Kitco daily macro-economic/business digest – May 11

Title 42 Ends Late Today as Biden Administration Takes New Steps at Southern Border

In Today’s Digital Newspaper

U.S. cotton sales to China remain strong with small reductions for soybeans. USDA Export Sales data for the week ended May 4 showed continued strong sales of U.S. cotton to China along with small sales of old-crop U.S. corn and reductions for old-crop U.S. soybeans. Activity for 2022-23 for the week included net sales of 1,915 MT of corn, net reductions of 3,898 MT of sorghum, net reductions of 6,000 MT of soybeans, and net sales of 106,170 running bales of U.S. upland cotton., Net sales of 8,000 MT of soybeans were reported. Net sales for 2023 included 846 MT of beef and 5,624 MT of pork.

Producer prices in the U.S. increased 0.2% month over month in April, following a 0.4% drop in March and compared to forecasts of a 0.3% rise.

The Title 42 border policy is coming to an end. The Biden administration deployed more troops to the U.S./Mexico border, anticipating a “chaotic” situation. Going into effect will be tougher deportation consequences under Title 8 immigration law, a parole program with rigorous background checks, as well as higher standards for asylum seekers like forcing them to request protection in third countries on their way to the border. There are also plans to open dozens of regional processing facilities in Latin America, and push people to use the notably backlogged CBP One app for streamlining appointments at ports of entry. “I think that there is no question that this is going to be extremely challenging,” said Homeland Security Secretary Alejandro Mayorkas. “I do not want to understate the severity of the challenge that we expect to encounter.” More details in Policy section.

“I say to the Republicans out there — congressmen, senators — if they don’t give you massive cuts, you’re going to have to do a default.” — Donald Trump, the leading Republican candidate for president, urging his party to take a tough stance in negotiating spending cuts to the federal budget, even if that ultimately brings the country to default.

Treasury Secretary Janet Yellen said the option for President Joe Biden to circumvent congressional action by using the 14th Amendment to effectively ignore the debt ceiling was “legally questionable,” and while she also views alternatives such as minting a $1 trillion coin as risky, Yellen said she does support the idea of eliminating or significantly altering the current debt-limit authorization system.

For the first time since January 2020, Covid-19 is no longer a public health emergency. Renewed 13 times since it was first declared in 2020, it’s officially an all-clear as of today.

President Biden called congressional Ag panel leaders to the White House to have some general talk about a new farm bill. More in Policy section.

Proposed EPA rules target power-plant emissions. The proposed new rules would drastically reduce greenhouse gases from coal- and gas-fired power plants — measures that will cost billions of dollars but that officials say will curb emissions that are warming the atmosphere and harming human health. Officials estimate the proposed rules will raise average utility bills by 2% by 2030, declining to less than 1% by 2040. Critics say the proposed rules are too draconian, and will hurt coal-mining areas such as West Virginia where the economy is tied to fossil fuels. More in Energy section.

The White House is putting pressure on Congress to pass permitting legislation as the Biden administration reiterated its support for Sen. Joe Manchin’s (D-W.Va.) permitting reform proposal, which includes two-year limits on environmental reviews of major federal energy projects and the completion of the $6.6 billion Mountain Valley Pipeline. While President Joe Biden earlier this week told House Speaker Kevin McCarthy (R-Calif.) that he was open to discussing the permitting issue as part of debt ceiling negotiations, White House climate adviser John Podesta has called for separating the two issues.

Several China updates in today’s dispatch. Main one is continued focus on getting some U.S. officials and their Chinese counterparts to meet. China is pushing back on such efforts.

In the Russia/Ukraine war, Ukraine’s weapons will soon outstrip Russia’s in sophistication as the latter resorts to aging stock. 

El Niño is likely to form this summer and reach moderate to potentially strong intensity by the winter, NOAA says, accelerating global warming and altering weather patterns across a broad swath of the world, including the U.S.

MARKET FOCUS

Equities today: Global stock markets were mostly firmer overnight. U.S. Dow opened down around 150 points and is currently down around 300 points. In Asia, Japan flat. Hong Kong -0.1%. China -0.3%. India -0.1%. In Europe, at midday, London +0.1%. Paris +0.6%. Frankfurt +0.1%.

     U.S. equities yesterday: The Dow ended with losses despite a late lift off its lows and slightly into positive territory just before the close. The Blue Chip index ended down 30.48 points, 0.09%, at 33,531.33. The Nasdaq gained 126.89 points, 1.04%, at 12,306.44. The S&P 500 rose 18.37 points, 0.45%, at 4,137.64.

Market quotes of note:

• Markets may not be too hasty by pricing Fed cuts this year. Deutsche Bank’s Jim Reid says in a note that four months is the median time from last hike to first cut in 13 Fed cycles. The CME’s FedWatch tool puts the odds of a cut in September at 49%, with the possibility of another one in November. “So if May was the last hike then median/average history would take us to September/October.” Reid adds: “Given the first cut is now fully priced by the November meeting (no meeting in October) it’s hard to criticize too heavily.” He notes that Deutsche Bank’s forecast for a rate cut is 1Q 2024.
  
   
• Ocean shipping returning to normal. Rolf Habben Jansen, CEO of ocean liner Hapag-Lloyd, says ocean shipping is starting to feel like a normal year after three abnormal years of Covid disruptions. At the moment, there’s a seasonal calm before the usually busy period in the third quarter when retailers restock before the holidays. “To me it feels like a year that we had before the pandemic,” he said. “So I wouldn’t be surprised if we indeed see a similar picture because as far as I know, Christmas is still going to take place in 2023.” Jansen also said he’s not concerned yet about possible labor unrest at the U.S. West Coast ports as long as the union dockworkers and their employers reach a deal in the next several weeks. In talks drag on past June, he might start to worry.
  
   
• Halting oil production now would be “simply impractical,” BP’s chief executive Bernard Looney told the Economic Club of Washington, DC, suggesting such a move would risk a renewed economic crisis. “There are people in society who certainly want to see the end of fossil fuels overnight,” he said, in a conversation with billionaire businessman David Rubenstein. “When production falls and demand doesn’t change, there’s only one thing that’s going to happen: prices are going to go up.” He added: “With that said, there is an issue called carbon… It’s a real issue. It needs to be tackled, and that’s why we want to transition.”
  
    

On tap today:

     • Bank of England is expected to raise its benchmark interest rate to 4.5% from 4.25%. (7 a.m. ET) UPDATE: The Bank of England lifted its key interest rate by a quarter-point on Thursday, matching the pace of the Federal Reserve and the European Central Bank this month. The increase marks the 12th consecutive move after the central bank started tightening in December 2021 — a few months earlier than the Fed. It puts the main BoE rate at 4.5%. That’s higher than the ECB’s main rate of 3.75%, but below the Fed’s range of 5% to 5.25%.

    • U.S. jobless claims are expected to rise to 245,000 in the week ended May 6 from 242,000 one week earlier. (8:30 a.m. ET) UPDATE: The number of Americans filing for unemployment benefits rose by 22,000 to 264,000 on the week ending May 6, the most since October 2021, and above market expectations of 245,000. The result emphasized a batch of recent data that points to the softening of the U.S. labor market. The four-week moving average, which removes week-to-week volatility, rose by 6,000 to 245,250. On a non-seasonally adjusted basis, claims rose by 13,969 to 234,084, with notable increases in Massachusetts (+6,375), California (+2,924), and Missouri (+2,446).

     • Producer Price Index for April is expected to rise 0.3% from the prior month. (8:30 a.m. ET) UPDATE: Producer prices in the U.S. increased 0.2% month over month in April, following a 0.4% drop in March and compared to forecasts of a 0.3% rise. The biggest upward pressure came from portfolio management and gasoline prices. Meanwhile, annual producer inflation eased for a 10th straight month to 2.3%, the lowest since January 2021 as commodity prices continue to fall and supply chains have improved.

     • USDA Weekly Export Sales report, 8:30 a.m. ET.

     • Federal Reserve speakers: Minneapolis’s Neel Kashkari Q&A at the Marquette CEO Town Hall at 9 a.m. ET, and governor Christopher Waller on financial stability and climate change at 10:30 a.m. ET.

Treasury reported a budget surplus of $176 billion in April, down from $308 billion one year earlier. That left the deficit through the first seven months of the fiscal year at $925 billion, up from $360 billion a year earlier. Lower-than-expected revenue and rising outlays are contributing to a wider deficit and making it more difficult for the Treasury to stay under the debt ceiling.

Market perspectives:

     • Outside markets: The U.S. dollar index was higher, with the euro, yen and British pound all weaker against the U.S. currency. The yield on the 10-year U.S. Treasury note was lower, around 3.84%, with a lower tone in global government bond yields. Crude oil turned lower, with U.S. crude around $72.30 per barrel and Brent around $76.25 per barrel. Gold and silver were mixed, with gold firmer around $2,043 per troy ounce and silver weaker around $25.18 per troy ounce.         

     • Alberta producers restart oil and gas operations as wildfires ease. Several oil and gas companies in Canada’s main crude-producing province Alberta restarted shuttered production as wildfires that had sparked widespread evacuations eased.    

     • Olive oil prices surge. Heat and drought in the Mediterranean have driven the global price of olive oil to almost $6,000 per metric ton, the highest since 1997. 

     • Spain, home to the European Union’s only desert, has suffered drought more severely than the bloc’s other major economies. But battles over water there are a harbinger of conflicts elsewhere, and whatever happens to its farming sector will be felt across Europe. Bloomberg.

     • A key Colorado River reservoir is rising by more than a foot a day. A large snowpack is melting into Lake Powell in Utah and Arizona, weeks after its surface sank to an all-time low. The reservoir is expected to deepen by 70 feet by the fall. It offers some relief after a historic drought in the Southwest. But it’s not a permanent fix, and Colorado River water use will still have to be cut drastically. Washington Post.

     • El Niño is likely to form this summer and reach moderate to potentially strong intensity by the winter, NOAA says, accelerating global warming and altering weather patterns across a broad swath of the world, including the U.S.

RUSSIA/UKRAINE

— Volodymyr Zelenskyy, Ukraine’s president, said his forces must wait for deliveries of promised military aid before launching a large-scale counter-offensive against Russia. His statement came after Ukraine retook some land outside Bakhmut, a town which has been fought over for months. Meanwhile, CNN reported that Britain has supplied Ukraine with multiple long-range Storm Shadow cruise missiles.

Of note: Ukraine’s weapons will soon outstrip Russia’s in sophistication as the latter resorts to aging stock.  

POLICY UPDATE

— New U.S. immigration policies target asylum-seekers at the Mexico border. Just before midnight tonight Eastern Time (11:59 p.m. ET), Title 42, in place since March 2020, will officially end, marking more than three years of the pandemic-era public health policy impacting immigration and border control. Under Title 42, migrants who crossed the border illegally could be rapidly expelled from the U.S. prior to formally applying for asylum — a measure that was essentially imposed to prevent the spread of Covid-19, but one that critics argued prohibited people from seeking their legal right to request asylum. Individuals expelled under Title 42 did not receive an immigration record, meaning they could not be criminally charged for unauthorized entry.

     Facts and figures. Since the start of fiscal 2023, 1.4 million migrants have been removed from the U.S., and nearly 10,000 smugglers have been arrested. On Tuesday, border officials apprehended more than 11,000 migrants who had crossed illegally, according to internal data, an increase over the 7,000 to 8,000 crossings a day last week and a record for a single day.

     What is new. The Biden administration introduced new policies on Wednesday to create “tougher consequences for people who cross the border illegally,” U.S. Secretary of Homeland Security Alejandro Mayorkas said at a press conference.

• The new measures will go into effect when Title 42 ends.
• Migrants arriving at the U.S./Mexico border will be considered ineligible for asylum in the U.S. if they failed to use official asylum pathways or traveled through other countries without seeking protection there first.
• Non-Mexican migrants would be most affected by this measure. Last week, Mexico City signed an agreement with Washington to continue accepting migrants from Cuba, Haiti, Nicaragua, and Venezuela who are turned away at the U.S. border, as well as up to 100,000 citizens of Honduras, Guatemala, and El Salvador who have family in the United States.
• The rule allows for exceptions in extreme circumstances, such as a migrant who would be tortured if sent home.
• Also new: a digital campaign in Latin America to counter disinformation from smugglers.
• A U.S. order coordinates efforts between Colombia and Panama to stop smugglers passing through the Darien Gap, a dangerous crossing that hundreds of thousands of people attempt each year.
• Migrants removed from the U.S. can face criminal charges, which could bar them from attempting reentry for five years.
• To prepare for the surge, the Biden administration sent 1,500 U.S. troops to the border for paperwork to free up more border agents.
• Some 100 more “processing centers” are being opened throughout the Western Hemisphere to hear asylum claims there and encourage migrants to avoid trekking to the border.
• President Biden has called on Congress to provide more money for the Border Patrol, as well as more immigration judges and other personnel.

     Impacts:

• Immigrants are likely to continue attempting to cross into the U.S. because officials have been releasing them from Border Patrol’s custody to stay in the country temporarily until they face an immigration court hearing.
• After a telephone call with President Andrés Manuel López Obrador of Mexico on Tuesday, President Biden conceded that the situation at the border would “be chaotic for a while.”
• On Wednesday, Mayorkas blamed Congress for its failure to pass effective legislation. “We are delivering on tougher consequences for unlawful entry,” Mayorkas said. “We are taking this approach within the constraints of a broken immigration system that Congress has not fixed for more than two decades, and without the resources we need — personnel, facilities, transportation and others — that we have requested of Congress and that we were not given.”

Bottom line: Observers say the only way to stop the migrant deluge is to radically change the incentives to come.

CHINA UPDATE

— Chinese consumer inflation slows to lowest level in two years. China’s annual inflation rate fell to 0.1% in April 2023 from 0.7% in March, missing market estimates of 0.4%. This was the lowest print since a deflation in February 2021 amid an uneven economic recovery after the removal of zero-Covid policy, with cost of both food and non-food easing further. Meantime, producer prices dropped the most in near 3 years, staying in deflation for the seventh straight month.

Impact: Economists say China’s low consumer inflation points to the fragility of the recovery in domestic demand, as elevated youth unemployment, an uncertain housing market and weakening corporate profits weigh on consumer confidence. “The soft data coming out from the world’s second-biggest economy bolsters speculation that the People’s Bank of China might need to bring forward its plans to stimulate the economy,” Deutsche Bank strategist Jim Reid said.

Bottom line: Fuel prices were unusually high a year ago, making today’s prices look weak by comparison. Credit is also picking up. As China’s recovery proceeds, factories will run hotter and shops will fill. That will put upward pressure on prices — as long as fears of deflation do not undermine the very recovery that would best avert it.

— Australian Trade Minister Don Farrell will head to China today for the first in-person meeting between the two countries’ top trade officials since 2019 in yet another sign of warming relations between Beijing and Canberra.

— China got lion’s share of World Bank contracts. Businesses in China received almost one third of World Bank-funded international contracts, in dollar terms, over the past decade, more than 10 times the value of those awarded to U.S. companies, according to the Government Accountability Office.

— China to stabilize, diversify soybean imports. China will stabilize and diversify its soybean imports, an official with the state’s grain reserve bureau said. Lu Jingbo, deputy director at the National Food and Strategic Reserves Administration, said China will “develop new soybean source markets while stabilizing traditional soybean markets. He did not indicate whether “stabilizing” meant limiting or slowing import growth.

— China’s new bank loans tumble. Chinese banks extended 718.8 billion yuan ($103.99 billion) in new loans in April, tumbling sharply from 3,890 yuan in March and the lowest in six months. The value of outstanding loans in China increased 11.8% from year-ago last month. China’s M2 money supply increased 12.4% from last year.

— China pours cold water on bilateral meeting with U.S. defense secretary. Stand-off is latest obstacle to top-level dialogue between Washington and Beijing. Financial Times.

     But… A series of meetings this week during ambassador Nicholas Burns’ China trip represent the highest-level public engagements between the two powers since relations soured over suspected a Chinese spy balloon.

— ‘De-Americanize’: How China is remaking its chip business. Seven months after Washington unveiled tough curbs, Chinese companies are doubling down on homegrown supply chains and drawing billions in cash from Beijing and investors. New York Times.

— WSJ: U.S. is looking at whether a Rockwell Automation operation in China might allow access to critical infrastructure. Milwaukee-based Rockwell provides software and cybersecurity services to computer platforms used in the national power grid as well as by the U.S. Navy and Coast Guard and other parts of the federal government, among other customers, the WSJ reports. Investigators are looking into potential vulnerabilities that might allow access from China, according to a memorandum of investigative activity citing whistleblower testimony.

TRADE POLICY

— India, Canada aim to complete trade pact this year. India and Canada aim to seal an initial agreement this year to increase their trade and expand investment while setting out a mechanism to deal with disputes, they said in a statement.

ENERGY & CLIMATE CHANGE

— Pending greenhouse gas power plant rule blasted. EPA Administrator Michael Regan tried to assure lawmakers on Wednesday that the benefits of the agency’s pending greenhouse gas power plant rule will far outweigh the costs. But Regan’s remarks didn’t appear to assuage Republicans on the panel. The plan has also been met with opposition from Sen. Joe Manchin (D-W.Va.), who vowed to oppose Biden’s nominees to fill key positions at the EPA over the proposed regulations that he said are part of an administration agenda “designed to kill the fossil industry by a thousand cuts,” he said. “This administration is determined to advance its radical climate agenda and has made it clear they are hellbent on doing everything in their power to regulate coal and gas-fueled power plants out of existence,” Manchin said in a statement Wednesday.

— Nuclear power in the West is having a revival, with new reactors opening in the U.S. and Europe and fresh momentum toward building more soon, the Wall Street Journal reports (link). A gaping hole in the plan: The West doesn’t have enough nuclear fuel — and lacks the capacity to swiftly ramp up production. Even more vexing, the biggest source of critical ingredients is Russia and its state monopoly, Rosatom, which is implicated in supporting the war in Ukraine.

— Toyota’s bid to make up lost ground in electric vehicles will add to accelerating efforts to build supply chains to manufacture the cars. The Japanese automaker plans to spend an additional amount equivalent to about $7.4 billion on EVs through 2030, bringing Toyota’s total planned outlays for the period to around $37 billion. The Wall Street Journal reports (link) the company’s new management aims to sell 202,000 EVs for the current fiscal year ending in March 2024, more than quintuple its sales from the previous year. That would bring Toyota closer to its goal of shipping 1.5 million EVs in 2026 and 3.5 million in 2030. The company has adopted a kind of hybrid approach to the burgeoning sector, but it has more leeway to operate as clearing supply-chain woes improve its finances. The company sees a 10% recovery in vehicle deliveries as semiconductor supplies normalize after pandemic shortages.

HEALTH UPDATE

— A liver drug pushed Italy’s exports to China to a record €3 billion ($3.3 billion) in February. Chinese people are stocking up on ursodeoxycholic acid after one study says it could protect against Covid.

— After more than three years, the United States’ declaration of a public health emergency due to Covid-19 ends today. But the virus has not disappeared. According to the CDC, there were more than 77,000 new Covid-19 cases last week — and this is likely an underestimate, given that many people are testing for Covid-19 at home or not at all.

— A panel of FDA advisers recommended making an oral contraceptive available without a prescription for the first time. The FDA, which is expected to make a final decision this summer, doesn’t have to follow the expert panel’s advice, though it often does. The advisory panel said the benefits of making oral contraceptives available over-the-counter outweighed the risks. Oral contraceptives are available over the counter in Mexico and other countries in Latin America and Europe.

— Outdoor lovers know this time is just around the corner: mosquito season. So it’s good timing for this new study on what makes different people more or less likely to get bitten by mosquitoes, which found that the soap you use can have an impact. “I would choose a coconut-scented soap if I wanted to reduce mosquito attraction,” a senior author of the study said. Researchers from Virginia Tech published a study in iScience examining the impact of four popular soap brands — Dove, Native, Dial and Simple Truth — on a person’s attractiveness to mosquitoes. Forbes.

CONGRESS

— Senate panel advances higher train derailment penalties. The Senate Commerce, Science and Transportation Committee on Wednesday voted 16-11 on an amended bill (S 576) that would expand restrictions for trains hauling hazardous material, among other new requirements. The limited number of Republican senators voting for the legislation suggests it may have a tough time on floor passage, and opposition also looms in the GOP-led House.

— House Republicans are set to pass border security legislation today, hours before pandemic-era immigration restrictions come to an end. The bill has no chance of passing the Democratic-controlled Senate and is intended to draw a stark contrast with the Biden administration over border policy.

OTHER ITEMS OF NOTE

— It’s opinion day at the Supreme Court. The court has yet to issue decisions for several ag consequential ag sector cases, including Proposition 12 and WOTUS.

— Biden to host India Prime Minister Modi in June. The two world leaders will “affirm the deep and close partnership between the United States and India” during Modi’s visit to Washington, the White House said. Modi and Biden “will discuss ways to further expand our educational exchanges and people-to-people ties, as well as our work together to confront common challenges from climate change, to workforce development and health security,” the White House said. Biden is preparing to meet with Modi at the Quad Leaders’ Summit in Sydney on May 24.