending to relieve supply-chain backups at Port of Vancouver
• Canadian Pacific wins approval in Mexico for acquisition of Kansas City Southern
• Ag demand update
• Wheat leads overnight price recovery
• Brazilian soybean planting almost complete
• Potential lock out at Canada beef processing plant
• Attitudes in cattle market still bullish
• Cash hog index continues to fall
Policy Focus:
• Another stopgap spending measure for fiscal year 2022 is likely by week’s end
• BBB price tag a lot higher than CBO forecast
Biden Administration Personnel:
• Biden’s nomination for top banking regulator looks doomed
China Update:
• Just 108 companies have 25% of China’s swine production capacity
• China on Saturday sent 27 warplanes close to Taiwan, the most since October
• China watching House legislation
Trade Policy:
• WTO postpones MC12 indefinitely
Energy & Climate Change:
• Interior Dept. calls for raising costs of drilling in federal areas
• Buttigieg: once families own electric cars, they will ‘never have to worry about gas prices ‘
• Nissan ramps up EV investment
Livestock, Food & Beverage Industry Update:
• Potential lock out at Canada beef processing plant
• Canada’s maple syrup cartel planning to dip into strategic reserves
Coronavirus Update:
• Biden to speak today re: Omicron variant
• U.S. imposes travel ban from eight African countries over Omicron variant
• Gottlieb: ‘A pretty good degree of confidence’ people with three doses are protected
• China’s Covid zero strategy may linger
• G7 health ministers convene today for emergency meeting on Omicron
• Many countries banning arrivals from southern Africa due to Omicron variant
Politics & Elections:
• Cash flowing freely into 2022 elections
• Actor Matthew McConaughey not running for governor of Texas… at this time
Other Items of Note:
• Iran again gives conditions for reviving talks
• AWP for cotton moves up
• India’s parliament voted to repeal agricultural-reform laws
• Germany will become first in the EU to legalize recreational use of cannabis
MARKET FOCUS
Equities today: Oil prices and U.S. stock futures gained, indicating markets might recoup some losses from Friday’s selloff as investors monitored the likely implications of a new variant of Covid-19. BioNTech and Pfizer say they can quickly adjust their mRNA vaccine to combat the new variant if necessary. Moderna plans to rapidly advance an Omicron-specific booster candidate. The Food and Drug Administration would need to give vaccine manufacturers approval. On Saturday, the first cases of the Omicron variant were discovered in the United Kingdom. Since then, other countries have reported incidents and travel restrictions (details below). Global stock markets were mixed in overnight trading, with Asian shares mostly lower and European shares mostly higher. Asian equity markets were mostly lower as concerns about a new Covid-19 variant weighed on traders. Japan’s Nikkei dropped 467.70 points, 1.63%, at 28,283.92. The Hang Seng Index shed 228.28 points, 0.95%, at 23,852.24. European equities are seeing gains following sharp losses Friday. The Stoxx 600 was up 0.9% with other markets up 0.2% to 1.1%. “While central bank commentary has been focused on upside risks to inflation, this [new Covid variant] highlights that there are significant downside risks and we are in a significant phase of uncertainty for the economy,” noted Chris Scicluna of Daiwa Capital Markets.
U.S. equities, other markets on a truly Black Friday: The Dow fell 905.04 points, 2.5%, to 34,899.34. It was the Dow’s biggest one-day percentage drop since October 2020. The S&P 500 lost 106.84 points, 2.3%, to 4,594.62 and the Nasdaq Composite dropped 353.57 points, 2.2%, to 15,491.66. It was the worst Black Friday session on record for all three indexes. Markets closed early because of the holiday. Global shares slid to the lowest since mid-October on Friday, oil lost 13% and the 10-year U.S. Treasury yield fell the most since the early months of the pandemic.
Covid-related stock market drops are getting milder and shorter, the New York Times notes. Back in February 2020, the S&P 500 fell 3.4% in one day and then continued to slide for a month and a half. In October 2020, a resurgence of cases led to a one-day market drop of 3.5%, but markets rebounded within two weeks. Friday’s decline was 2.3%, with a rebound beginning the next trading day.
On tap today (see detailed list of events and reports below):
• U.S. pending-home sales for October are expected to increase 0.7% from the prior month. (10 a.m. ET)
• Dallas Fed’s manufacturing survey is expected to rise to 18.5 in November from 14.6 one month earlier. (10:30 a.m. ET)
• USDA Grain Export Inspections report, 11 a.m. ET.
• European Central Bank President Christine Lagarde speaks at the Accademia Nazionale dei Lincei in Turin at 12:15 P.M. ET.
• President Biden will meet with CEOs to discuss “the holiday shopping season and his Administration’s work to move goods to shelves.” 2 p.m. ET.
• President Biden will speak about the supply chain, costs and moving goods around the holiday season. 3:45 p.m. ET.
• USDA Crop Progress report, 4 p.m. ET
• Federal Reserve: New York’s John Williams speaks at an event to introduce the New York Innovation Center at 3 p.m. ET, Chairman Jerome Powell gives prerecorded comments at the innovation center event at 3:05 p.m. ET, and governor Michelle Bowman speaks at a symposium on indigenous economies at 5:05 p.m. ET
• Japan’s industrial output for October is expected to increase 1.8% from the prior month. (6:50 p.m. ET)
• China’s official purchasing managers index for manufacturing is expected to tick up to 49.6 in November from 49.2 one month earlier. (8 p.m. ET)
— U.S. export supply chains are choking on empty containers. Hundreds of thousands of boxes are filling marine terminals and truck yards across Southern California, the Wall Street Journal reports (link), tying up crucial cargo-handling space and adding to the gridlock that has gripped American distribution networks. The empties are a sign of the fractured state of supply chains, as shippers scramble to find scarce sea containers for goods even as storage sites are overflowing with boxes. The containers are in the wrong places for exporters on both sides of the Pacific, however. Shipping lines are prioritizing recovery of the empty containers and stacks are growing higher as operators from terminals to truckers cope with constrained capacity to manage them. Ocean operators typically send “sweeper” vessels to haul away excess empties, but few ships are available for that duty these days.
U.S. shippers struggling with supply-chain gridlock on the West Coast face new concerns in the coming year as dockworkers and marine terminals gird for talks on a new labor contract. The private companies that operate port facilities from Washington state to Southern California are due to begin negotiations next year on a multiyear agreement with the union representing 22,400 dockworkers to replace the contract that expires in July 2022, raising the potential for new turmoil over bargaining that has been highly contentious in previous years. The talks with the International Longshore and Warehouse Union, which happen about every six years, led to severe labor disruptions and shipping delays during the last cycle in 2014 and 2015. Link for more details via the WSJ. The sides are already showing that they are bracing for a battle. The employer group asked this month to extend the existing contract into 2023 because of the ongoing supply-chain congestion. The International Longshore and Warehouse Union quickly rejected that idea.
Market perspectives:
• Outside markets: The U.S. dollar index is higher amid weakness in the euro. The yield on the 10-year U.S. Treasury note is higher, trading above 1.55%. Gold and silver futures were up, with gold around $1,790 per troy ounce and silver around $23.22 per troy ounce.
• Crude oil prices are rebounding following recent losses, with U.S. crude around $71.35 per barrel and Brent around $74.75 per barrel. Prices were higher in Asian action, with U.S. crude up $3.32 at $71.47 per barrel and Brent up $3.16 cents at $74.75 per barrel.
• Covid outlook dictates economic markets. The recent market turmoil shows how dependent the economy is on the path of the pandemic, and how quickly sentiment can change with every twist and turn in our understanding of the virus.
• Industry estimates suggest online retail sales over the holiday weekend didn’t increase from the prior year for the first time in nearly a decade. The Black Friday sales saw store traffic surge 48% from last year’s pandemic-hit level, while remaining below 2019. Online spending totaled $8.9 billion, which was towards the low end of expectations and below last year’s total, according to a tally from the Adobe Digital Economy Index. That number is expected to be exceeded today as Cyber Monday sales are forecast to be between $10.2 billion and $11.3 billion.
• Canada slated about $3.2 million in emergency backing to relieve supply-chain backups at the Port of Vancouver as the flood-hit region braced for more heavy rainfall.
• Canadian Pacific won regulatory approval in Mexico for its planned acquisition of Kansas City Southern. Meanwhile, rail regulators are telling Norfolk Southern to address shipper complaints of deteriorating service in recent weeks.
• Ag demand: Egypt tendered to purchase an unspecified amount of wheat from multiple origins, with results expected later this morning. Jordan tendered to buy 120,000 MT of optional origin milling wheat. Bangladesh tendered to buy 50,000 MT of optional origin milling wheat.
• NWS weather: Light to moderate rain showers to continue over portions of the Pacific Northwest... ...Lake effect snow showers continue across Great Lakes region over the next couple of days... ...Warmer temperatures ahead for much of the country; Elevated Fire Weather Risk for southern California.
Items in Pro Farmer’s First Thing Today include:
• Wheat leads overnight price recovery
• Brazilian soybean planting almost complete
• Potential lock out at Canada beef processing plant
• Attitudes in cattle market still bullish
• Cash hog index continues to fall
POLICY FOCUS
— Another stopgap spending measure for fiscal year 2022 is likely by week’s end. That’s because Friday, Dec. 3 is the deadline by which U.S. Congress must pass a spending bill or a new continuing resolution (CR) to fund the government to avoid a shutdown. Passing a major spending bill has very low odds, thus another CR is likely. The Senate returns today, the House is back on Tuesday.
What is likely to happen: On Tuesday, House leaders will introduce a stopgap funding bill expected to run through mid- to late-January. A floor vote is possible by Wednesday.
— Price tag for Build Back Better (BBB) Act is a lot higher than estimates released by the Congressional Budget Office (CBO) due to constrictions placed by Congress. The Penn Wharton Budget Model found that the bill’s provisions would spend $4.6 trillion if extended for a full 10 years, while the Committee for a Responsible Federal Budget set the figure at $4.9 trillion.
BIDEN ADMINISTRATION PERSONNEL
— President Biden’s nomination for a top banking regulator looks doomed. Five centrist Democratic senators reportedly told the White House that they won’t support Saule Omarova as the head of the Office of the Comptroller of the Currency, according to Axios.
CHINA UPDATE
— Just 108 companies have 25% of China’s swine production capacity, according to a list prepared for a recent swine industry forum. The list of companies with at least 10,000 sows was compiled for the 7th China swine industry summit based on company financial reports, industry news, and unpublished sources. The combined sow inventory of the 108 companies as of October-November 2021 was 11.79 million head. That’s about a fourth of the 44.79-million-head national sow inventory reported by the China National Bureau of Statistics’ as of the end of September.
Says Dims Sums: “Unpredictable gyrations in China’s hog market continue with the influx of big pig farmers, contrary to the expectations of agricultural officials. Pigs have historically been scattered across millions of backyard pens, sheds, and living rooms in Chinese villages. At the peak of backyard pig-farming, China’s 1997 agricultural census counted over 130 million rural households raising pigs — usually one or two at a time — and those small family holdings accounted for 95 percent of the swine inventory. In recent years a handful of companies have been on a hog-farm construction binge. Their expansion accelerated during a 2014-17 environmental regulatory push that shut down hundreds of thousands of small farms. Then the African swine fever epidemic wiped out millions more of small farms, biosecurity requirements and a new round of subsidies favored big companies, and ‘pig concept’ stocks became fashionable, attracting billions of dollars of capital investment.”
— China on Saturday sent 27 warplanes close to Taiwan, the most since October, after a U.S. lawmaker defied Beijing’s demand that it abandon a trip to the island. The aircraft, including J-16 fighter jets, entered Taiwan’s southwest Air Defense Identification Zone, according to the Ministry of National Defense. Taiwan has complained of repeated missions by China’s air force near the democratically governed island, and last month, China’s military sent a record number of warplanes into the air around the country. These latest Chinese military activities are considered “gray zone” warfare by Taiwan, designed to wear out Taiwan’s forces by making them repeatedly scramble and to test their responses.
— China watching House legislation. Democratic lawmakers plan to advance a $250 billion bill aimed at bolstering America’s competitiveness against China, but Beijing is threatening retribution if it passes.
TRADE POLICY
— WTO postpones MC12 indefinitely. The upheaval caused by the Omicron variant Covid-19 virus has resulted in the 12th Ministerial for the WTO (MC12) being postponed indefinitely, the trade body announced Friday. New travel restrictions around the globe were a factor for the meeting that had been set to run Tuesday through Friday (Nov. 30-Dec. 3). Director-General Ngozi Okonjo-Iweala said the travel constraints meant that many ministers and senior delegates could not have participated in face-to-face negotiations at the Conference. This would render participation on an equal basis impossible, she said.
The situation will further push back any decision at the trade body on the issue of Covid vaccines, with poorer countries pushing to gain access to the vaccines. However, expectations for any major breakthroughs at the MC12 session were minimal at best given wide disparities over several issues, including agriculture. It is not clear that the lack of the MC12 session will really alter the WTO climate at this stage.
ENERGY & CLIMATE CHANGE
— Interior Department issued a report on Friday that called for raising the costs of drilling in federal areas by increasing the government’s royalty rate and factoring in the cost of climate change into the price of drilling permits.
— Buttigieg: once families own electric cars, they will ‘never have to worry about gas prices again.’ Secretary of Transportation Pete Buttigieg said that once families embrace electric cars, they will “never have to worry about gas prices again.” Buttigieg explained on MSNBC Sunday that the Biden administration’s Build Back Better legislation includes incentives for families to switch to electric vehicles. “Most of the physical infrastructure work was contemplated in the bill that was just signed, but there is more envisioned in the Build Back Better law,” Buttigieg explained. “I’ll give you one example: It contains incentives to make it more affordable to buy an electric vehicle, up to a $12,500 discount in effect for families thinking about getting an EV.” Buttigieg said that rural drivers, who regularly drive long distances, stand to benefit most from electric vehicles. “The people who stand to benefit most from owning an EV are often rural residents who have the longest distances to drive. They burn the most gas,” he explained. " And underserved urban residents in areas where there are high gas prices and they’re lower income. So, they would gain the most by having that vehicle.”
— Nissan ramps up EV investment. Nissan, Japan’s third-largest carmaker, announced plans to invest $17.6 billion over the next five years to ramp up its electric-vehicle production. It hopes to launch 23 new models and generate half of its global sales from electric or hybrid vehicles by 2030. Last year the share was only 10%.
LIVESTOCK, FOOD & BEVERAGE INDUSTRY
— Potential lock out at Canada beef processing plant. Cargill issued a lockout notice to workers at one of Canada’s largest meat-packing plants last week after unionized workers at the High River facility voted overwhelmingly against the company’s latest contract offer, putting them in a position to strike as early as Dec. 6. The plant accounts for roughly 40% of Canada’s beef processing capacity, processing about 4,500 head of cattle daily.
— Canada’s maple syrup cartel is planning to dip into its strategic reserves to boost supplies of the sugary condiment after a spike in sales, likely due to pandemic-induced home cooking. The Federation of Quebec Maple Syrup Producers, a trade group responsible for 73% of global production, plans to release roughly 50 million pounds of syrup from its stockpile to cope with consumer demand, which rose 21% in 2021 compared to the previous year.
CORONAVIRUS UPDATE
— Summary: Global cases of Covid-19 are at 261,613,835 with 5,202,130 deaths, according to data compiled by the Center for Systems Science and Engineering at Johns Hopkins University. The U.S. case count is at 48,229,273 with 776,639 deaths. The Johns Hopkins University Coronavirus Resource Center said that there have been 454,480,890 doses administered, 196,168,756 have been fully vaccinated, or 59.76% of the U.S. population.
— President Biden and VP Kamala Harris will get a briefing from the Covid-19 response team about the Omicron variant at 10:45 a.m. ET. At 11:45 a.m. ET, Biden will speak about the Omicron variant from the Roosevelt Room. Dr. Anthony Fauci has told President Biden it could take about two more weeks to have definitive information about the Omicron variant’s transmissibility, severity and other characteristics. Meanwhile, Moderna, Johnson & Johnson said they were assembling teams of scientists to assess the new Omicron strain of Covid.
— U.S. imposes travel ban from eight African countries over Omicron variant. The U.S. will bar entry to most travelers from eight southern African countries starting today, after a potentially more-contagious new coronavirus variant was identified in South Africa, President Joe Biden said on Friday. The travel restrictions do not ban flights or apply to U.S. citizens and lawful U.S. permanent residents. The restrictions apply to South Africa, Botswana, Zimbabwe, Namibia, Lesotho, Eswatini, Mozambique and Malawi. Most non-U.S. citizens who have been in those countries within the prior 14 days will not be allowed into the United States.
— Gottlieb: ‘A pretty good degree of confidence’ people with three doses are protected from Omicron. Former Food and Drug Administration (FDA) Commissioner Scott Gottlieb on Sunday said vaccine developers have “a pretty good degree of confidence” that fully vaccinated individuals who have received a Covid-19 booster are protected against the omicron variant.
— China’s Covid zero strategy may linger. The country would face a “colossal outbreak” if it were to reopen in a similar manner to the U.S., researchers at Peking University predicted. Loosening from its current approach would lead to as many as 637,155 infections a day, the modeling showed — which would be the largest daily figure reported by any country since the pandemic began. The study also predicted a rise in China’s infections if it adopted the policies of the U.K., Israel, Spain or France.
— G7 health ministers convene today for an emergency meeting on the Omicron coronavirus variant as new cases emerge in more than a dozen countries. How well can it evade vaccines? While scientists are still working on a definitive answer, the number of mutations in the variant’s spike protein suggest current vaccines may be less effective. New treatment pills for Covid-19 symptoms should still remain potent, however, as they target the enzyme that allows the virus to reproduce.
— Many countries are banning arrivals from southern Africa due to the Omicron variant. Israel and Japan went a step further and forbade all foreigners from entering.
POLITICS & ELECTIONS
— Cash is flowing freely into the 2022 elections. House members have raised $128 million, more than double the sum at this point in the cycle two years ago.
— Actor Matthew McConaughey said he’s not running for governor of Texas “at this moment.”
OTHER ITEMS OF NOTE
— Iran again gives conditions for reviving talks. Iran’s chief nuclear negotiator said world powers must secure full, guaranteed and verifiable sanctions removal for Tehran when they resume talks today aimed at reviving a landmark 2015 deal and ending a standoff with the U.S. Negotiators from Russia, China, the United Kingdom, Germany, France, and the European Union will meet their Iranian counterparts in Vienna today to resume discussions. U.S. representatives will attend the talks as indirect participants. The talks are the first since new Iranian President Ebrahim Raisi took office and installed new negotiators, hardliners compared to those who worked through the last six rounds. The U.S. says it’s not prepared to offer any incentives to talk. The U.S. special envoy for Iran says there are two options for Iran going forward: continued nuclear escalation or a return to diplomacy under the deal.
— AWP for cotton moves up. The Adjusted World Price (AWP) for Upland Cotton rose to 102.65 cents per pound, effective Nov. 26, up from 102.56 cents per pound the prior week and the fourth straight week the AWP has been at $1 or more per pound. Meanwhile, USDA said that Special Import Quota #6 would be established Dec. 2 for the import of 46,041 bales of Upland cotton, applying to cotton purchased not later than March 1 and entered into the U.S. not later than May 30.
— India’s parliament voted to repeal agricultural-reform laws, originally passed in September last year. The laws sparked sustained protests by farmers. Narendra Modi, the prime minister, said this month that the laws would be scrapped. Farmers feared that the new rules, which were intended to liberalize the market for farm produce to their benefit, would instead benefit a handful of conglomerates at their expense.
— Germany will become the first in the EU to legalize the recreational use of cannabis and its sale through licensed vendors. Though the Netherlands is often associated with weed-touting coffee shops, possession and sale of marijuana is still a crime (albeit loosely policed). In October Luxembourg became the first European country to allow cultivation of plants for personal use. Italy will probably hold a referendum on decriminalizing cannabis in 2022. Some 18 American states have legalized marijuana. In Canada, where cannabis became legal to buy and consume in 2018, supplies can now be ordered via Uber. One explanation for Europe’s pivot is the tax it stands to gain from legalization. Germany could rake in almost €5 billion ($5.6 billion) a year from a cannabis tax and savings in police and prosecutorial costs.
EVENTS AND REPORTS
Monday, November 29
· Federal Reserve. Fed Chairman Jerome Powell delivers pre-recorded remarks at New York Innovation Center. Fed Governor Michelle Bowman delivers remarks at the Virtual Symposium on Indigenous Economies. New York Fed President John Williams scheduled to speak.
· Africa FTA. Brookings Institution online discussion on “The state of Africa’s free trade agreement and strategies for greater integration.”
· COP26 and U.S. utilities. United States Energy Association virtual discussion on “COP26: Building Block or Stumbling Block for U.S. Utilities?”
· Phasing out coal. American Institute for Contemporary German Studies virtual discussion on “Phasing-Out Coal in Germany and Appalachia.”
· Environmental health and policy. Alliance for Health Policy \virtual discussion on “Introduction to Environmental Health and Policy.”
· Biomanufacturing. Energy Department teleconference of the President’s Council of Advisors on Science and Technology to hear from invited speakers on and discuss various aspects of biomanufacturing, the federal science and technology workforce, and the National Nanotechnology Initiative.
· China policy. Center for Strategic and International Studies virtual discussion on “Unpacking China’s Sixth Plenum.”
· Economic reports. Pending Home Sales Index | Dallas Fed Mfg. Survey
· Energy reports/events. OPEC Joint Technical Committee delayed until later in week.
· USDA reports. AMS. Export Inspections NASS: Egg Products | Crop Progress