U.S. Producer Prices Surge in August 2023, Led by Energy Costs

ECB raises rates to all-time high | Diesel prices and availability concerns | UAW talks

Jim Wiesemeyer

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September 14, 2023 08:19 AM

ECB raises rates to all-time high | Diesel prices and availability concerns | UAW talks

Today’s Digital Newspaper

MARKET FOCUS

SEC Chairman Gensler delays timeline for controversial climate-reporting rule
Ag markets today
Summers predicts likely need for further Fed rate hikes
Cash is king
A flashing recession signal
ECB raises rates to all-time high
U.S. records monthly budget surplus in August, but cumulative deficit grows
U.S. trucking industry rebound threatens to tighten diesel market amid low stockpiles
UAW contemplates targeted strikes as labor deal deadline nears
India to release more wheat stocks to tame prices
Cargill’s purchases of Brazilian soy crush plants approved
Panama Canal shipping restrictions expected to persist through 2024
Ag trade update
Drought, deluge and the hottest summer on record
NWS weather outlook
Pro Farmer First Thing Today items

RUSSIA & UKRAINE

Pentagon establishes oversight team in Ukraine to monitor U.S. security assistance
Cargill agrees to sell stake in Russian grain terminal

POLICY

Some expiring tax cuts will likely be extended

CHINA

China criticizes EU’s anti-subsidy probe into EVs, warns of bilateral impact
China’s central bank reduces bank reserve ratios to boost economy
Moody’s downgrades China’s property sector outlook

ENERGY & CLIMATE CHANGE

EPA’s RFS faces multiple legal challenges from environmental and fossil fuel groups
Calif. Senate approves climate disclosure rules amid growing ESG focus
U.S. allocates $1.1 bil. for urban tree planting to combat climate change, extreme heat

LIVESTOCK & FOOD INDUSTRY

Former CEO Howard Schultz will step down from Starbucks board of directors

POLITICS & ELECTIONS

Trump leads Republican field in South Carolina primary race
Romney will not be running for re-election when Senate term ends in January 2025

CONGRESS

House Republicans delay procedural vote on Defense bill amid funding talks chaos
Speaker McCarthy proposes short-term stopgap funding bill
House to vote on gas cars bill
Impact of a U.S. gov’t shutdown

OTHER ITEMS OF NOTE

Federal judge declares DACA program unlawful
DSM: Iowa loses half of soil’s organic carbon over four generations of farming
Today’s calendar of events

MARKET FOCUS

Equities today: Asian and European stock markets were mixed overnight. U.S. stock indexes are pointed to higher openings. In Asia, Japan +1.4%. Hong Kong +0.2%. China +0.1%. India +0.1%. In Europe, at midday, London +1.2%. Paris +0.4%. Frankfurt +0.3%.

U.S. equities yesterday: The Dow closed down 70.46 points, 0.20%, at 34,575.53. The Nasdaq rose 39.97 points, 0.29%, at 13,813.59. The S&P 500 was up 5.54 points, 0.12%, at 4,467.44.

SEC Chairman Gensler delays timeline for controversial climate-reporting rule. SEC Chairman Gary Gensler has informed lawmakers that the Securities and Exchange Commission (SEC) is not bound by a set deadline for issuing its final rule on climate-related reporting requirements for companies. During a Senate Banking Committee meeting, Gensler emphasized that the SEC’s timeline is determined by readiness rather than a clock. The proposed rule includes a contentious component related to Scope 3 emissions, which has raised concerns about potential significant costs for businesses. Gensler hinted that adjustments might be made to this aspect of the proposal, acknowledging the importance of addressing issues related to Scope 3.

Agricultural interests, in particular, have expressed worries that Scope 3 reporting requirements could impose additional burdens, especially if they sell their commodities or products to publicly traded companies subject to these reporting requirements. However, Gensler clarified that the SEC’s intention is not to involve private companies extensively in carbon reporting. He has instructed the staff to ensure that the regulations focus on public companies without indirectly impacting private ones.

While Gensler refrained from providing a specific timeline for the final rule, the Biden administration’s regulatory agenda earlier this year targeted October for its release. Nevertheless, as of now, the SEC has yet to forward the final rule on climate reporting requirements to the Office of Management and Budget for review.

Agriculture markets yesterday:

Corn: December corn rose 5 3/4 cents to $4.82 1/4, ending near the session high.
Soy complex: November soybeans rose 3 1/4 cents to $13.49 3/4 and near the session high. Prices hit a three-week low early on.
Wheat: December SRW futures rose 9 3/4 cents before settling at $5.97 1/4, nearer the session high. December HRW futures rose 14 cents before closing at $7.44 3/4, near the session high. December HRS rose 8 1/2 cents to $7.87 1/2.
Cotton: December cotton fell 141 points to 86.89 cents and nearer the session low.
Cattle: October live cattle futures ended Wednesday having fallen $1.00 to $183.15. That decline, as well as the strength exhibited by the grain markets, sent October feeder futures $2.20 lower to $259.05.
Hogs: October lean hog futures led the complex lower on Wednesday, falling $1.30 to $83.975 and settling near the intraday low.

Ag markets today: Corn, soybeans and wheat held in tight trading ranges during a quiet overnight session. As of 7:30 a.m. ET, corn futures were trading mostly a penny lower, soybeans were 1 to 3 cents higher, winter wheat futures were 3 to 5 cents lower and spring wheat was mostly 2 to 3 cents lower. Front-month crude oil futures were more than $1.00 higher, and the U.S. dollar index was trading just below unchanged.

Slow developing cash cattle market. As expected, this week’s cash cattle negotiations have been slow to develop, creating uncertainty about cash trade. While showlist numbers are down from last week, packers are having to cut Choice prices to attract retailer demand. Choice boxed beef fell another 48 cents on Wednesday, though Select firmed $3.41 and movement improved to 142 loads on the day.

Cash hog index firms. The CME lean hog index is up 35 cents, marking the third daily increase in the past five. While the index has only risen a net 47 cents during that span, there are increasing signs of stabilization. After Thursday’s losses, October hogs stood $2.505 below today’s cash quote.

Quotes of note:

Former Treasury Secretary Lawrence Summers cautions against over-optimism on inflation, predicts likely need for further Fed rate hikes. Former U.S. Treasury Secretary Lawrence Summers issued a cautionary warning, advising against excessive optimism regarding the U.S.’ ability to curb inflation without triggering an economic downturn. He reiterated his belief that the Federal Reserve will likely find it necessary to implement additional interest rate hikes. Summers outlined three potential scenarios, each with roughly a one-in-three chance of occurring. These scenarios include a soft landing, a situation where inflation remains above 3% without a clear improvement, and a more challenging landing, where the cumulative impact of Fed rate hikes affects the economy.
Cash is king. Ray Dalio doesn’t want bonds in his portfolio. He said the huge US deficit makes it harder to keep rates at levels that are attractive for creditors, but not too high to harm the issuer. Right now, he likes cash.
$4.15 trillion: Cash held by U.S. corporations in the first half of 2023, an all-time high, according to the Carfang Group, a treasury consulting firm. That’s up from $3.769 trillion in the prior-year period.
A flashing recession signal. The U.S. bond market hasn’t flashed recession warnings so consistently for so long in at least six decades, according to Bloomberg. For 212 straight trading days, no matter what economic indicators show and officials have said, 10-year Treasury yields have held below 3-month ones—the longest stretch since Bloomberg’s records began in 1962. Such an inversion telegraphed the last eight recessions. “Ignore the signal at your own risk,” said Campbell Harvey, the economist who pioneered the use of the yield curve as a recession indicator.

U.S. producer prices surge in august 2023, led by energy costs. In August 2023, producer prices in the U.S. saw a substantial increase of 0.7%, reaching their highest level since June 2022. This exceeded market expectations, which had predicted a more modest 0.4% rise.

Key Points:

Prices for goods surged by 2%, primarily driven by a significant 10.5% increase in energy costs.
Prices for services also rose, albeit at a more moderate pace of 0.2%. This increase was primarily attributed to rising transportation and warehousing costs, which saw a 1.4% uptick.
Excluding volatile items such as food and energy, the producer price index still registered an increase of 0.2%. This followed a gain of 0.4% in the previous month.

Annual Comparison:

On an annual basis, producer price inflation reached a four-month high at 1.6%.
Notably, the core rate, which excludes volatile items, eased to 2.2%. This marks its lowest level since January 2021.

Bottom line: The surge in producer prices, especially in the goods sector driven by energy costs, reflects ongoing inflationary pressures within the U.S. economy. These price increases could have implications for various sectors and consumer spending in the coming months.

ECB raises rates to all-time high. During its September meeting, the European Central Bank (ECB) announced another 25-basis point increase in interest rates, marking the 10th consecutive rate hike. This decision reflects the ECB’s ongoing concern about persistently high inflation and the potential risk of a recession.

Key details of the rate hike:

The main refinancing operations rate has reached a 22-year high at 4.5%.
The deposit facility rate has set a new record at 4%.
Policymakers remain focused on addressing the continued surge in prices.

ECB’s September Macroeconomic Projections:

The ECB staff’s macroeconomic projections for the Euro Area anticipate that average inflation will be 5.6% in 2023, which is a substantial increase.
In 2024, inflation is projected to be 3.2%, showing persistent price pressures.
These projections reflect a higher trajectory for energy prices, contributing to elevated inflation levels.
Excluding energy and food, the projected path for inflation has been slightly revised downward. It is expected to average 5.1% in 2023, 2.9% in 2024, and 2.2% in 2025.

Bottom line: The ECB’s decision to raise interest rates comes as part of its efforts to combat rising inflation. However, it also underscores the challenges of balancing inflation control with economic stability in the Eurozone.

U.S. records monthly budget surplus in August, but cumulative deficit grows. The U.S. reported a budget surplus of $89 billion in August, thanks in part to technical government accounting related to the student loan debt forgiveness plan. The government did not spend $319 billion in allocated funds for the blocked student loan forgiveness effort, contributing to the surplus. However, the cumulative deficit for the first 11 months of Fiscal Year 2023 stands at $1.52 trillion, up over 60% compared to the same point in the previous fiscal year. Rising interest costs for servicing U.S. debt, which total $808 billion, have been a significant factor in the growing deficit. The weighted average interest rate on outstanding debt is now 2.92%, the highest since 2011, further increasing interest expenses. With outlays up 3% from the previous year and revenues down 10%, the interest component is expected to continue growing, especially if the Federal Reserve implements another rate hike before the end of 2023.

Market perspectives:

— Outside markets: The U.S. dollar index was weaker. The yield on the 10-year U.S. Treasury note dipped slightly, trading around 4.26%, with a negative tone in global government bond yields. Crude oil futures surged higher ahead of U.S. market action with U.S. crude around $89.90 per barrel and Brent around $93.20 per barrel. Gold and silver were weaker, with gold around $1,929 per troy ounce and silver around $22.86 per troy ounce.

— U.S. trucking industry rebound threatens to tighten diesel market amid low stockpiles. The U.S. trucking industry is showing signs of a rebound, which could exacerbate the challenges in an already strained diesel market marked by some of the lowest stockpiles in over two decades. The anticipated rise in domestic freight demand, driven by reduced retail inventory levels and increased construction projects under President Joe Biden’s stimulus programs, is expected to boost the consumption of diesel-powered truck fleets. This surge in demand comes at a time when domestic fuel stockpiles are at their second-lowest seasonal levels since 2000.

The consequences of this situation extend beyond the trucking industry, potentially affecting farmers relying on diesel for crop harvesting and homeowners dependent on heating oil during the winter months. Diesel’s influence on manufacturing and transportation costs means that a rise in diesel prices could lead to broader inflationary pressures across various sectors.

Diesel futures are already trading near their highest levels since January in New York, discouraging arbitrageurs from storing fuel in anticipation of higher prices. At the retail level, diesel prices are commanding a 30% premium compared to the five-year average.

The tightness in the U.S. diesel supply market compounds a global shortage exacerbated by factors such as the OPEC alliance’s extended output limits, reduced fuel yields from different crude usage, and Russia’s curtailment of diesel exports, painting a grim picture for worldwide supplies.

— UAW contemplates targeted strikes as labor deal deadline nears. As the clock ticks toward the 11:59 pm ET deadline for reaching a new labor deal, the United Auto Workers (UAW) is reportedly considering targeted strikes at specific plants that would impact the three major U.S. automakers. If implemented, this move would be unprecedented in its scope, aiming to affect all three automakers simultaneously. UAW President Shawn Fain indicated that taking action may be necessary to achieve their goals, highlighting that while the automakers have offered pay raises of up to 20% over four-and-a-half years for the 146,000 union members, the offer falls short of the union’s demands for a 40% pay increase and substantial improvements in benefits.

Potential strike options include targeting critical engine or transmission plants, which could have far-reaching consequences across the industry, or focusing on profitable truck or SUV assembly facilities. Fain did not rule out the possibility of eventually deploying a strike involving all workers, emphasizing the union’s determination to negotiate a more favorable labor deal.

— India to release more wheat stocks to tame prices. India will release more wheat stocks into the open market to curb prices during the coming festive season, food secretary Sanjeev Chopra said. He said India has no immediate plans to abolish its wheat import tax or to import wheat from Russia. Chopra also assured the country possesses sufficient sugar supplies to meet festival-related demand, addressing concerns about domestic prices that have reached their highest levels in six years.

— Cargill’s purchases of Brazilian soy crush plants approved. Brazil’s antitrust watchdog CADE approved Cargill’s acquisition of Brazilian soy crusher Granol’s three soy crushing plants on Wednesday. The approval allows Cargill’s acquisition of biodiesel plants at Granol’s industrial complexes located in the cities of Anapolis, Porto Nacional and Cachoeira do Sul. With the approval, Cargill will have nine Brazilian soy crushing plants, equaling Bunge, according to data from oilseed lobby Abiove.

— Panama Canal shipping restrictions expected to persist through 2024, raising concerns for global trade. Shipping restrictions at the Panama Canal are anticipated to continue well into 2024 due to ongoing drought conditions. Canal authorities have announced their intention to maintain limits on the number of daily ship transits at 32, down from the usual 36, in a bid to conserve water. These restrictions have resulted in a backlog of 116 vessels waiting to cross, although this number is an improvement from the over 200 ships stuck in congestion last month. The impact of these limitations has been most keenly felt by bulk carriers, but container ships could also be affected. Shipowners have resorted to rerouting traffic to avoid delays. As a result, shippers are likely to face potential disruptions in their international supply chains, necessitating careful management to mitigate the impact of the ongoing shipping challenges at this critical global trade crossroads.

— Drought, deluge and the hottest summer on record. Scorching temperatures and drought conditions followed by deluges of rain have made for an unusually volatile growing season for U.S. farmers. July was the hottest month on record and followed the hottest June on record. Drought in places like Iowa, Nebraska, Missouri and Minnesota threatened crops and parched pastures used for grazing. The Wall Street Journal includes an article (link) at how crops survived and what more turbulent growing seasons could mean for farmers, ranchers and food prices.

Comments: The article is a bit of an overstatement in that July was not the hottest in areas where the U.S. grows corn and soybeans. July was hottest around the world... global average.

— Ag trade: Japan purchased 118,490 MT of milling wheat in its weekly tender, including 20465 MT U.S., 69,322 MT Canadian and 28,703 MT Australian.

— NWS weather outlook: As Lee continues to track north, tropical storm conditions are possible across a large portion of coastal New England beginning Friday night... ...Life-threatening storm surge flooding possible in portions of southeastern Massachusetts beginning late Friday... ...Unsettled weather, with heavy rain and strong storms possible, to continue into the weekend over the southern Plains.

Items in Pro Farmer’s First Thing Today include:

• Quiet overnight trade in grains
• Strategie Grains raises EU wheat crop estimate, cuts export forecast
• Exchange lowers Argentine wheat crop forecast
• China asks big banks to take additional measures to support yuan
• Slow developing cash cattle market
• Cash hog index firms

RUSSIA/UKRAINE

— Pentagon establishes oversight team in Ukraine to monitor U.S. security assistance amid growing calls for accountability. The Pentagon’s inspector general is creating a dedicated team in Ukraine to oversee the ongoing U.S. security assistance to Kyiv. This move comes in response to increasing calls from Republicans for greater scrutiny of how these funds are utilized. Since the onset of the Biden administration, the U.S. has provided more than $43.7 billion in aid to Ukraine, with President Biden pledging continued support for “as long as it takes.” The establishment of this oversight team follows criticism from GOP lawmakers who have expressed concerns about potential waste or misuse of these funds.

Challenges remain. Although the Pentagon has enhanced its capability to monitor the transfer of weapons and equipment to Ukraine, challenges remain, particularly in the early stages of the conflict, when effective oversight was more challenging to implement. The new team aims to address these concerns and ensure accountability in the use of U.S. security assistance.

— Cargill agrees to sell stake in Russian grain terminal. Cargill said on Thursday it had agreed to sell its stake in a Russian grain terminal to Russia’s Delo Group, a day after it denied such reports from Russian media. The sale is contingent on Russian government approval. A representative for Delo, a transport and logistics group, said the Russian government’s foreign investment commission was reviewing the deal, and this was expected to take no more than a month.

POLICY UPDATE

— Some expiring tax cuts will likely be extended. President Biden and Republicans are preparing for an intense election-year showdown concerning the extension of the 2017 law that reduced taxes for both individuals and businesses. However, despite the fervor surrounding the debate, the outcome may be more predictable than it seems, analysts note.

Key provisions of the 2017 law related to individual taxes, initially championed by Republicans and signed into law by former President Donald Trump, are set to expire after 2025. This means that, regardless of the election results, lawmakers will need to revisit these tax cuts soon. The prevailing reality suggests that even in the event of President Biden’s re-election, most of the 2017 law’s tax cuts are unlikely to be eliminated. Biden has already proposed extending many of Trump’s tax cuts for the majority of households in his budget. Furthermore, he has pledged not to raise taxes on individuals earning less than $400,000.

Bottom line: While election-year rhetoric may be fiery, the extension of these tax cuts appears to be on a winning trajectory.

CHINA UPDATE

— China criticizes EU’s anti-subsidy probe into electric vehicle exports, warns of bilateral impact. China responded strongly to the European Union’s planned anti-subsidy investigation into its electric vehicle exports, expressing concerns about a “protectionist tendency” and potential harm to bilateral relations. The Ministry of Commerce in China denounced the EU’s move, calling it protectionism and warning of disruptions in global auto supply chains, including those in the EU. China, the second-largest export destination for Chinese products, urged the EU to engage in negotiations to establish a fair and non-discriminatory business environment. European carmakers, who have enjoyed a substantial market share in China, are facing increased competition from electric vehicle makers like Tesla and Chinese brands such as BYD, Xiaopeng, Nio, and Li Auto.

Impacts. The European Commission’s decision to probe potential unfair subsidies provided by the Chinese government to domestic electric vehicle manufacturers may initially alleviate concerns. However, analysts at Bernstein note that the fear of potential retaliatory actions could overshadow this development. While the investigation’s specifics are not fully disclosed, the EU’s pursuit of uncovering artificial market distortions suggests the possibility of imposing tariffs on Chinese imports to the European bloc. China currently supplies 15% of battery-electric vehicles to the EU this year. In response, retaliatory measures from China become a distinct possibility. In this scenario, Renault and Stellantis are expected to benefit the most from any reciprocal trade actions, while Mercedes-Benz and BMW may face more significant challenges. Volkswagen occupies an intermediate position, as it would encounter reduced competition but also has substantial exposure to the Chinese market. The outcome of these investigations and potential trade measures remains a point of concern for the automotive industry.

— China’s central bank reduces bank reserve ratios to boost economy. The People’s Bank of China (PBOC) announced a 25-basis point cut in the reserve ratio requirement (RRR) for all banks, effective from Sept. 15. This move reduces the amount of cash that banks are required to hold. The only exceptions are banks that have already implemented a 5% reserve ratio. This marks the second such reduction this year, as China seeks to stimulate its economy without resorting to large-scale cash injections. Despite these measures, economic data indicates ongoing struggles in the Chinese economy.

— Moody’s downgrades China’s property sector outlook. Moody’s cut it outlook for China’s property sector to negative from stable, citing economic growth challenges the ratings agency said would dampen sales despite government support. Moody’s said it expected contracted sales to fall by about 5% over the next six to 12 months in China and impacts of government measures to boost property purchases was likely to be short-lived and uneven. The outlook downgrade comes amid a string of debt defaults by cash-squeezed developers.

ENERGY & CLIMATE CHANGE

— EPA’s RFS faces multiple legal challenges from environmental and fossil fuel groups. Environmental and fossil fuel organizations have launched a series of lawsuits against the Environmental Protection Agency’s (EPA) latest standards for renewable fuel. These standards establish annual volume targets for various renewable fuels, including cellulosic biofuel, biomass-based diesel, advanced biofuel, and total renewable fuel for the years 2023 through 2025. The rule was published on July 12 and came into effect on Sept. 11, marking the deadline for filing court challenges.

Nine cases challenging the new rule have been consolidated in the D.C. Circuit, with petitioners including the Center for Biological Diversity and the American Fuel & Petrochemical Manufacturers. While the reasons for their challenges have not been outlined, these groups expressed concerns about the EPA regulations, emphasizing the need for lead time in implementing binding regulations, especially as the Renewable Fuel Standards (RFS) enters a new phase.

Other petitioners in the lawsuits include refining groups, a renewable natural gas nonprofit, a biofuel coalition, a conservation organization, and a trade association. Critics of the RFS program argue that it has caused environmental damage, habitat destruction, water pollution, and coastal dead zones.

Complaints. Clean Fuels Alliance America, one of the groups challenging the rule, criticized the inclusion of an adjustment factor in the renewable volume obligation formula, alleging it was based on flawed analysis and lacked public input. Refining companies have also challenged the EPA’s denial of small-refinery exemptions from the RFS program, further adding to the legal complexities surrounding renewable fuel standards.

EPA declined to comment on the ongoing litigation.

— California Senate approves groundbreaking climate disclosure rules amid growing ESG focus. The California State Senate passed pioneering climate disclosure regulations, marking the first-of-its-kind legislation in the nation. Under these rules, thousands of companies conducting business in California would be obligated to disclose information regarding climate-related financial risks. This move, championed by Democratic proponents, is seen as a direct response to Republican initiatives nationwide aimed at undermining Environmental, Social, and Governance (ESG) policies within business operations.

— U.S. allocates $1.1 billion for urban tree planting to combat climate change and extreme heat. The Biden administration unveiled plans to allocate $1.1 billion across the U.S. to support tree planting and maintenance in cities and towns. This initiative aims to combat extreme heat and contribute to climate change mitigation efforts. USDA Secretary Tom Vilsack expressed that this level of funding is unprecedented.

Key Details:

The U.S. Forest Service, typically associated with rural woodlands, will administer the funding through its Urban and Community Forestry Program. This allocation is part of the $5 billion designated for the agency in the 2022 climate, healthcare, and tax law, specifically aimed at climate change-related initiatives.
A total of 385 projects have received funding through this program. The largest award of $22.9 million was granted to the Oregon Department of Forestry for an equity-focused urban and community forest program. Kupu, a conservation organization in Hawaii, was granted $20 million to use arboriculture to enhance resilience in urban and community areas.
Cedar Rapids, Iowa, received $6 million for its ReLeaf program, which aims to restore the city’s tree canopy, severely affected by a derecho in 2020. Lebanon, New Hampshire, was awarded $244,275 for its green streets initiative.
The program was met with significant interest, with 842 applications proposing projects worth a combined $6.4 billion.

Impact and Objectives:

The forestry projects are expected to increase access to nature in urban areas, enhance air quality, mitigate rising temperatures in streets during hot weather, and contribute to climate change adaptation efforts.
Key objectives include expanding access to green spaces, particularly in underserved communities. The initiative aims to create not only greener cities but also healthier and more equitable urban environments.

Participating Groups:

The program was open to applications from a wide range of entities, including community-based organizations, tribes, state and local governments, nonprofits, and universities.

LIVESTOCK, FOOD & BEVERAGE INDUSTRY

— Starbucks said that former CEO Howard Schultz will step down from the coffee chain’s board of directors effective Wednesday, fully exiting the company’s leadership after he returned last year to help it navigate labor and operational challenges.

POLITICS & ELECTIONS

— Trump leads Republican field in South Carolina primary race. A Washington Post-Monmouth University poll indicates that Donald Trump is favored by South Carolina Republican voters by more than 2 to 1 for their party’s presidential nomination. The poll, conducted at an early stage of the campaign, shows that 46% of potential Republican primary voters in South Carolina support Trump. In second place is former governor Nikki Haley, with 18% of support, a significant increase from her standing in national polls following last month’s GOP debate. Trump’s support in the state is particularly strong among those who oppose legal abortion, are concerned about anti-White discrimination, and believe the 2020 election was stolen.

— Utah Republican Sen. Mitt Romney, who ran for president in 2012, will not be running for re-election when his Senate term ends in January 2025, he said Wednesday. In a video posted on X, formerly Twitter, the 76-year-old said he will be in his mid-80s if he is elected to a second term and emphasized the need for a new generation of leaders. “They are the ones who need to make the decisions that will shape the world they will be living in,” he said. Romney was elected to the Senate in 2018 and is serving his first term. He said Wednesday that neither President Joe Biden nor former President Donald Trump are leading their parties to confront issues facing the country.

CONGRESS

— House Republicans delay procedural vote on Defense appropriations bill amid funding talks chaos. House Republicans on Wednesday postponed a procedural vote on their Defense appropriations bill, highlighting the turmoil within the party during government funding negotiations, even for traditionally popular bills. Originally scheduled for yesterday, the vote on the rule for considering the over $800 billion Defense spending bill was delayed due to pushback from conservative members seeking assurances from House Republican leaders on a broader plan for spending cuts across the 12 annual appropriations bills. With the Defense bill being the largest and a top priority among Republicans, this delay has left lawmakers grappling with the challenge of funding the government. Rep. Mike Simpson (R-Idaho) remarked, “If you can’t pass Defense, you can’t pass anything,” emphasizing the critical nature of this delay.

The underlying issue revolves around overall spending levels, requiring a more comprehensive understanding than just addressing specific problems within the Defense bill.

— Speaker McCarthy proposes short-term stopgap funding bill and disputes continue over disaster relief and Ukraine aid. House Speaker Kevin McCarthy (R-Calif.) signaled a shift in strategy, suggesting that House Republicans may propose a shorter four-week stopgap funding bill to keep the gov’t running beyond the looming Sept. 30 deadline. This marks a significant departure from the earlier discussions of extending funding until early December. Additionally, McCarthy revealed plans to link a $16 billion request for disaster relief to a partisan Homeland Security funding bill, a move intended to exert pressure on Democrats to make concessions on border and immigration issues. Amid these developments, the fate of a $24 billion aid package for Ukraine remains uncertain, with Republicans yet to determine when and how they will proceed with the request. These developments highlight the growing complexities and disputes surrounding government funding and key priorities in the current political landscape.

— House to vote on gas cars bill. The House will vote today on a bill (HR 1435) to prohibit the EPA from allowing states to limit gas-powered cars. The House Rules Committee met last night to outline debate on the bill, separating it from an earlier rule that issued it alongside the stalled Defense appropriations measure. Even if it clears the House, it would not be approved in the Democrat-controlled Senate.

— Impact of a U.S. gov’t shutdown. As the threat of a government shutdown looms, investors are concerned about its potential impact on the economy and markets. However, a report from Morgan Stanley says historical data suggests that government shutdowns have had limited effects on the U.S. economy. Key highlights of the group’s analysis:

Government Shutdown’s Impact on the U.S. Economy: A government shutdown may cause only modest losses in GDP. During the last shutdown in 2018-2019, GDP fell just $3 billion, equivalent to 0.014% of 2018 GDP. Over the years, the 20 government shutdowns since 1976 have had limited impact on the economy, with inflation-adjusted GDP continuing to grow at an average rate of 2.2% during shutdowns. It’s important to note that government shutdowns are typically of short duration, lasting just over a week on average. Federal agencies and staff are reimbursed for missed revenue as soon as a federal budget is approved, mitigating broader economic impacts.
Government Shutdown’s Impact on U.S. Treasury Bonds: A government shutdown could cause temporary instability in bond prices, but it’s not guaranteed. Bond market volatility, as measured by the MOVE Index, has varied during shutdowns. The 10-year Treasury yield has historically fallen by an average of 0.59% during shutdowns, while its price has risen, indicating investor preference for safe-haven assets during uncertainty. The government can still make coupon payments to bondholders during shutdowns, reducing the risk to bondholders.
Preparing for a Government Shutdown as Equity Investors: Historically, government shutdowns have had minimal negative impact on the U.S. stock market. The S&P 500 Index has gained an average of 4.4% during such events, influenced by other macroeconomic factors. Investors may consider opportunities in the defense and healthcare sectors, which rely heavily on government contracts. The defense sector gained 5.2% and the healthcare sector advanced 2.3% during shutdowns since 1995, compared to the S&P 500’s 3% return. Beyond the risk of a shutdown, government spending and incentives could boost these sectors in the longer term, driven by geopolitical tensions and healthcare policy support.

Bottom line: While a government shutdown can introduce uncertainty, its historical impact on the U.S. economy and markets has been relatively limited. The analysts says investors may find opportunities in sectors dependent on government contracts and should consider their exposure to U.S. Treasuries, which tend to be favored during periods of uncertainty.

OTHER ITEMS OF NOTE

— Federal judge declares DACA program unlawful, prompting outcry from immigrant advocates and White House. A federal judge has once again declared the Obama-era DACA program (Deferred Action for Childhood Arrivals) unlawful, sparking rapid condemnation from both immigrant advocates and the White House. DACA, established in 2012, aimed to provide a temporary respite for undocumented immigrants who arrived in the US as children, commonly referred to as “Dreamers,” allowing them to reside and work in the United States. Currently, an existing rule prevents the government from approving new applications for the program. Nevertheless, the Department of Homeland Security will continue processing renewals for existing DACA recipients. The ruling has reignited debates over the program’s future and the fate of those it protects.

— Des Moines Register: Iowa loses half of soil’s organic carbon over four generations of farming. Iowa has lost at least half of its original 96 billion tons of soil organic carbon over four generations of farming, according to data from a national team led by retired USDA scientist Jerry Hatfield, according to the Des Moines Register (link). The data reveals that farmers in the state are losing a staggering 12 million tons of soil’s organic carbon annually. This loss is due to factors like wind and water erosion, tillage, and continuous planting of corn and soybeans. Reduced soil organic carbon impacts farmers’ profitability as they rely more on fertilizers and chemicals for good yields. Furthermore, it diminishes soil’s water absorption capacity, leading to downstream flooding, erosion, and fertilizer runoff that pollute waterways. Soil health is crucial for Iowa’s economy, with the state’s farmland valued at $278 billion, supporting 10% of its annual $179 billion economy. Additionally, it has far-reaching environmental implications.

Farmers often ask Hatfield why their corn and soybean yields are improving if their soil organic matter is dwindling. The article says Hatfield tells farmers that yield losses are being offset by improved seed genetics and crop management, with technology that allows farmers to better plant, fertilize and grow their crops as well as protect them from disease, insects and weed pressure.

— Calendar of events today include:

Thursday, Sept. 14

• Foreign investment in the U.S. conference. The Treasury Department hosts the Committee on Foreign Investment in the United States conference including remarks from Treasury Secretary Janet Yellen and Homeland Security Secretary Alejandro Mayorkas.

• House Ways and Means member day. House Ways and Means Committee hearing on “Member Day.”

• Biological issues. Final day of the National Science Foundation; Advisory Committee for Biological Sciences virtual meeting.

• U.S. southern border. House Judiciary Immigration Integrity, Security, and Enforcement Subcommittee hearing on “Terrorist Entry Through the Southwest Border.”

• Basel III and the Fed. House Financial Services Financial Institutions and Monetary Policy Subcommittee hearing on “Implementing Basel III: What’s the Fed’s Endgame?”

• Federal agencies’ telework policies. House Oversight and Accountability Government Operations and the Federal Workforce Subcommittee hearing on “Oversight of Federal Agencies’ Post-Pandemic Telework Policies.”

• DOE oversight. House Science, Space and Technology Committee hearing on “An Update on the Department of Energy’s Science and Technology Priorities.” Energy Secretary Jennifer Granholm testifies.

• CEQ oversight. House Natural Resources Oversight and Investigations Subcommittee hearing on “Examining Systemic Government Overreach at CEQ (Council on Environmental Quality).”

• Fisheries issues. The Henry L. Stimson Center holds a virtual discussion on “Charting a Blue Future for Cooperation between West Africa and China on Sustainable Fisheries.”

• China and clean energy. The Wilson Center’s China Environment Forum holds a discussion on “China’s Clean Energy Partnerships in the Global South.”

• Hydrogen technology. The Bipartisan Policy Center (BPC) holds a discussion on “Hydrogen Technology Explained and Scaling the Next Generation.”

• Counteroffensive in Ukraine. The Carnegie Endowment for International Peace (CEIP) holds a virtual discussion on “The Ukrainian Counter-Offensive: Implications for US Policy.”

• CODEX meeting. U.S. Codex Office holds a meeting of the Codex Committee on General Principles.

• Digital currencies. House Financial Services Digital Assets, Financial Technology and Inclusion Subcommittee hearing on “Digital Dollar Dilemma: The Implications of a Central Bank Digital Currency and Private Sector Alternatives.”

• Examination of the IRA. House Oversight and Accountability Health Care and Financial Services Subcommittee hearing on “The Inflation Reduction Act: A Year in Review.”

• Chronic wasting disease. USDA’s Animal and Plant Health Inspection Service holds a virtual meeting of the Chronic Wasting Disease Herd Certification Program.

• Economic reports. Jobless Claims | PPI-FD | Retail Sales | Business Inventories

• Energy reports. Singapore onshore oil product stockpile weekly data | EIA Natural Gas Report | Earnings: Capricorn Energy.

• USDA reports. FAS: Export Sales ERS: Cotton and Wool Outlook Tables | Oil Crops Outlook | Feed Outlook | Wheat Outlook | Rice Outlook

KEY LINKS

Policy Updates