Supreme Court Keeps Title 42 While Legal Challenges Play Out

Natural gas prices in Europe at pre-war levels; output in top U.S. gas-producing basin drops by record amount

Supreme Court orders Title 42 border restrictions to remain in place. In a 5-4 vote, with the court’s three liberals and conservative justice Neil Gorsuch dissenting, the high court reversed an order from a federal judge in Washington, D.C., who ruled last month that the border policy must end. The court’s ruling comes in response to an emergency request filed by 19 Republican state attorneys general asking to maintain the policy, which was scheduled to expire this week.

Meanwhile, the Texas National Guard installed two miles of border fencing in the El Paso, Texas, area as a surging number of migrants face uncertainty.

The Eurozone economy is set to shrink next year as high inflation and potential energy shortages drag down output and trigger a reversal in the fortunes of the labor market, according to a Financial Times poll of economists. Details in Market section.

U.S. officials are weighing new limits as they press China for more data about the virus. “Without this data, it is becoming increasingly difficult for public health officials to ensure that they will be able to identify any potential new variants and take prompt measures to reduce the spread,” officials said.

China slams Taiwan’s ‘cannon fodder’ conscription decision. China’s government criticized Taiwan on Wednesday for seeking to use the Taiwanese people as “cannon fodder” by extending compulsory military service from four months to one year starting in 2024.

The Russian military on Wednesday intensified attacks on Kherson in southern Ukraine, hammering the recently liberated city with artillery and mortar shells, the Ukrainian military said, according to Reuters. Moscow’s forces also increased pressure on Ukraine’s military along the front lines in eastern Ukraine. The war is in its eleventh month, and there are no signs of an end. Ukraine President Volodymyr Zelenskyy has put forth a 10-point peace plan that would have Russian forces fully withdraw, but the Kremlin has rejected it.

Insurance companies said they will not insure ships going to Russia or Ukraine starting Jan 1. If that stays in place, some shipments will be impacted. More in Russia/Ukraine section.

Not much sympathy for this development: Wall Street’s bankers are bracing for big cuts to their bonuses. Details below.

State and military police were sent Tuesday to keep people off Buffalo’s snow-choked roads, and officials kept counting fatalities three days after western New York’s deadliest storm in at least two generations. Erie County Executive Mark Poloncarz warned that police would be stationed at entrances to Buffalo and at major intersections because some drivers were flouting a ban on driving within New York’s second-most populous city.

Today’s dispatch shows a huge difference in natural gas situations in Europe and the U.S.

National average gasoline prices could still climb back above the $4-a-gallon threshold as soon as May, according to GasBuddy projections shared exclusively with CNN.

Binyamin Netanyahu, the incoming prime minister of Israel, finalized deals to form a coalition.

Equities today: Global stock markets were mixed overnight. U.S. stock indexes are pointed toward slightly higher openings. In Asia, Japan -0.4%. Hong Kong +1.6%. China -0.3%. India flat. In Europe, at midday, London +0.8%. Paris flat. Frankfurt -0.1%.

U.S. equities yesterday: The Dow finished up 37.63 points, 0.11%, at 33,241.56. The Nasdaq was down 144.64 points, 1.38%, at 10,353.23. The S&P 500 lost 15.57 points, 0.40%, at 3,829.25.

The Nasdaq has lost more than 33% so far in 2022, and there are only three trading days left, including Wednesday. The Dow could end the year down over 8% while the S&P 500 could finish it off around 20% lower.

Shares in Tesla fell by 11% on Tuesday, down by more than 40% this month. That brings stock in Elon Musk’s electric-car maker back to where it was in August 2020. Despite complaints about Musk’s diversion into Twitter, Tesla’s slump seems to owe more to supply-line problems in China. Reuters reported that production at its gigafactory in Shanghai will be reduced through January.

Agriculture markets yesterday:

• Corn: March corn rose 8 1/2 cents to $6.74 3/4, the contract’s highest close since Nov. 7.
• Soy complex: March soybeans rose 4 1/2 cents to $14.89, the highest close since Dec. 8 but well off an early rally to a six-month high at $15.22 3/4. March soymeal fell $3.50 to $447.80. March soyoil gained 174 points 66.39 cents.
• Wheat: March SRW wheat fell 1 1/2 cents to $7.74 1/2. March HRW wheat gained 4 1/2 cents to $8.79 1/4, the contract’s highest intraday price since Dec. 1. March spring wheat rose 2 1/2 cents to $9.34 1/4.
• Cotton: March cotton fell 97 points to 84.24 cents, the contract’s lowest close since Dec. 19.
• Cattle: February live cattle rose 12.5 cents to $157.875, a lifetime-high close for the third session in the past four.
• Hogs: February lean hogs soared $3.65 to $91.475, the highest close since Sept. 20.
  

Ag markets today: Soybeans built on Tuesday’s gains overnight but failed to get near yesterday’s highs. Corn and wheat futures held in tight trading ranges in thin trade. As of 7:30 a.m. ET, corn futures were trading steady to fractionally lower, soybeans were 12 to 13 cents higher, winter wheat futures were fractionally on either side of unchanged and spring wheat was mostly 1 to 4 cents lower. Front-month crude oil futures were trading just below unchanged, and the U.S. dollar index was around 100 points lower this morning.

Technical viewpoints from Jim Wyckoff:

FT survey: Energy crunch will trigger Eurozone contraction in 2023, higher unemployment and crash in house prices. The Eurozone economy is set to shrink next year as high inflation and potential energy shortages drag down output and trigger a reversal in the fortunes of the labor market, according to a Financial Times poll of economists. Almost 90% of the 37 economists surveyed by the FT said they thought the single currency zone was already in recession and the majority forecast gross domestic product would contract over the whole of next year. Most economists said they thought Europe was past the worst of its energy crisis, sparked by Russia’s invasion of Ukraine. But many fear the prospect of energy rationing could return next year, particularly if this winter is unusually cold, depleting supplies, or if gas flows from Russia are reduced further during 2023. Link for details.

Holiday-related debt soars 24% to an eight-year-high of $1,549. Shoppers frequently used their credit cards this holiday season, a new debt survey shows. And now they plan to take longer than ever to pay it back, according to a LendingTree survey of 2,050 adults conducted from Dec. 16-19. The average debt hit $1,549, spiking 24% this year compared to 2021, the survey showed. It’s the highest spike and debt level in the eight years that the online lender has been tracking the data.

Biden, Buttigieg vow to hold Southwest, other airlines “accountable” for nationwide flight cancellations. President Biden on Tuesday said his administration will hold airlines accountable after nationwide flight cancellations following an extreme winter storm this past week. Biden also called for affected customers to “visit the Department of Transportation’s website to see if they are entitled to compensation.” Transportation Secretary Buttigieg told CNN he has spoken with Southwest Airlines CEO Bob Jordan about the cancellations, calling it a “meltdown” and “unacceptable situation.” HE said the Transportation Department will hold the airline accountable “to make sure this situation does not happen again.” Buttigieg told CNN’s Wolf Blitzer, “From what I can tell, Southwest is unable to locate even where their own crews are, let alone their own passengers, let alone baggage.” He also told CNN the Department of Transportation is prepared to pursue fines against Southwest if there is evidence that the company has failed to meet its legal obligations, but he added that the department will be taking a closer look at consistent customer service problems at the airline.

Wall Street’s bankers are bracing for big cuts to their bonuses. Fees from advising on deals, stock offerings and bond sales are down more than 40% from this time last year, wiping out more than $50 billion in revenue, according to data from Dealogic. The Wall Street Journal reports (link) that is the biggest year-over-year dollar decline on record, worse even than during the 2008 global financial crisis. In response, executives across banks including JPMorgan Chase, Bank of America, Citigroup and Jefferies are planning to cut bonus pools by some 30%, and at Goldman Sachs by as much as about 40%.

Market perspectives:

• Outside markets: The U.S. dollar index was weaker, with the euro and British pound gaining ground against the greenback. The euro changed hands at $1.06 in the final week of 2022, heading for a 7% loss against the U.S. dollar year to date and after touching a 20-year low of $0.96 back in September, as investors rushed for safety on the prospect of a severe economic recession in Europe amid the ongoing war in Ukraine, rising borrowing costs and stubbornly high inflation. The yield on the 10-year U.S. Treasury note rose, trading around 3.81%, with a mostly higher tone in global government bond yields. Crude was slightly lower, with U.S. crude around $79.45 per barrel and Brent around $84.70 per barrel. Gold and silver futures were lower, with gold around $1,813 per troy ounce and silver around $24.10 per troy ounce.

• Gas prices will likely be significantly cheaper next year — but the national average could still climb back above the $4-a-gallon threshold as soon as May, according to GasBuddy projections shared exclusively with CNN. The good news is that the price-tracking website doesn’t expect a repeat of this year’s wild swings that at one point sent gas prices above $5 a gallon for the first time. The national average for regular gas is expected to drop to $3.49 a gallon in 2023, down roughly 50 cents from the average this year, according to GasBuddy.

• Natural gas prices in Europe at pre-war levels. Dutch front-month gas futures continued to decline heading into the end of the year, hitting €77/MWh which is the lowest level since February 21, before the war in Ukraine started, amid mild weather and ample supplies. Natural gas prices in Europe are more than 75% below record levels of nearly €350 hit in August, as record LNG imports, increased wind generation, and fuller-than-normal stockpiles ease concerns about shortages. Storage facilities in Germany were 88.6% full as of December 26 and the EU average held at 83.2%, above the five-year seasonal average.

• Natural gas output in the Appalachia region, the top gas-producing basin in the U.S., dropped by a record amount as Winter Storm Elliott swept through Pennsylvania and Ohio, freezing wells and some equipment and creating mechanical issues at pipeline infrastructure. The Appalachia basin saw natural gas supply drop by 27%, or by 9 billion cubic feet, compared to the typical levels, according to estimates by BloombergNEF based on pipeline flows. The decline was the steepest on record in data since 2013, Bloomberg notes. In Pennsylvania, natural gas production fell by more than 20%, due to well freeze-offs. In Ohio, output more than halved, according to Bloomberg’s estimates. Link for details.

• At least 31 people died in New York’s Erie County, and the number continues to rise as authorities check on homes and cars for anyone who was stranded in the snow. “We’re, unfortunately, finding bodies on the street and in snowbanks,” Erie County Executive Mark Poloncarz said. “There’s a lot of roads that are completely blocked right now, that have no access whatsoever.” Military police are helping enforce a driving ban in Buffalo as more than 7,000 utility workers navigate through broken trees and poles around the clock to restore power. Nationwide, another 25 people have been reported dead in the storm across 11 states.

• NWS weather: ...Stormy and unsettled weather to impact the western United States and Rockies... ...Increasing shower and thunderstorm chances across parts of the southern Plains and lower Mississippi Valley by Thursday... ...Well above average temperatures to surge into the central and eastern U.S. by mid-to-late week... The western U.S. is in transition to an active wet pattern as an atmospheric river comes onshore spreading.

Items in Pro Farmer’s First Thing Today include:

• Soybeans rise overnight, corn and wheat little-changed
• Ship insurers to cancel war cover for Russia, Ukraine (see Russia/Ukraine section)
• Malaysia keeps January crude palm oil export duty at 8%
• Wholesale beef prices surge
• Cash hog index continues to fall

— Summary: Ukraine’s army said that Russia fired 33 missiles at civilian targets in Kherson, the southern city that Ukrainian forces liberated from Russian occupation in November. Russia denied targeting civilians. Residents of Kherson have been fleeing amid the bombardment. There is currently heavy fighting across Ukraine, including in Bakhmut , in eastern Donetsk province, despite Russia having already reduced the town to ruins.

• Russian President Vladimir Putin banned the supply of Russian oil and oil products to countries that impose a price cap, allowing deliveries to those nations only based on a special permission for the Kremlin leader. The European Union and the U.K. earlier this month banned the import of seaborne Russian crude, while the Group of Seven nations put a ceiling on other sales by barring Western companies from insuring, financing or shipping Russian crude at above $60 a barrel.

  Putin Tuesday signed a decree announcing the retaliatory measures which are scheduled to come into effect Feb. 1 and last through July 1, 2023.

  Market impact of the move is likely to be limited, as the EU, the region that is most dependent on Russian oil, has already banned most Russian oil imports. The cap is set close to Russia’s existing selling price, and some countries — like Ukraine’s neighbor Poland — argued that it did not make much of a difference to the Kremlin. The cap is to be reviewed every two months. The decree also falls short of heavier potential countermeasures, like setting a minimum price differential or barring certain countries from purchases. Meanwhile, Russia’s flagship crude, known as the Urals blend, is trading below the $60-a-barrel threshold set by the EU and G7, meaning the cap has yet to apply and most business can proceed without restrictions. Moscow has separately offered large discounts for the main importers of its oil, India and China, which haven’t signed up to the sanctions.

  Russia’s Finance Minister has admitted that the oil price cap could influence its export income and drive its budget deficit above the expected 2%. his is the first time a Russian official has acknowledged that the oil price cap could negatively impact the country’s economy.

  Russia’s economy is expected to contract 3% in the current year — a sharp turnaround from its growth in 2021, with Central Bank governor Elvira Nabiullina citing “worsening trade conditions” as a key reason. Russia’s cash flows are expected to weaken considerably in 2023 as oil and gas sales to Europe plunge. Ukraine’s Ministry of Economy expects that the EU embargo on Russian oil and petroleum products should cut Russia’s profits by at least 50%.

  Meanwhile, the Russian ruble has finally caved in, slumping past 70 per U.S. dollar to a more than seven-month low courtesy of plunging crude prices as well as fears that sanctions on Russian oil could hit the country’s export revenue, Reuters reports.

• Ukraine’s economy has been projected to shrink about 40% this year, drying up tax revenue and indefinitely delaying previously planned spending that would have spurred growth. A Central Bank statement, published on Monday, noted an inability to raise money on the market. Since Russia invaded on Feb. 24, Ukraine has not been able to roll over debt accumulated before the war. The country paid investors about $2.2 billion more than it collected in bond sales in that time, the Central Bank said.

  About a fifth of Ukraine’s territory is occupied by Russian forces. Pivotal sectors like steel manufacturing and agriculture have been directly damaged by the war.

• Ship insurers to cancel war cover for Russia, Ukraine. Ship insurers said they are cancelling war risk coverage across Russia, Ukraine and Belarus, following an exit from the region by reinsurers in the face of steep losses. Reinsurers, who insure the insurers, typically renew their 12-month contracts with insurance clients on Jan. 1, giving them the first opportunity to scale back exposure since the war in Ukraine started. P&I (protection and indemnity) clubs American, North, U.K. and West are no longer able to offer war risk cover for liabilities in the region from Jan. 1, they said. Ships typically have P&I insurance, which covers third party liability claims including environmental damage and injury. Separate hull and machinery policies cover vessels against physical damage. The moves by the insurers will make it harder for ship-owners or charterers to find insurance, increase prices and may mean some ships sail uninsured, industry sources told Reuters.

— ERP payments edge higher. Payments under the Emergency Relief Program (ERP) moved up to $7.27 billion as of Dec. 26, up from $7.25 billion the prior week. The total includes $6.20 billion for non-specialty crops ($6.19 billion prior) and $1.07 billion for specialty crops ($1.06 billion prior). The launch of the Phase 2 for ERP has been delayed and the payment totals under Phase 1 have only risen incrementally slightly. Payouts under the Coronavirus Food Assistance Program (CFAP) were nearly unchanged as of Dec. 26.

— Chinese citizens started applying for passports and checking travel websites in record numbers. Other countries grew wary of the infections they might carry; China’s hospitals are reportedly inundated by new cases. Japan complained of “discrepancies” in China’s reported figures and announced it would require negative covid test results of all visitors from the mainland. The U.S. is weighing similar measures while India and Malaysia resumed surveillance measures among international arrivals.

Bottom line: Many welcomed Beijing’s plan to loosen quarantine rules for travelers, but concerns linger about the country’s Covid wave.

— China’s government criticized plans by Taiwan to lengthen compulsory military service on the island, calling conscripts “cannon fodder.” On Tuesday Tsai Ing-wen, Taiwan’s president, announced that from 2024 all men would be expected to serve for one year, up from four months currently. The move is in response to the rising threat from China, which claims Taiwan as its own territory.

— South Korea barely mentions China in new Indo-Pacific Strategy. South Korea put out its first strategy report for the Indo-Pacific region, which hardly mentions China and signals Seoul is seeking a cautious balance between its biggest trade partner Beijing and main military ally, the U.S. Link for more via Bloomberg.

— “The Impact of Long-Run Declines in Gasoline Use on the U.S. Corn Market” is the title of a report written by University of Illinois Agricultural and Consumer Economics Ph.D. student Shahadat Hossain and edited by Prof. Joe Janzen (farmdoc daily (12): 195, Department of Agriculture.) Link to report.

Bottom line: “U.S. ethanol production faces uncertainty related to adoption of electric vehicles and a resulting decrease in gasoline use. We quantify the impact on corn markets between now and 2050, assuming ethanol use remains proportional to EIA’s projections for gasoline use over time. We find relative declines in ethanol production would decrease corn prices by about 4%, but this price forecast assumes corn production and other uses continue current trends. The development of new uses for corn may substantially alter future corn prices.”

— For EV naysayers: With electric-vehicle supplies limited, buyers are crossing brand lines. Nearly 80% of people who bought Kia’s EV6 electric crossover since it went on sale early this year traded in something other than a Kia, according to Edmunds, compared with 61% for all its models. More than two-thirds of Ford Mustang Mach-E electric-sport-utility buyers had non-Ford trade-ins, compared with Ford’s 42% brand-wide average. The WSJ reports (link) that Rivian Automotive said its customers are coming from such a wide spectrum of car buyers that purchasers of its trucks and SUVs — which start around $70,000 — are about as likely to own a $30,000 Subaru Outback station wagon as they are a $100,000 Porsche 911.

— U.S. beef exports to East Asia at record pace. U.S. beef exports to East Asia in 2022 are again on record pace after a record year in 2021, according to USDA. Despite economic uncertainties due to the Covid-19 pandemic, continued global supply chain challenges, and a competitive global beef market, U.S. beef exports to East Asia, both in value and volume, were outstanding in the first half of 2022. USDA analysts say East Asia’s relatively robust middle class has supported the demand for high-quality beef, and a developed e-commerce retail sector has provided flexible avenues for suppliers to promote beef products during the pandemic. Link for details.

— Summary:

• Global Covid-19 cases at 658,597,881 with 6,682,716 deaths.
• U.S. case count is at 100,471,223 with 1,090,595 deaths.
• Johns Hopkins University Coronavirus Resource Center says there have been 651,223,261 doses administered, 268,143,349 have received at least one vaccine, or 81.39% of the U.S. population.

— Dave Wasserman on the House midterm elections: “Republicans owe their House majority to just 6,675 votes spread across five races. That’s 0.0062% of the 107.6 million votes cast in House races nationwide.”

— Republican Jewish Coalition said it wouldn’t invite Representative-elect George Santos of New York to any future events, saying he misrepresented his Jewish heritage, a day after Santos acknowledged that parts of his biography weren’t accurate.

— Binyamin Netanyahu, the incoming prime minister of Israel, finalized deals to form a coalition. Netanyahu is now expected to swear in his new government — one of the most right-wing in Israeli history — on Thursday. On Tuesday the country’s parliament passed controversial legislation which will allow Netanyahu’s allies to take up important government positions.

— Former President Donald Trump’s tax returns will be released Friday morning. The returns will be placed into the Congressional Record that day during a House pro forma session. The release comes after the panel asserted last week that the IRS failed to properly audit Trump’s taxes while he was in office. The committee released a report that detailed six years’ worth of his tax returns, including his claims of massive annual losses that significantly reduced his tax burden.

— Supreme Court orders Title 42 remain in place, pending arguments. Title 42 is an order allowing border authorities to swiftly deport migrants if they hail from a country known to host a communicable disease such as Covid-19. “The States contend that they face an immigration crisis at the border and policymakers have failed to agree on adequate measures to address it,” the ruling reads. “The only means left to mitigate the crisis, the States suggest, is an order from this Court directing the federal government to continue its Covid-era Title 42 policies as long as possible — at the very least during the pendency of our review. Today, the Court supplies just such an order.” The Title 42 order was implemented at the beginning of the Covid pandemic and has been used more than 2 million times to expel migrants on public health grounds during both the Trump and Biden administrations. The group’s request followed its failed plea with the D.C. Circuit Court of Appeals earlier this month to stop the policy from being lifted.

In the 5-4 decision, Justices Sonia Sotomayor, Elena Kagan, Neil M. Gorsuch and Ketanji Brown Jackson dissented.

The court said that it would hear arguments in the case in February and that the stay would remain in place until it issued its ruling. The court’s order suggests the Biden administration may seek to change the policy if it chooses to do so. The justices said they would only address the question of whether the 19 mainly Republican-led states that had sought the stay could pursue their challenge to the measure.

Background: Title 42 is a provision in the public health law that dates to 1893 and the effort to prevent the spread of cholera. As amended in 1944, the law authorized the surgeon general to “prohibit ... the introduction of persons or property” from countries where contagious diseases are rampant.

— Spectacular images from NASA’s year in space. Link to view.

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