Latest market-sensitive news and views – Aug. 30

(Editor’s note: This daily digest of the latest news and perspective is a must read for those in business who need to keep abreast of the newest developments in the marketplace, yet do not have time to scour all the media outlets. In less than 10 minutes you will be caught up and in the know on the current events impacting the marketplace.—Jim Wyckoff)

Impacts of Hurricane Idalia mounting 

Today’s Digital Newspaper

China’s largest banks are preparing to cut interest rates on existing mortgages and deposits in the latest measures to shore up growth. Meanwhile, China’s economy isn’t as bad as the prevailing mood suggests and growth is moving in the right direction as consumer spending picks up, according to an official at the British Chamber of Commerce in China.

An increasing share of low-income Americans are behind on rent and struggling to afford food. More below.

66.9 cents: Increase in average diesel fuel prices per gallon across the U.S. in the past six weeks, leaving the price at the highest level since the first week of February, according to the Energy Information Administration.

The impending storm posing a threat of widespread flooding in Florida and along the East Coast might lead to a rise in gas prices across the nation. The impact of the hurricane, Idalia, could result in the shutdown of gasoline refinery facilities and potentially restrict Gulf oil production and supplies. Additionally, the evacuation of residents from affected regions is anticipated to drive up gas demand. As many people in other parts of the country prepare for the upcoming Labor Day weekend, they are also filling their vehicles with fuel, further increasing gas demand. Presently, the average national gas price stands at $3.82 per gallon, and experts suggest that the combination of severe weather conditions and a surge in summer travel could keep gas prices elevated well into the autumn months.

The number of trade disputes initiated at the WTO has fallen precipitously since the appellate body turned cold. Meanwhile, some GOP presidential candidates are following the trade policy ideas of former President Donald Trump. They are calling for ending permanent normal trade relations with China, restricting U.S. businesses from expanding there and boosting domestic manufacturing, even through government subsidies. Though largely focused on China, they also aren’t proposing new trade with others, which makes free-trade advocates nervous. Details in Trade Policy section.

India will allow exporters to ship their non-basmati white rice cargoes that have been trapped at ports after a sudden ban on exports of the category in late July, a government order said late on Tuesday.

Australia dispatched its inaugural barley shipment to China following the removal of tariffs by Beijing earlier this month.

A so-called “protection gap” seems likely to grow. Last year, insurance covered just 60% of the $165 billion in total economic losses from climate-related disasters in the U.S. That widening gap is becoming a major concern for federal regulators, who worry it leaves big swaths of American homeowners and businesses vulnerable to the next superstorm.

The Eurozone’s economic sentiment indicator has dropped for the fourth consecutive month, reaching 93.3 in August, which is below market expectations of 93.7. This reading marks the lowest point since November 2020.

Russian President Vladimir Putin will make his first foreign trip since an International Criminal Court (ICC) warrant for his arrest on alleged war crimes was issued. He is reportedly preparing for a visit to China in October to attend the Belt and Road Forum. Meanwhile, . Russian foreign ministry spokeswoman Maria Zakharova said the Black Sea grain deal would be one of the items on the agenda of Russian Foreign Minister Sergei Lavrov’s talks on Thursday and Friday with his Turkish counterpart. More in Russia & Ukraine section.

The Senate Finance Committee is considering holding a hearing on President Joe Biden’s nomination of Marjorie Rollinson for the position of IRS chief counsel a priority. Meanwhile, Daniel Hornung, a veteran of the Biden administration, will be promoted to the position of deputy director at the National Economic Council (NEC). More in Personnel section.

The federal government named 10 drugs that will be subject to price negotiations by Medicare.

MARKET FOCUS

Equities today: Asian and European stock markets were mostly higher in overnight trading. U.S. stock indexes are pointed to steady to slightly lower openings. In Asia, Japan +0.3%. Hong Kong -0.1%. China flat. India flat. In Europe, at midday, London +0.3%. Paris -0.4%. Frankfurt -0.3%.

U.S. equities yesterday: The Dow added 0.8%, or about 293 points. The tech-heavy Nasdaq Composite rallied 1.7%. The S&P 500 notched its largest three-day gain since March, paring its decline this month to 2%.

Market quotes of note:

• China. “There’s business we can do and there’s business to be done,” U.S. Commerce Secretary Gina Raimondo said in a Boeing Co. aircraft hangar Wednesday at one of Shanghai’s airports. She described the trip as a “very productive” one where she met Premier Li Qiang and other senior officials in Beijing, spoke to US businesspeople and visited Disneyland and New York University’s campus in Shanghai. Nothing good comes from a lack of communication or decoupling, Raimondo said, adding that U.S. businesses want a less arbitrary environment in China. “Increasingly I hear from businesses, “China is uninvestible because it’s become too risky,'” Raimondo told reporters on Tuesday.
• China’s economy isn’t as bad as the prevailing mood suggests and growth is moving in the right direction as consumer spending picks up, according to an official at the British Chamber of Commerce in China. While the recovery has slowed, “I don’t actually buy the notion that the Chinese economy is in serious systemic trouble,” Chris Torrens, vice chairman of the chamber, said in an interview on Bloomberg Television.
• “This is not something that you want to do battle with.” — Florida Gov. Ron DeSantis, urging residents to evacuate from the path of Hurricane Idalia, which continued to strengthen over the Gulf of Mexico Tuesday while barreling toward Florida.

A rising number of low-income Americans are facing difficulties paying rent and affording food, highlighting growing financial stress within the economy. According to a report by benefits software developer Propel, a significant portion of households utilizing the Supplemental Nutrition Assistance Program (SNAP/food stamps) are experiencing challenges. In August, 42% of these households had to skip meals due to financial constraints, and 55% were forced to reduce their food intake because they couldn’t afford it. These findings underscore the increasing financial strain faced by low-income individuals and families, underscoring a concerning trend in the economy.

The Eurozone’s economic sentiment indicator has dropped for the fourth consecutive month, reaching 93.3 in August, which is below market expectations of 93.7. This reading marks the lowest point since November 2020. The decline in economic sentiment comes as the Euro Area’s economy has been affected by the European Central Bank’s aggressive policy tightening aimed at addressing persistent high inflation levels.

Market perspectives:

• Outside markets: The dollar has weakened and is trading lower against most G10 currencies. Treasuries are falling slightly across the curve and stock futures have turned negative, in line with a paring or reversal or earlier gains across Europe. Oil prices remain higher but metals are mixed, with copper slightly lower.

• 66.9 cents: Increase in average diesel fuel prices per gallon across the U.S. in the past six weeks, leaving the price at the highest level since the first week of February, according to the Energy Information Administration.

• India allows exports of rice trapped at ports. India will allow exporters to ship their non-basmati white rice cargoes that have been trapped at ports after a sudden ban on exports of the category in late July, a government order said late on Tuesday. Shipment of those cargoes will be allowed provided traders paid the 20% export duty that was in place up to July 20, when the ban was imposed. It is expected around 150,000 MT of non-basmati white rice cargoes would be shipped out of various ports, said the president of the Indian Rice Exporters Federation.

RUSSIA/UKRAINE

— Ukraine executed its largest drone attack on Russian military targets since the war’s commencement, leading to the disabling of several military aircraft at the Pskov air base. Simultaneously, Moscow launched a sustained missile barrage on the Ukrainian capital. This drone attack involved dozens of drones launched to regions including Moscow, Kaluga, Orel, Ryazan, Bryansk, Tula, and Pskov, as well as Russian-occupied Crimea. Although most drones were intercepted, the attack on the Pskov air base, situated over 400 miles from Ukraine, marked a significant escalation. Multiple planes at the Pskov airfield were hit, leading to its temporary shutdown. The attack also affected a nearby base of Russian special forces.

Russian officials attempted to downplay the attack, attributing it to the “terrorist nature” of the Kyiv regime and suggesting Western intelligence involvement. The Kremlin confirmed that President Vladimir Putin was receiving real-time updates and that Russian military experts were investigating the source of the attack.

— Russia to talk grain deal with Turkey. Russian foreign ministry spokeswoman Maria Zakharova said the Black Sea grain deal would be one of the items on the agenda of Russian Foreign Minister Sergei Lavrov’s talks on Thursday and Friday with his Turkish counterpart. Turkey is trying to get Russia to rejoin the deal after Moscow pulled out in mid-July.

— Russian President Vladimir Putin is set to make his first foreign trip since an International Criminal Court (ICC) warrant for his arrest on alleged war crimes was issued. He is reportedly preparing for a visit to China in October to attend the Belt and Road Forum. The Kremlin is making arrangements for this trip, and Putin has accepted an invitation from Chinese President Xi Jinping to participate in the event. Since the ICC issued the warrant in March, Putin has not left Russia, although he has visited areas of Ukraine that are under Russian occupation. He chose not to attend the BRICS summit in South Africa due to concerns about the warrant. Furthermore, he informed Indian Prime Minister Narendra Modi that he won’t attend the upcoming Group of 20 (G20) summit, even though India is not a signatory to the ICC.

PERSONNEL

— Hearing ahead on IRS nominee. The Senate Finance Committee is considering holding a hearing on President Joe Biden’s nomination of Marjorie Rollinson for the position of IRS chief counsel a priority. Although the exact timing of the hearing has not been specified, it is expected to be included on the agenda when the Senate reconvenes in September. Marjorie Rollinson, who has almost three decades of experience at Ernst & Young and has previously worked in the chief counsel’s office, was nominated by President Biden for this role in June.

— Daniel Hornung, a veteran of the Biden administration, will be promoted to the position of deputy director at the National Economic Council (NEC), the White House announced. In this new role, he will report to NEC Director Lael Brainard. Hornung’s responsibilities will encompass housing policy, economic data analysis, strategic planning, and market monitoring. Hornung initially joined the White House staff at the beginning of President Biden’s tenure and most recently held the position of special assistant to the president for economic policy. He played a significant role in shaping many of Biden’s economic speeches and statements. He was closely involved in critical matters such as the negotiation of a debt limit agreement with House Republicans to prevent a historic default, as well as the development of the Inflation Reduction Act, a comprehensive climate, health, and tax package championed by the Democrats.

CHINA UPDATE

— U.S. companies are expressing concerns about China becoming a less attractive destination for investment due to escalating risks associated with conducting business in the country, according to Commerce Secretary Gina Raimondo. During her visit to China, Raimondo stated that American firms are encountering various challenges, including the imposition of fines and uncertainty surrounding a new anti-espionage law. Existing issues such as intellectual property theft and competition with Chinese companies benefiting from subsidies continue to pose ongoing difficulties for U.S. companies. This perception of China becoming “uninvestible” is tied to a combination of new and persistent challenges that are making the business environment less appealing for American investors.

— China has raised concerns about the state of shadow bank Zhongrong and has directed two major financial institutions, Citic Trust and CCB Trust, to review its financial records, according to Bloomberg. This move suggests the possibility of a state-backed intervention to rescue the troubled shadow bank. The involvement of Citic Trust and CCB Trust is aimed at stabilizing Zhongrong’s operations and potentially initiating a state-led rescue effort.

— Australia dispatched its inaugural barley shipment to China following the removal of tariffs by Beijing earlier this month. Australia’s trade minister noted confidence that as diplomatic relations improve, restrictions on other products will also be lifted. Prior to the imposition of tariffs exceeding 80% in 2020, China served as the largest export market for Australian barley. The strained relations have also affected other commodities like coal and wine between the two nations.

TRADE POLICY

— GOP presidential candidates align with Trump’s trade policy views. In the lead-up to the 2024 GOP presidential race, a consensus is emerging within the Republican Party that aligns with Donald Trump’s anti-free trade stance, the Wall Street Journal reports. Republican candidates, including front-runner Trump, are advocating for more protectionist approaches, particularly towards China. They call for ending permanent normal trade relations with China and promoting domestic manufacturing, possibly through government subsidies. Trump has gone further by proposing a universal baseline tariff on U.S. imports, escalating on countries involved in unfair trading practices or currency manipulation.

Ag sector concerned. While GOP contenders are primarily focusing on China, their views align with the party’s increasing hawkishness on this matter. However, they are not advocating for new trade pacts with other international partners, a stance that concerns advocates of free trade, including many in the U.S. ag sector.

The hardening Republican stance on trade is tied to China’s growing economic and military influence. The Covid-19 pandemic also exposed vulnerabilities in the U.S. supply chain that heavily relies on China. While Trump’s rivals are mostly keeping their focus on China, they are cautious about forging new trade deals and instead aim for better reciprocity.

Bottom line: This shift signifies a departure from decades of open-border policies that gained momentum through free-trade agreements in the 1980s and 1990s. China’s rise in economic and military power has challenged this approach. Although these protectionist views resonate with a considerable portion of the U.S. population, some fret they could result in economic costs and hinder global economic growth.

— The number of trade disputes initiated at the WTO has fallen precipitously since the appellate body has been challenged by both the Trump and Biden administrations.

Facts and figures. Between 1996 and 2019, the World Trade Organization (WTO) received an average of 23.7 requests annually for dispute settlement proceedings. However, over the past three years, this average has declined significantly to 7.3 per year, marking a 69% decrease from the period when the WTO’s appellate body was fully operational, according to Bloomberg calculations.

Rather than relying on the time-consuming WTO dispute process to resolve disagreements, countries such as the U.S. and China have turned to unilateral trade penalties as a more efficient means of safeguarding their markets. Since 2020, governments have more than doubled the average number of restrictive trade policies compared to the previous decade’s average. This trend has been observed through data compiled by the University of St. Gallen’s Global Trade Alert.

Bottom line: If the global trading system fully drifts into two competing blocks, WTO economists predict it will shave $4.4 trillion off global output, which is equivalent to 5% of world gross domestic product.

ENERGY & CLIMATE CHANGE

— The fate of turning ethanol into sustainable jet fuel in the U.S. is closely tied to the formulation of tax policy, according to Green Plains Inc.’s CEO Todd Becker. He noted this at a sustainable aviation fuel conference in Minneapolis. The Biden administration’s stance on tax credits outlined in the Inflation Reduction Act (IRA/Climate Bill) will significantly impact U.S. corn farmers and biofuel producers.

A critical point of contention is how emissions from sustainable aviation fuel (SAF) will be tracked, given its potential to be derived from various sources. The U.S. ethanol industry sees SAF as a means to stimulate demand in the coming years, especially as gasoline consumption declines due to the rise of electric cars.

Two contrasting models are being debated: one (GREET) supported by biofuel producers and farm state lawmakers, backed by the U.S. Energy Department, which would credit carbon sequestered in soil even after crops are harvested; the other, favored by environmentalists, takes a stricter approach by considering changes in land use driven by biofuel production. The latter approach could disqualify certain ethanol-based sustainable aviation fuel productions from receiving the tax credit.

Of note: The Treasury Department’s guidance on the lucrative aspects of the climate law is anticipated to be released in September, offering insights into how these potential provisions will take shape.

HEALTH UPDATE

— The Biden administration unveiled the initial list of 10 drugs that will undergo price negotiations between manufacturers and Medicare. This marks the beginning of an effort to reduce medication costs for older adults. The selected drugs are among the top 50 in terms of spending for Medicare Part D, which covers prescription medications for seniors at retail pharmacies. Notably, this marks the first instance in Medicare’s nearly 60-year history where it will engage directly with drug manufacturers to negotiate prices. President Joe Biden has promoted this move as a means of saving taxpayer funds. However, several pharmaceutical companies, including Merck, Johnson & Johnson, Bristol-Myers Squibb, and Astellas Pharma, are suing to halt the negotiation process. They argue that they would be compelled to sell medications at significant discounts, potentially below market rates. New York Times.

POLITICS & ELECTIONS

— Mayor Francis Suarez of Miami said he would suspend his presidential campaign, becoming the first Republican candidate to drop out.