Russia Indefinitely Suspends Export Pact with Ukraine Following Drone Strikes

FOMC rate decision Nov. 2 | Pelosi comments on husband’s attack | Nov. 8 midterm elections

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October 30, 2022 12:24 PM

FOMC rate decision Nov. 2 | Pelosi comments on husband’s attack | Nov. 8 midterm elections

Washington Focus

A Fed meeting Nov. 1-2, a jobs report on Friday (Nov. 4), a Russian suspension of the export pact with Ukraine, and a focus on Nov. 8 election prospects are the key items in the week ahead.

The man who allegedly attacked Paul Pelosi, the husband of House Speaker Nancy Pelosi (D-Calif.), in the couple’s San Francisco home on Friday is expected to be charged with multiple felonies Monday, according to San Francisco law enforcement officials.

Nancy Pelosi comments. “A violent man broke into our family home, demanded to confront me and brutally attacked my husband Paul,” Pelosi wrote in a letter to her congressional colleagues. “Our children, our grandchildren and I are heartbroken and traumatized by the life-threatening attack on our Pop.” The speaker went on to thank police and emergency responders for their response.

The Supreme Court on Monday will hear two major cases concerning race-based affirmative action at Harvard University and the University of North Carolina, setting the stage for a landmark opinion that could gut the precedent that allows colleges to consider a student’s race when deciding which students should be admitted.

The U.S. and the European Union are set to meet sometime this week as part of a task force that aims to settle a potential trade dispute over the domestic manufacturing requirements for electric vehicle batteries in the Inflation Reduction Act.

Treasury Secretary Janet Yellen last week signaled that the U.S. would not provide much relief to foreign automakers, which don’t qualify for electric vehicle tax credits, saying that “the legislation is what it is.”

Meanwhile, France and Germany are threatening trade retaliations against the Biden administration’s subsidies. The tax credit of up to $7,500 only applies if an EV comes equipped with a battery manufactured in North America and uses minerals mined or recycled in the same region.

The Federal Open Market Committee (FOMC) will hold its two-day policy meeting beginning Tuesday, with its decision coming at 2 p.m. ET on Wednesday. Fed watchers largely expect another 75-basis-point rate hike, setting the stage for the Fed’s benchmark interest rate to reach 5% in the first quarter of 2023. Hopes for a pivot to dovishness are just that, especially after recent GDP data and Friday’s household spending and employee wage figures showed that the U.S. economy still has some sizzle.

Goldman Sachs Group Inc. economists said they now expect the Federal Reserve to raise interest rates to 5%, higher than previously predicted. The central bank will lift its benchmark rate to a range of 4.75% to 5% in March, 25 basis points more than earlier expected, economists led by Jan Hatzius wrote in an Oct. 29 research report. The route to the new peak includes increases of 75 basis points this week, 50 basis points in December and 25 basis points in February and March, they said. The economists cited three reasons for expecting the Fed to hike beyond February: “uncomfortably high” inflation, the need to cool the economy as fiscal tightening ends and price-adjusted incomes climb, and to avoid a premature easing of financial conditions.

U.S. Treasury Assistant Secretary for Tax Policy Lily Batchelder will speak on a panel at the Tax Policy Center’s Monday event, “The Future of Business Taxes Post-Inflation Reduction Act.”

Commodity Futures Exchange Commission Chairman Rostin Behnam will speak at the Alternative Investment Management Association Global Policy & Regulatory Forum 2022 on Wednesday, and on Thursday, he will join the European Financial Forum: Financial Services in the Digital Age.

Financial markets confab. Haoxiang Zhu, director of the division of trading and markets at the Securities and Exchange Commission, and Fred Cannon, a member of the Financial Accounting Standards Board, are among the speakers at the Securities Industry and Financial Markets Association National Conference on the Securities Industry that runs Wednesday and Thursday.

World inflation. Claudio Borio, head of the monetary and economic department at the Bank for International Settlements, and Jason Furman, former economic adviser to President Barack Obama and now a professor of economic policy at the Harvard Kennedy School, will join the American Enterprise Institute for “The World Economy’s Inflation Challenge” on Thursday.

Friday, Nov. 4, is the deadline for former President Donald Trump and his lawyers to submit documents subpoenaed by the House select committee investigating the Jan. 6, 2021, attack on the U.S. Capitol. The committee announced earlier this month that it had officially sent a subpoena to Trump ordering him to turn over the documents by Friday and either appear in person or virtually for “one or more days of deposition testimony beginning on or about Nov. 14.”

Russia will indefinitely suspend its participation in the United Nations-brokered grain export deal with Ukraine after drone attacks on the Crimean city of Sevastopol, the country’s defense ministry announced Saturday. The suspension will be “for an indefinite period,” according to Russia’s Foreign Ministry. It said in a statement that Russia stood ready to sell its own grain to world markets as a replacement for Ukrainian grain. Under the pact, set to expire Nov. 19 unless extended/modified, Ukrainian pilots guide ships through Ukrainian minefields around the ports, and are then given safe passage by the Russian Navy to Turkey, where teams with representatives from all the parties inspect them before they head to delivery ports. Returning ships are also inspected for arms. More details:

The Defense Ministry announced the move, and it was also reported by the state news agency TASS. “Taking into account the terrorist act carried out by the Kyiv regime with the participation of British experts against ships of the Black Sea fleet and civilian vessels involved in the security of grain corridors, Russia suspends its participation in the implementation of the agreement on exports of agricultural products from Ukrainian ports,” the Russian Defense Ministry announced on Telegram.
The Russian statement alleged British navy specialists were involved in preparation and training for the Sevastopol strike. It did not provide any evidence for those claims. Without directly referencing the allegation, Britain’s Ministry of Defense said later Saturday that Russia’s Defense Ministry was “resorting to peddling false claims of an epic scale.”
Sevastopol is the largest city in Crimea, which was illegally annexed by Moscow in 2014.
The move comes shortly after U.N. Secretary-General Antonio Guterres urged Russia and Ukraine to renew the deal that has seen more than nine million tons of grain exported from Ukraine and brought down global food prices.
The Russian military blamed Ukraine and Britain for what it called a massive drone attack on its Black Sea fleet in Russian-annexed Crimea. Moscow said “minor damage” was caused to one ship, and the vessels were involved in protecting convoys exporting Ukrainian grain. Russia at first said that it had repulsed the attack by Ukrainian drones, but later backtracked and said at least one minesweeper had sustained damage.
Ukraine has denied the attack, saying that the Russians mishandled their own weapons. But the incident was reminiscent of other attacks carried out by Kyiv’s forces against targets that were highly symbolic and showcased its military ingenuity in the face of a stronger, more heavily armed Russian military.
In recent weeks Russia had suggested it might refuse to extend the agreement if Moscow’s demands over its food and fertilizer exports were not met.
Ukrainian President Volodymyr Zelenskyy called the Russian move “predictable.” He accused Moscow of “blockading” ships carrying grain since September. Currently, he said, 176 vessels are backed up at sea, carrying more than 2 million tons of food.
Russia requested a meeting Monday of the U.N. Security Council because of the alleged attack on the Black Sea Fleet and the security of the grain corridor, said Dmitry Polyansky, Russia’s first deputy representative to the U.N.
Russia’s agriculture minister said Moscow stands ready to “fully replace Ukrainian grain and deliver supplies at affordable prices to all interested countries.” In remarks carried by the state Rossiya 24 TV channel, Dmitry Patrushev said Moscow was prepared to “supply up to 500,000 tons of grain to the poorest countries free of charge in the next four months,” with the help of Turkey.

Daylight Saving Time comes to an end at 2 a.m. ET next Sunday (Nov. 6). Remember, spring forward, fall backward.

The final stretch ahead of Nov. 8 midterm elections is here. Some polls will be watched closely, especially Real Clear Politics (see table). Democrats have brought back former President Barack Obama as a closer in several races, including Georgia. Obama returned to the campaign trail on Saturday in two of Democrats’ most vulnerable states — Michigan and Wisconsin. Obama will be in Nevada on Tuesday and appear with Biden in Pennsylvania on Saturday.

Former President Donald Trump has an active agenda ahead, visiting several close Senate race states.

Some 21,033,344 early votes were cast as of 9:44 a.m. ET Sunday, per the United States Elections Project.

Economic Reports for the Week

A big week for financial reports and Fed action. There is a Nov. 1-2 Federal Open Market Committee (FOMC) event that will also have a Jerome Powell press conference to digest with the expectation that the hawkish position of the central bank will be confirmed and the target rate will be boosted another 75 points. Economic reports include updates on construction spending, PMI and factory orders before the week ends with the October jobs report.

Monday, Oct. 31

Institute for Supply Management releases its Chicago Business Barometer for October. Consensus estimate is for a 47.1 reading, about two points more than September’s 45.7. The September figure was the lowest and the first reading below 50 since June 2020, indicating a contracting economy.

Tuesday, Nov. 1

Bureau of Labor Statistics releases the Job Openings and Labor Turnover Survey. Economists forecast 10 million job openings on the last business day of September, 53,000 fewer than in August. Job openings fell by 1.1 million in August, the largest decline since the onset of the pandemic, suggesting that a historically tight job market might be loosening.
ISM releases its Manufacturing Purchasing Managers’ Index for October. Expectations are for a 50 reading, one point less than in September.

Wednesday, Nov. 2

MBA Mortgage Applications
Federal Open Market Committee announces its monetary-policy decision. Wall Street expects a three-quarters of a percentage point increase, bringing the federal-funds rate to 3.75%-4%.
ADP releases its National Employment Report for October. The consensus call is for private-sector employment to increase by 199,000, slightly below the 208,000 gain in September. Job growth has moderated somewhat following a torrid 18-month stretch.

Thursday, Nov. 3

Jobless Claims
ISM releases its Services PMI for October. Economists forecast a 55.3 reading, which would be slightly less than the September data.
Fed Balance Sheet
Money Supply

Friday, Nov. 4

BLS releases the jobs report for October. The economy is expected to add 200,000 nonfarm payrolls after a 263,000 increase in September. The unemployment rate is seen edging up to 3.6% from 3.5%, near half-century lows.

Key USDA & international Ag & Energy Reports and Events

The FAO’s World Food Price Index comes on Friday, Nov. 4.

On the energy front, major oil companies BP, Saudi Aramco and ConocoPhillips report earnings in the coming week. The Abu Dhabi International Petroleum Exhibition and Conference (ADIPEC) starts Monday when OPEC releases its 2022 World Oil Outlook.

Monday, Oct. 31

Ag reports and events:

Export Inspections
Crop Progress
Fruit and Tree Nuts Yearbook
Agricultural Prices
Malaysia’s Oct. 1-31 palm oil export data
Holiday: Chile