WTI Oil Jumps Above $80 as China Scraps Covid Restrictions; Other Markets Rally on China

Russia, Ukraine make conflicting comments on ending war

China will drop Covid-19 quarantine requirements for international arrivals beginning on January 8 — a major step toward reopening its borders that have shut off the country from the rest of the world for nearly three years. Inbound travelers will only be required to show a negative Covid test result obtained within 48 hours before departure, China’s National Health Commission announced late Monday. Currently, travelers are subject to five days of hotel quarantine and three days of self-isolation at home.

China revised higher its GDP growth rate of 2021 to 8.4% from 8.1% previously, the National Bureau of Statistics said on Tuesday. For the first nine months of 2022, China’s GDP grew by 3%. The World Bank has cut its forecast for China’s 2022 economic growth to 2.7%, well below the official target of around 5.5%.

Taiwan announced that compulsory military service will be extended from four months to a year due to the rising threat from China. Conscripts will also undergo more advanced training. President Tsai Ing-wen said that current military plans are insufficient to deter China, which claims the self-governing island as its own territory. The new plan will come into effect in January 2024.

Ukraine’s foreign minister said that his government hopes to have a peace summit by the end of February, about one year after Russia invaded Ukraine. But Ukraine won’t negotiate until Russia faces a war crimes tribunal, an official said yesterday. Meanwhile, recent activity shows both countries continue to attack each other. Repeated attacks by Russia on Ukraine’s power grid have left the capital of Kyiv in the dark, a potentially deadly risk to people who use lifesaving medical devices. Meanwhile, Russian President Vladimir Putin is now calling for negotiations in his war — even as his own foreign minister gave Ukraine an ultimatum over four occupied regions, according to Russian state media. A Ukrainian presidential adviser fired back in a tweet, saying, “Putin needs to come back to reality.” Ukrainian President Volodymyr Zelenskyy has said Russia will try to make the last few days of the year “dark and difficult.” Nearly 9 million in Ukraine are without electricity, Zelenskyy said in his nightly address, adding that workers were continuing to repair the grid after repeated attacks by Russia. “Naturally shortages persist,” he stated. “Blackouts are continuing.” However, he also observed that the numbers and length of blackouts was gradually decreasing.

The U.S. Department of Transportation said it would investigate Southwest Airlines’ large rate of flight cancellations as the country contends with the aftermath of a large, deadly blizzard. Southwest canceled 70% of its flights Monday and warned it was on pace to operate only a third of its schedule for several more days as it works to fix things.

Real estate watchers eyeing the housing market for some updates. The S&P CoreLogic Case-Shiller National Home Price Index, released this morning, showed U.S. home prices stalled in October.

Smallest U.S. goods trade gap in two years. The U.S. trade gap on goods narrowed sharply to $83.3 billion in November 2022 from $98.8 billion in the prior month, an advance estimate showed. It was the smallest deficit since December 2020.

U.S. consumers boosted retail sales by 7.6% between Nov. 1 and Dec. 24, according to a report from Mastercard covering a majority of the holiday season. The sales growth fell short of the rise seen last year over the period of 8.5%.

The chief executive of one of Europe’s biggest insurance companies has warned that cyberattacks, rather than natural catastrophes, will become “uninsurable” as the disruption from hacks continues to grow. Details below.

Toyota produced 833,104 vehicles in November, a record for the month, with global production at the Japanese carmaker 1.5% higher than in November last year.

Copper futures surged to $3.9 per pound level, the highest level since June 22, amid hopes of demand revival in China.

The pandemic changed how people use restaurants. Delivery is up more than 5% and drive-through is up 13%, compared with before the pandemic, while 16% fewer people are eating out in person.

Cattle on Feed Report: Placements drop less than expected.

H&P Report: Herd smaller than expected, but signs contraction phase is ending.

Rep.-elect George Santos (R-N.Y.) admitted in two interviews yesterday to “embellishing” parts of his résumé — but said he intends to be sworn in at the start of the new Congress.

U.S. Customs and Border Protection had 233,740 migrant encounters across the length of the nearly 2,000 mile south in November, the highest ever recorded for that month and up from 178,845 for the same period last year, a more than 30% increase.

The Food and Drug Administration is studying whether legal cannabis is safe in food or supplements and plans to make recommendations for how to regulate the growing number of cannabis-derived products in the coming months, agency officials said, according to the Wall Street Journal.

Equities today: Global stock markets were mixed to firmer overnight. U.S. Dow opened up around 80 points and then turned around 50 points lower. The dollar is lower in risk-on trading this morning following more positive reopening news out of China. China’s onshore stocks rose for a second day after China decided to reopen its borders and abandon quarantine requirements for arrivals from January 8, in the final steps to its zero-Covid pivot. The Shanghai Composite Index climbed 0.8%, following a 0.7% gain on Monday. The CSI 300 jumped 1.1%. Financial markets in Hong Kong are closed for a public holiday. “China is front and center for markets right now,” said Hani Redha, a portfolio manager at PineBridge Investments. “Without this, it was pretty clear to us we’d get a pretty broad global recession. Now with China moving in the opposite direction, you can dampen that.” In Asia, Japan +0.2%. Hong Kong closed. China +1%. India +0.6%. In Europe, at midday, London closed. Paris +0.9%. Frankfurt +0.6%.

Markets can be thin around holidays, with fewer people trading. That can sometimes lead to outsized moves.

U.S. equities Friday: Major indices finished Friday with gains in light trade. The Dow was up 176.44 points, 0.53%, at 33,203.93. The Nasdaq rose 21.74 points, 0.21%, at 10,497.86. The S&P 500 gained 22.43 points, 0.59%, at 3,844.82.

The S&P 500 was down about 0.2% for the week to post its third successive weekly decline. Of the 11 S&P 500 sectors, six ended the week in the green, led by energy. The Nasdaq lost 2% for the week to also record a third straight weekly decline. The Dow posted a 0.5% gain on Friday and was the outperformer this week, logging a weekly gain of 0.9%. For the month, the S&P 500 has lost 5.8%, while the Dow has shed 4% and the Nasdaq is down 8.5%.

For December, the Dow is currently down 4%, the S&P 500 lost 5.8%, and the Nasdaq dropped 8.5%, with all three benchmarks heading for their worst annual performances since 2008.

“The bulls can’t win,” noted economist Edward Yardeni. “If the economic indicators are too strong, the Fed will have no choice but to tighten until a recession occurs. If they are weak, then a recession might be coming sooner,” he noted.

The key question for markets remains: Will inflation fall faster than economic growth and earnings? So says the Sevens Report. “That determination will be what pushes the S&P 500 back above 4,000 or sees us test, and possibly break, the October lows.”

Agriculture markets Friday:

• Corn: March corn futures rose 5 3/4 cents to $6.66 1/4, the contract’s highest close since $6.67 on Nov. 30 and a gain of 13 1/4 cents for the week.
• Soy complex: March soybeans rose 12 1/2 cents to $14.84 1/4, a gain of 3/4 cent for the week. March soymeal rose $3 to $451.30. March soyoil rose 64 points to 64.65 cents.
• Wheat: March SRW wheat rose 13 3/4 cents to $7.76, the contract’s highest close since Dec. 1 and a gain of 22 1/2 cents for the week. March HRW wheat gained 8 3/4 cents to $8.74 3/4, up 30 3/4 cents for the week. March spring wheat rose 9 1/2 cents to $9.31 3/4.
• Cotton: March cotton rose 91 points to 85.21 cents, up 329 points for the week.
• Cattle: February live cattle rose 45 cents to $157.75, up $1.975 for the week and a lifetime-high close for the contract.
• Hogs: February lean hog futures tumbled $1.225 to $87.825 but still gained $2.05 for the week.
  

Ag markets today: Grain and livestock markets will reopen at 9:30 a.m. ET following the extended holiday weekend. As of 7:30 a.m. CT, front-month crude oil futures were trading around 35 cents higher after earlier rising $1.50. The U.S. dollar index was around 200 points lower this morning.

Technical viewpoints from Jim Wyckoff:

Real estate watchers eyeing the housing market for some updates. The S&P CoreLogic Case-Shiller National Home Price Index was published today at 9 a.m. ET. It showed U.S. home prices stalled in October. The average price of single-family houses with mortgages guaranteed by Fannie Mae and Freddie Mac in the U.S. was unchanged from a month earlier after ticking up by 0.1% the prior month. Among the different census regions, a 0.9% drop in home prices in the Pacific and a 0.2% decrease in the Mountain regions offset a 0.2% gain in South Atlantic and a 1.4% jump in New England. On a yearly basis, house prices rose by 9.8%, the least since September of 2020 and easing from the upwardly revised 11.1% increase in the previous month. “Higher mortgage rates continued to put downward pressure on demand, weakening house price growth,” said Nataliya Polkovnichenko, Ph.D., Supervisory Economist, in FHFA’s Division of Research and Statistics.

The Pending Home Sales Index for November will be released tomorrow following its sharpest drop on record the previous month.

Smallest U.S. goods trade gap in two years. The U.S. trade gap on goods narrowed sharply to $83.3 billion in November 2022 from $98.8 billion in the prior month, an advance estimate showed. It was the smallest deficit since December 2020, as imports tumbled 7.6%, with purchases down for all categories: capital goods (-4.3%); consumer goods (-13.0%); industrial supplies (-6.0%); vehicles (-8.9%); and food, feeds and beverages (-5.5%). Meanwhile, exports fell 3.1%.

U.S. wholesale inventories growth rose in November. Wholesale inventories in the U.S. rose by 1.0% month-over-month to $933.6 billion in November of 2022, picking up from a revised 0.6% rise in the prior month, preliminary estimates showed. It was the 28th consecutive month of growth in inventories, as stocks rose for durable goods (1.3% vs. 0.8% in October) and non-durable goods (0.6% vs. 0.2%. On an annual basis, wholesale inventories grew by 21% in November.

U.S. consumers boosted spending over holidays. U.S. consumers boosted retail sales by 7.6% between Nov. 1 and Dec. 24, according to a report from Mastercard covering a majority of the holiday season. The sales growth fell short of the rise seen last year over the period of 8.5%. Online sales rose 10.6%, the report said, just below the 11% rise registered last year. The level of inflation, rising interest rates and recession worries labeled as factors that kept the retail sales boost from matching the year-ago period.

Zurich official: Cyberattacks set to become ‘uninsurable’. The chief executive of one of Europe’s biggest insurance companies has warned that cyberattacks, rather than natural catastrophes, will become “uninsurable” as the disruption from hacks continues to grow. Insurance executives have been increasingly vocal in recent years about systemic risks, such as pandemics and climate change, that test the sector’s ability to provide coverage. For the second year in a row, natural catastrophe-related claims are expected to top $100 billion. But Mario Greco, chief executive at insurer Zurich, told the Financial Times that cyber was the risk to watch. “What will become uninsurable is going to be cyber,” he said. “What if someone takes control of vital parts of our infrastructure, the consequences of that?”

Toyota produced 833,104 vehicles in November, a record for the month, with global production at the Japanese carmaker 1.5% higher than in November last year. Although the supply-chain crunch of car parts caused by the pandemic has eased somewhat, the rising cost of materials, Covid in China and a shortage of semiconductors is still restraining production.

The domestic box office total for 2022 will likely come in at about $7.35 billion, Comscore said, off by roughly one-third compared with 2019, the last prepandemic year.

Market perspectives:

• Outside markets: The U.S. dollar index was slightly weaker, with most foreign currencies slightly weaker against the greenback. The yield on the 10-year U.S. Treasury note was firmer, trading around 3.79%. Crude was firmer amid increased demand expectations for China, with U.S. crude around $80 per barrel and Brent around $85 per barrel. Gold and silver futures were gaining, with gold around $1,816 per troy ounce and silver around $24.28 per troy ounce.

• Copper futures surged to $3.9 per pound level, the highest level since June 22, amid hopes of demand revival in China after the world’s second-largest economy announced it would stop requiring inbound travelers to go into quarantine starting from Jan. 8. Still, copper is down more than 11% so far this year, as global recession concerns mounted after major central banks delivered hawkish outlooks on monetary policy to curb inflation.

• Crude oil continues to rally. WTI jumped above $80 on Monday evening and remained there early on Tuesday, with Brent temporarily breaking the $85 mark. The move in oil prices was driven by China’s announcement that inbound travelers would no longer face mandatory travel quarantine. Refinery closures in the U.S. due to a devastating winter storm added to upward pressure on oil prices. As of Friday, Dec. 23, as much as 1.5 million bpd of the Gulf Coast’s refining capacity was shut down due to the freezing temperatures, per Reuters estimates.

• Palm oil rallies, but still poised for yearly decline. Malaysian palm oil futures were trading above the MYR 4,100 per tonne mark in December, as signs of strong export demand sent investors rushing to open new positions. Exports of Malaysian palm oil products for Dec. 1-25 rose 2.6% from a month earlier to 1,224,122 tonnes, cargo surveyors’ data showed. Meanwhile, top buyer China relaxed its coronavirus restrictions further, raising hopes of a recovery in the world’s second-largest economy while offering an upbeat outlook for demand. Palm oil is now down more than 10% in a volatile 2022 that saw the Malaysian benchmark hit a record high of MYR 7,300 in March amid tight supplies due to Russia’s invasion of Ukraine but paring those gains due to competition from rival Indonesia and concerns about a global recession.

• Ag trade: Egypt tendered to buy up to 60,000 MT of wheat from unspecified origins as part of a World Bank-funded food security program. South Korea tendered to buy 25,000 MT of optional origin GMO-free, food-quality soybeans.

• NWS weather: Increasingly stormy weather to impact the West Coast through Tuesday before spreading across Rockies... ...Lingering lake-effect snows downwind from Great Lakes will become less intense and fade on Tuesday... ...Temperatures in the Midwest and East moderate this week.

Items in Pro Farmer’s First Thing Today include:

• No overnight grain trade
• South American weather update
• Consultant cuts Argentine crop estimates, Brazilian corn forecast.
• Indonesia’s palm oil export tax, levy unchanged for first half of January
• Cattle on Feed Report: Placements drop less than expected
• H&P Report: Herd smaller than expected, but signs contraction phase is ending

— Summary: Putin says Russia ready to negotiate over Ukraine war — and claims West refuses. President Vladimir Putin said Russia was ready to negotiate with all parties involved in the war in Ukraine, but that Kyiv and its Western backers had refused to engage in talks. While speaking with Rossiya 1 state television, Putin said: “We are ready to negotiate with everyone involved about acceptable solutions, but that is up to them — we are not the ones refusing to negotiate, they are,” Putin claimed. “I believe that we are acting in the right direction, we are defending our national interests, the interests of our citizens, our people. And we have no other choice but to protect our citizens,” the Russian leader added.

Both U.S. and Ukrainian officials believe Russia is not serious about negotiations and suspect the claim is a ploy to buy time amid Russian fallbacks on the battlefield. A Ukrainian drone attacked an airbase deep within Russia, reportedly killing three people. Although the drone was shot down, its debris proved fatal. The base is nearly 400 miles from Ukraine, raising questions about Russian air defenses. Kremlin forces, meanwhile, fired 40 rockets at Ukrainian cities on Christmas Day, despite Putin saying he was ready to negotiate peace.

• Putin also signaled that Moscow remains committed to the war, saying that the Russian population is prepared to endure a protracted conflict. Just about everyone, or “99.9% of Russians,” he said, is “ready to put everything toward the interests of the motherland.” Russia’s Defense Ministry said Sunday its forces were continuing offensive operations in the directions of the cities of Kupyansk and Lyman in eastern Ukraine, both of which Kyiv’s forces retook during an offensive over the fall. Russian troops were fighting across the eastern Donetsk region, the Defense Ministry said, which Putin has claimed as part of Russia’s territory and whose defense is a priority for the Kremlin.

  Putin also threatened that Russian forces will destroy all Patriot missile defense systems provided by Washington to Kyiv.
  

— China estimates 250 million people have caught Covid in 20 days. Chinese officials estimate about 18% of the population were infected with Covid-19 in the first 20 days of December, as Beijing abruptly dismantled restrictions that had contained the disease for almost three years. The estimates — including 37 million people, or 2.6% of the population, who were infected on Tuesday alone — were revealed by Sun Yang, a deputy director of the Chinese Center for Disease Control and Prevention. Sun said the rate of Covid’s spread in the country was still rising and estimated that more than half of the population in Beijing and Sichuan were already infected, the people briefed on the meeting said.

Sun’s figures, which were provided in a closed-door meeting, contrast with data put out by the National Health Commission (NHC), which reported 62,592 symptomatic Covid cases over the same period. Last week, China stopped publicly trying to tally the total number of infections after authorities curtailed Covid testing. The NHC reported just 4,103 new local cases on Saturday for the day prior, with no Covid-related deaths for a second consecutive day. Hong Kong, by contrast, reported 20,460 new local cases on Saturday for the previous 24 hours.

“Most Chinese cities could recover from the first wave of the latest Covid-19 outbreak by January... this would be faster than people have expected,” noted Chaoping Zhu, global market strategist at J.P. Morgan Asset Management.

— Taiwan’s defense ministry said China sent 71 warplanes and seven naval vessels on “strike drills”⁠ — rehearsals for conflict ⁠— into its air-defense zone within 24 hours. China had condemned an American spending bill that included military assistance for Taiwan, accusing both countries of escalating their “collusion and provocation.” Tensions have been especially high since Nancy Pelosi, the former speaker of the House, visited the island in August.

Meanwhile, Taiwan extended mandatory military service in response to growing fears of China. From 2024, conscripts will spend a year in the military, up from four months currently. The move could increase Taiwan’s military manpower by about 40%, analysts told Reuters. Conscripts will be tasked with guarding infrastructure, allowing the island’s professional forces to respond to an invasion, and make it more like a “porcupine” — prickly and hard to attack.

— China announced it was dropping nearly all Covid-19 travel restrictions, effectively ending its de facto pandemic isolation. It had required weeks-long quarantines and regular testing for inbound travelers, part of a zero-Covid strategy that it has unwound in recent weeks. New rules effective Jan. 8 will require only a negative Covid-19 test to enter the country and allow for home isolation. China may be reopening, but its huge ongoing Covid-19 wave is spurring other nations to raise barriers to Chinese visitors: Japan said today it would impose mandatory testing on any traveler who had been to China in the previous week.

— China revises 2021 GDP growth up to 8.4%. China has revised higher its GDP growth rate of 2021 to 8.4% from 8.1% previously, the National Bureau of Statistics said on Tuesday. Final data from the bureau showed the services sector, accounting for 53% of China’s GDP, was revised up to 8.5% from 8.2%. Meanwhile, the secondary sector, which accounted for 39% of GDP, grew 8.7% in 2021. That compared with the bureau’s initial estimate of an 8.2% expansion. For the first nine months of 2022, China’s GDP grew by 3%. The World Bank has cut its forecast for China’s 2022 economic growth to 2.7%, well below the official target of around 5.5%.

— Pandemic changed how people use restaurants. Delivery is up more than 5% and drive-through is up 13%, compared with before the pandemic, while 16% fewer people are eating out in person. Other trends: More diners ordered food online this year, and restaurants streamlined menus to save money without raising prices. Link for details via the Washington Post.

— Cattle on Feed Report: Placements drop less than expected. USDA estimated there were 11.673 million head of cattle in large feedlots (1,000-plus head) as of Dec. 1, down 312,000 head (2.6%) from year-ago but 24,000 head more than the average pre-report estimate implied. November placements dropped 42,000 head (2.1%), though traders expected a 4.2% decline from year-ago. November marketings were slightly stronger than anticipated at 1.2% above year-ago. There was nothing in the data to greatly move the market. While placements were near the top of the range of trade estimates, they still declined notably from year-ago.

— H&P Report: Herd smaller than expected, but signs contraction phase is ending. USDA estimated the Dec. 1 hog herd at 73.119 million head, down 1.327 million head (1.8%) from year-ago and 210,000 head less than the average pre-report estimate implied. The market hog inventory at 68.321 million head declined 2.0%, while the breeding herd at 6.154 million head rose 0.5% from last year. The data should be supportive for winter-, spring and early-summer lean hog futures. Far-deferred contracts could face mild pressure with the data implying the herd contraction phase may be coming to an end.

— Summary:

• Global Covid-19 cases at 657,919,640 with 6,680,407 deaths.
• U.S. case count is at 100,385,021 with 1,090,218 deaths.
• Johns Hopkins University Coronavirus Resource Center says there have been 662,148,570 doses administered, 268,143,349 have received at least one vaccine, or 81.38% of the U.S. population.

— Congressman-elect admits résumé fraud. Rep.-elect George Santos (R-N.Y.) admitted in two interviews yesterday to “embellishing” parts of his résumé — but said he intends to be sworn in at the start of the new Congress. Santos told the N.Y. Post he had “never worked directly” for Goldman Sachs or Citigroup — and his previous claims of employment there represented a “poor choice of words.” He also said he didn’t graduate from college, as he previously claimed. Link for details.

— Record number of migrants crossed into U.S. in November. U.S. Customs and Border Protection had 233,740 migrant encounters across the length of the nearly 2,000 mile south in November, the highest ever recorded for that month and up from 178,845 for the same period last year, a more than 30% increase.

— There are nearly 1.6 million asylum applications pending in U.S. immigration courts and at U.S. Citizenship and Immigration Services — the largest number of pending cases on record, according to a recent analysis of federal data. Immigration courts have seen a massive increase in asylum cases from fiscal year 2012, when there were 100,000 pending cases. The asylum seekers are from 219 countries and speak 418 different languages, according to the group that conducted the analysis. About three out of 10 are minors and the leading countries of origin include Guatemala, Venezuela, Cuba and Brazil.

— South Korea scrambled warplanes and fired warning shots after unmanned drones flown from North Korea “violated” its airspace. South Korea spotted the aerial vehicle crossing the “military demarcation line” separating the two countries on Monday morning. The last time a North Korean drone was discovered in the South was in 2017 but 2022 has been a record year for missile testing by the North.

— Oklahoma has become the biggest source of black-market weed in the U.S. Marijuana growers, drawn to the cheap land, affordable licenses and light regulatory oversight, are producing well beyond what the state’s medical marijuana patients would appear able to legally consume.

— Food and Drug Administration is studying whether legal cannabis is safe in food or supplements and plans to make recommendations for how to regulate the growing number of cannabis-derived products in the coming months, agency officials said, according to the Wall Street Journal. “Given what we know about the safety of CBD so far, it raises concerns for FDA about whether these existing regulatory pathways for food and dietary supplements are appropriate for this substance,” said FDA Principal Deputy Commissioner Janet Woodcock, who has led the agency’s efforts looking at cannabis regulation.

WASDE | Crop Production | USDA weekly reports | Crop Progress | Food prices | Farm income | Export Sales weekly | ERP dashboard | California phase-out of gas-powered vehicles | RFS | IRA: Biofuels | IRA: Ag | Student loan forgiveness | Russia/Ukraine war, lessons learned | Election predictions: Split-ticket | Congress to-do list | SCOTUS on WOTUS | SCOTUS on Prop 12 | New farm bill primer | China outlook | Omnibus spending package |