Washington Insider -- Thursday

China Trends and Global Markets

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

USDA Report Schedule Still Uncertain Due To Partial Government Shutdown

As the partial government shutdown moves into its thirteenth twelfth day, questions continue to arise on the impacts on USDA reports.

Already, the agency is not releasing daily or weekly export sales updates and other publications have not been released due to the shutdown.

A question still remains on the barrage of reports USDA is scheduled to release January 11, including the Annual Summary, Winter Wheat & Rye Seedings, Grain Stocks and WASDE.

Contacts believe that it would take USDA analysts about one week to complete their analysis of data to be able to release the reports in question. Data gathering for the reports from the National Ag Statistics Service (NASS) should have been completed prior to the shutdown that started December 21, but analysis of the data is still needed.

In 2013, USDA canceled the release of the October Crop Production and WASDE reports when the government shutdown ended.

Court Upholds USDA Move To Scrap GIPSA Rules

A petition by the Organization for Competitive Markets (OCM) seeking review of USDA's decision to withdraw the Obama-era Farmer Fair Practices Rules – also known as the Grain Inspection, Packers and Stockyards Administration (GIPSA) rules – was denied by the U.S. Court of Appeals for the Eighth Circuit.

The rules were proposed in December 2016 during the finals days of the Obama administration, and would have made it easier for individual farmers to file suit against meat processors over alleged unfair, discriminatory or deceptive practices. Previously, courts had interpreted the Packers and Stockyards Act (PSA) as requiring proof of harm to competition across the entire industry in any such lawsuit, but the proposed rules sought to lower that legal threshold.

USDA Secretary Sonny Perdue first moved to delay implementation of the rules before withdrawing them entirely in October 2017. In its annual regulatory agenda update released in September, the Trump administration signaled it intends to revisit the rules this spring.

In rejecting OCM's petition, the court accepted USDA's argument that "the interim final rule and proposed regulations would result in protracted litigation that 'serves neither the interests of the livestock and poultry industries' nor USDA is a rational reason not to adopt a proposed change of course."

Washington Insider: China Trends and Global Markets

The Trump Administration seems deeply dug in against China’s global investment and trade policies, but a relatively new development is being reported fairly deeply by the urban media, Bloomberg says. It notes that after Chinese manufacturing output fell into contraction territory for the first time since 2017, U.S. and European stock performance reflected global growth concerns.

March contracts on the S&P 500 Index fell as much as 2.3% after a closely watched gauge of Chinese manufacturing hit recent lows. The Dow Jones Industrial Average reacted similarly, Bloomberg reported.

The Stoxx Europe 600 index followed 1% lower, led down by sectors sensitive to global growth such as basic resources and autos. Banks and insurers were among the laggards. Europe’s Purchasing Managers’ Index readings showed weakness, with Italy contracting while France’s survey signaled activity shrank for the first time since late 2016. The euro-zone reading was the lowest in almost two years.

The Caixin Media and IHS Markit China’s December manufacturing PMI fell to 49.7 from 50.2 in November, below the 50 threshold for the first time since 2017. That follows the official gauge, which fell into the same zone for the first time since July 2016 on Monday.

Adding to global growth concerns, Singapore’s export-reliant economy grew an annualized 1.6% in the three months through December from the third quarter, easing from a revised 3.5% gain previously, according to an advance estimate from the Ministry of Trade and Industry Wednesday. The median forecast in a Bloomberg survey of economists was for a 3.6% expansion.

“The disappointment that came through in December has transferred into January as well,” said Jingyi Pan, a Singapore-based market strategist at IG Asia Pte. While there was some small development in uncertain Washington politics, it’s a reminder of the U.S.-China trade tensions and “brings back to the surface worries on growth,” she said.

A fourth quarter sell-off in American equities sent the benchmark to the brink of a bear market late last year as fears of a recession crept up amid intensified U.S.-China trade tensions and a fourth rate hike by the Federal Reserve. The S&P 500 Index closed out 2018 with a 6.2% decline, finishing just above 2,500 and ending its worst year since the 2008 financial crisis amid worries the global economy will weaken in 2019.

FedEx Corp. last month slashed its profit forecast just three months after raising it and pared its international freight capacity amid a slowdown in global trade in recent months, with leading indicators pointing to an ongoing deceleration in the near term. Caterpillar Inc., a bellwether of global growth, was punished by investors in October after repeating its warnings of rising costs due to higher steel prices and U.S. tariffs.

On Wednesday, U.S. stock futures rose as much as 0.6 percent after President Trump invited the top congressional leaders from both parties to a White House briefing on border security and suggested the possibility of “making a deal” to end the government shutdown. It’s the first sign of a possible opening for negotiations to break the stalemate over funding for the border wall, Bloomberg said.

For 2019, it’s important to anchor investments to where an economy is heading as market sentiment can change very quickly, said Jun Bei Liu, a Sydney-based portfolio manager at Tribeca Investment Partners. Hence the reversal in stock futures is more a lack of confidence as the U.S. economy is still one of the better performers among global peers, she said.

“For the first day of the new year, it would be great to start the year with a green run,” Liu said by phone. “Unfortunately, it will probably start in the red.”

It is well known that trends in major markets, including China, affect the global economy — but there is wide disagreement regarding how closely those links are interwoven. Increasingly, analysts seem to be suggesting that they are strong and quite sensitive — especially to major government interventions like large tariffs.

Recent media reports suggest that the administration is maintaining its ambitions for quick and meaningful concessions from China on a number of trade-related issues. At the same time, its experience with ag trade suggests the need for caution and better understanding of “do no harm” approaches to markets where access has been developed carefully over time — a trade policy approach producers should watch closely as it is negotiated, Washington Insider believes.

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