U.S. Preparing Sanctions on Russia Over Navalny’s Death

FOMC | Will Dems protect House speaker? | E15, SAF | Food costs | Hogan again in Maryland

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February 21, 2024 06:55 AM

FOMC | Will Dems protect House speaker? | E15, SAF | Food costs | Hogan again in Maryland

Today’s Digital Newspaper

Abbreviated report today as I am in the sunny and warm Ozarks
to speak at a Missouri Pork Expo meeting.

— Equities today: Asian and European stock markets were mixed in overnight trading. U.S. stock index futures are set to open weaker. Chinese stocks rallied to turn positive YTD after authorities expanded measures aimed at stabilizing the markets.

Equities yesterday: The Dow finished down 64.19 points, 0.17%, at 38,563.80. The Nasdaq lost 144.87 points, 0.92%, at 15,630.78. The S&P 500 was down 30.06 points, 0.60%, at 4,975.51.

The main event on the earnings calendar today is Nvidia’s quarterly results after the closing bell. The chip maker has been a beneficiary of the artificial-intelligence boom. Nvidia stock is up 375% since the start of 2023. Analysts’ forecast Nvidia’s earnings per share to be up 422% year over year, on a 237% jump in revenue. The stock is up about 38% since the chip company last reported three months ago. Nvidia is 7% from the high hit earlier this month.

Walgreens is getting the boot from the 30-stock Dow Jones Industrial Average. Amazon is taking its place. The pharmacy chain stock is down 40% in a year.

— Outside markets today see the U.S. dollar index a bit firmer. Nymex crude oil prices are weaker and trading around $76.50 a barrel. The yield on the benchmark 10-year U.S. Treasury note is presently fetching 4.27%.

— The Federal Open Market Committee (FOMC) minutes from the Jan. 30-31 meeting will be released today at 2 p.m. ET. During this meeting, officials kept the federal-funds rate target range unchanged at 5.25% to 5.50% and indicated that the next interest rate move would likely be a cut, contingent on data confirming moderating inflation. Chair Jerome Powell emphasized the need for sustained evidence of declining inflation to inspire confidence.

Following the meeting, the probability of a rate cut in March decreased from 70% to around 35% according to interest-rate futures pricing. Powell welcomed lower inflation readings but stressed the necessity of continued evidence of inflation moving towards the Fed’s target.

The minutes are not expected to provide detailed specifics. The Fed’s cautious approach seemed justified after January’s Consumer Price Index showed a higher-than-expected increase, interrupting a trend of declining inflation seen throughout most of the past year. Market expectations for near-term rate cuts diminished following the release of the January CPI data. Traders now anticipate minimal chances of rate reductions at the Fed’s March and May meetings, with June emerging as the new consensus start for any potential cutting cycle.

The minutes are also likely to outline officials’ preliminary discussions regarding the Fed’s balance sheet. Powell hinted at the possibility of slowing the pace of reductions to the central bank’s holdings of U.S. Treasuries and mortgage-backed securities, which are currently being tapered at rates of $60 billion and $35 billion per month, respectively.

— Ag markets today: Tuesday’s corrective buying in the grain and soy markets dried up overnight, as corn, soybeans and wheat faced price pressure. As of 7:30 a.m. ET, corn futures were trading 1 to 2 cents lower, soybeans were 6 to 8 cents lower and wheat futures were mostly 3 to 5 cents lower. Front-month crude oil futures were mildly weaker, and the U.S. dollar index was trading just above unchanged.

Late-week cash cattle trade likely. Packers purchased a large volume of cattle last week – the most since October and the second straight week of big purchases. That likely limits their need for near-term supplies, especially with reduced slaughter runs. Additionally, USDA will release its Cattle on Feed Report Friday afternoon and those weeks are notorious for later-developing cash cattle trade.

Big jump in cash hog index. The CME lean hog index is up $1.05 to $76.80 as of Feb. 19. That’s the biggest daily jump since last summer when the index was surging to a seasonal top. April lean hog futures finished Tuesday at an $8.875 premium to today’s cash quote.

Ag trade: Japan purchased 3,140 MT of feed wheat from an unspecified source. Egypt tendered to buy an unspecified amount of soyoil.

Ag markets yesterday:

Corn: March corn futures closed up 2 1/4 cents at $4.18 3/4, nearer the session high.
Soy complex: March soybeans rose 6 3/4 cents to $11.79, while March soymeal rose $2.00 to $347.60, both closed near the session low. March soyoil fell 18 points to 45.41 cents.
Wheat: May SRW wheat closed up 20 1/4 cents at $5.79 1/4 and nearer the session high. Prices hit a contract low early on today. May HRW wheat rose 19 1/2 cents at $5.81, nearer the session high.
Cotton: March cotton fell 268 points to 91.19 cents, forging the lowest close in over a week.
Cattle: April live cattle futures fell 22.5 cents to $187.325, though deferred contracts saw slight gains. Nearby February futures fell 37.5 cents to $184.40. March feeder futures rose 35 cents to $251.375, though deferred contracts surged, as the April contract rallied $2.00 to $255.55.
Hogs: Nearby April rose 45 cents to $85.675.

— USDA’s effort to push out final Phase 1 Emergency Relief Program (ERP) payments continues, with total ERP payments rising to $8.65 billion as of Feb. 19, up from $8.56 billion the prior week. That includes $7.74 billion in Phase 1 ERP payments, up from $7.68 billion the prior week, and Phase 2 payments now at $882.78 million, up from $882.6 million the prior week. USDA set a deadline of Feb. 16 to make the final Phase 1 payments.

— U.S. is preparing sanctions on Russia over Navalny’s death. The Biden administration is preparing “major sanctions” against Russia over the death of the Russian opposition leader Aleksei Navalny, a White House official said yesterday. The official said details of the penalties would be announced on Friday. Since Russia’s invasion of Ukraine in 2022, the Biden administration has announced a series of sanctions that the U.S. hoped would hobble Russia economically and militarily. But despite the moves, the IMF said last month that Russia’s economy was growing faster than expected.

The sanctions will “hold Russia accountable for what happened to Mr. Navalny, and quite frankly, for all its actions over the course of this vicious and brutal war that has now raged on for two years,” National Security Council spokesperson John Kirby told reporters during a call announcing the action, though he declined to provide specifics about the package.

In 2021, Biden told reporters that if Navalny died, the consequences for Russia would be “devastating.” Asked directly about that on Friday, the president said his remark was three years ago, and they’ve faced “a hell of a lot of consequences” since then. Biden directly blamed Russia for Navalny’s death and said: “We’re contemplating what else can be done,” adding, “We’re looking at a whole number of options.”

Of note: Yulia Navalny, Navalny’s widow, urged officials in Brussels not to recognize Russia’s election, scheduled for March.

— China condemned the U.S. for vetoing a proposed UN Security Council resolution that demanded an immediate ceasefire in Gaza, saying it gave a “green light to the continued slaughter.” The U.S. said the resolution — which was proposed by Algeria and backed by 13 of the council’s 15 members (Britain abstained) — would interfere with its efforts to broker a deal. The U.S. put forward its own temporary-ceasefire resolution, which also warns Israel not to invade Rafah, an overcrowded city in southern Gaza. Israel’s prime minister, Binyamin Netanyahu, said on Tuesday that he was “committed to continuing the war until we achieve all of its goals.”

— Key date is April 30 for fiscal year 2024 spending. If there’s not a new budget by then, it will trigger a 1% across-the-board spending cut. Democrats won’t back a stopgap bill beyond this.

Of note: Axios reports that behind closed doors, House Republicans have shifted from optimism to anticipating a gov’t shutdown, signaling a tough decision ahead for House Speaker Mike Johnson (R-La.). With the March 1 deadline looming for a budget or spending stopgap for 20% of spending (including for USDA), Axios notes that Republicans are divided between risking a shutdown in a standoff with Democrats or striking a deal that may jeopardize Johnson’s leadership. Despite Johnson’s optimism about meeting deadlines, Republicans are bracing for the possibility of chaos. While a simple solution would be to pass a deal with Democratic votes, this could mirror the fate of former Speaker Kevin McCarthy (R-Calif.), who faced backlash for collaborating with Democrats. Without a clear backup plan, Republicans face uncertainty and potential challenges in assigning blame for any shutdown. However, there’s still the possibility of another spending stopgap as a temporary solution.

— Axios: Moderate Dem’s resolution shields Speaker Johnson from GOP removal threats. A moderate House Democrat, Rep. Josh Gottheimer (D-N.J.), is proposing a resolution to safeguard Speaker Mike Johnson from potential removal by GOP hardliners, Axios reports. This move is significant as it aims to provide Johnson with the flexibility to advance bipartisan legislation. Gottheimer’s resolution would mandate party leadership’s approval for any vote to vacate the speaker’s chair, effectively preventing individual members from initiating such action. Currently, any member can force a vote to remove the speaker. The resolution comes amid threats from Rep. Marjorie Taylor Greene (R-Ga.) to introduce a motion to vacate if Johnson proceeds with bringing Ukraine aid to the floor.

— RFA urges Biden admin.’s ethanol decisions; emphasizes importance of SAF model, EPA standards, and year-round E15 approval. Renewable Fuels Association (RFA) President Geoff Cooper emphasized the pivotal role of the Biden administration’s decisions regarding ethanol’s future. This includes determining the carbon footprint model for sustainable aviation fuel (SAF), Environmental Protection Agency’s (EPA) tailpipe emissions standards, and approval of year-round E15 use. Cooper highlighted concerns over potential adjustments to ethanol’s carbon footprint model and EPA’s proposed tailpipe emissions regulations, which could affect ethanol producers’ participation in tax credits and the automotive industry’s focus on electric cars. He stressed the importance of a fair regulatory framework and year-round availability of E15. Cooper also acknowledged USDA Secretary Tom Vilsack’s support for the biofuels industry, emphasizing USDA’s investments in market opportunities and biofuel development. Vilsack received recognition for his advocacy of renewable fuels and contributions to the industry’s growth.

Of note: Vilsack said he is confident that E15 will be available in all 50 states by 2025. Vilsack also said he expected more temporary waivers would be granted to enable E15 use this summer, similar to EPA action in 2022 and 2023. Reuters is reporting that the Biden administration will grant the request by Illinois, Iowa, Minnesota, Missouri, Nebraska, Ohio, South Dakota, and Wisconsin for removal of the gasoline volatility waiver that would allow year-round sales of E15 fuel but it will be effective for 2025. EPA sent its final rule on the matter to the Office of Management and Budget Dec. 18 and there have been five meetings on the rule. EPA would not comment on the Reuters report, citing the ongoing interagency review. Previous efforts to allow year-round sales of E15 fuel have been reversed by court challenges so it will be key to see how the Biden administration intends to craft the plan to avoid legal challenges.

— Assessing CO2 sequestration potential in U.S. ethanol industry. A recent FarmDoc article by Scott Irwin (link) explores the potential for ethanol plants in the U.S. to reduce their carbon footprint through CO2 sequestration, spurred by incentives in the Inflation Reduction Act (IRA) of 2022. Using operational efficiency data, the total CO2 production of U.S. ethanol plants is estimated, ranging from 42.4 million tons to 48.9 million tons annually. This represents nearly 1% of total U.S. CO2 emissions. The potential value of tax credits for sequestration is significant, Irwin notes, estimated at $3.75 billion annually, potentially doubling the after-tax income of the ethanol industry. However, implementation costs, including infrastructure and operational expenses, may offset a portion of these credits. Despite the costs, the potential revenue from tax credits remains attractive for ethanol producers.

— Polish farmers blocked much of Ukraine’s western border in protest against what they perceive as an overflow of Ukrainian food products flooding the Polish market and threatening their livelihoods. This blockade has disrupted commercial transportation, resulting in the halt of thousands of Ukrainian trucks and spillage of Ukrainian grain onto railway tracks. The Ukrainian government sees these protests as detrimental to its economy and its ability to withstand Russian aggression. The influx of Ukrainian products into European markets, facilitated by the European Union’s suspension of tariffs and quotas on Ukrainian food products, has exacerbated tensions with local farmers across Europe who argue that it depresses prices and makes it difficult for them to make a living.

— UK government’s food labeling plan sparks ministerial dispute. The UK government’s plan to introduce labels promoting homegrown food products and their high animal welfare standards has ignited a dispute among ministers. Business and trade secretary Kemi Badenoch expressed concerns to Steve Barclay, her counterpart at the Department for Environment Food and Rural Affairs (Defra), warning that the proposed labels could elevate food costs and potentially disrupt Britain’s trade relationships. This initiative has been interpreted as an effort to appease the UK farming lobby, which has criticized post-Brexit trade policies, including the 2021 trade deal with Australia.

Badenoch raised apprehensions that the labeling proposal might breach the UK’s obligations to the World Trade Organization by appearing to discriminate against imported products. She outlined conditions before her department would support a public consultation, including a thorough analysis of the policy’s impact on food prices.

— WSJ: Food costs hit 30-year high. USDA data reveals that in 2022, consumers spent 11.3% of disposable income on food, nearing the 1991 peak of 11.4%, the Wall Street Journal notes. Rising restaurant prices, up 5.1% from last year, and a 1.2% increase in grocery prices contribute to this trend. Food companies face challenges with elevated costs for commodities like sugar, cocoa, beef, and french fries. Mondelez plans to raise prices due to cocoa price hikes, while staffing costs rise after 22 states increased the minimum wage. However, food companies anticipate smaller price hikes this year, offering potential relief. Recent data shows a slowdown in grocery inflation, attributed to consumer resistance and stable input costs. USDA on Friday will issue updated food price forecasts, focusing on restaurant price increases and the outlook for grocery prices in 2024.

— Food companies predict slower price increases, easing inflation concerns. Food companies are forecasting smaller price hikes this year, signaling potential relief for consumers and policymakers grappling with rising food costs, the New York Times reports (link). Recent data shows a notable slowdown in grocery inflation, with companies attributing the shift to various factors, including consumer pushback against steep price hikes and more stable input costs.

The trend toward smaller price increases reflects a broader moderation in overall inflation, offering hope that the rapid spikes in grocery and restaurant prices may be tapering off. While prices are unlikely to decrease, the pace of inflation is expected to ease, aligning more closely with historical norms.

Several major companies, including PepsiCo and Coca-Cola, are scaling back price hikes after experiencing resistance from consumers and observing a divide in spending power among customers. Walmart, for instance, has seen resilient customer demand for value, indicating a preference for affordability amid ongoing inflationary pressures.

Moreover, signs of a return to normalcy in food-related input costs, coupled with companies’ adoption of technology and productivity enhancements, suggest a more moderate inflationary environment ahead. Wendy’s, for example, is implementing digital menus and dynamic pricing strategies to enhance efficiency and manage costs.

Bottom line: The outlook points to a cooler trajectory for food inflation in 2024, with grocery prices expected to rise at a slower pace compared to recent years. While restaurant inflation may remain somewhat stronger, there are indications that even this sector will experience a gradual decline in price pressures. Michael Swanson, chief agricultural economist at Wells Fargo, anticipates grocery inflation to decelerate significantly this year, offering relief to consumers amid ongoing economic challenges.

— In an eye-opening GOP poll, former Maryland Gov. Larry Hogan is shown leading his potential Democratic Senate challengers by double digits. The poll, conducted by Hogan’s longtime pollsters Ragnar Research Partners and provided to the NRSC, indicates Hogan leading Rep. David Trone (D-Md.) 49%-33% and Prince George’s County Executive Angela Alsobrooks 52%-29%. Punchbowl News cautions it’s important to approach these numbers with caution. Despite Hogan’s popularity as a former two-term governor, the upcoming 2024 presidential election, with Donald Trump back on the ballot, could significantly influence voter dynamics, the news service notes. Additionally, Hogan has yet to face extensive attacks on his record, and issues like abortion could pose challenges for him. Moreover, being tied to unpopular national Republicans like Mitch McConnell could impact his campaign. Maryland was not expected to be a competitive battleground, but these poll numbers indicate otherwise.

— If re-elected, Donald Trump is considering a two-step plan to increase tariffs on Chinese goods significantly. This plan involves utilizing legal provisions such as Section 301 of the Trade Act of 1974 and Section 232 of the Trade Expansion Act to impose tariffs on China due to unfair trade practices and national security concerns, respectively. Trump aims to reduce imports from China, particularly in critical areas like semiconductor devices, electronics, steel, and pharmaceuticals.

Trump also plans to revoke China’s most-favored-nation (MFN) trading status, putting China on par with hostile nations like North Korea and Cuba. This move would require legislative action and could impact a wide range of imports, potentially leading to tariff hikes on daily necessities and impacting the economy.

Trump is also proposing universal baseline tariffs on most foreign products, with a suggested rate of 10%. He aims to pressure other countries, including allies like Japan and Europe, to lower their tariffs on American exports. Trump’s strategy involves threats of tariff hikes to force negotiations and legislative action, with a focus on protecting the U.S. auto industry and reducing trade deficits.

Bottom line: Trump’s trade platform emphasizes aggressive tariff measures to address trade imbalances and protect American industries, with potential repercussions for global trade relations.

— The U.S. will invest more than $20 billion to replace Chinese cranes operating at its ports. The government will subsidize domestic manufacturing of cargo cranes; it will also set baseline standards for computer networks operating at ports. Officials warned that Chinese cranes, which make up almost 80% of ship-to-shore cranes at American ports, could be vulnerable to disruption by an adversary.

— The Biden administration announced the cancellation of $1.2 billion in student loans for approximately 153,000 eligible individuals under the Saving on a Valuable Education (SAVE) program. This move comes after President Biden’s broader plan to forgive $430 billion in student loan debt was blocked by the Supreme Court last year. The latest cancellation targets borrowers with loans of $12,000 or less who have been repaying for at least 10 years, aiming to alleviate debt burdens, particularly for community college students. This initiative adds to the administration’s efforts to address student loan debt, totaling $138 billion canceled for nearly 3.9 million individuals through executive actions. While progressives advocate for broader debt relief, Republicans generally oppose such measures.

— Republican presidential candidate Nikki Haley reaffirmed her commitment to stay in the 2024 race against former President Donald Trump just five days before the South Carolina primary. Despite analysts suggesting she lacks a mathematical path to the GOP nomination, Haley intends to continue her campaign beyond the South Carolina primary and through Super Tuesday on March 5. Recent polls indicate Trump leading Haley among likely voters in South Carolina’s upcoming Republican primary by a significant margin of 65% to 30%.

Meanwhile, new filings reveal that Trump’s leadership PAC disbursed nearly $3 million to law firms last month amid mounting legal challenges. Additionally, the former president accrued an additional $1.9 million in unpaid legal bills by the end of January, according to the documents.

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