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Trouble in China: July Exports Fell by Most Since February 2020, While Imports Also Slid
Moody’s cut credit ratings on multiple small and mid-sized U.S. banks |
In Today’s Digital Newspaper
Grains lower overnight. Corn and soybeans faced followthrough selling overnight, while wheat futures pulled back from Monday’s gains. As of 7:30 a.m. ET, corn futures were trading 3 to 4 cents lower, soybeans were 13 to 14 cents lower, SRW wheat was mostly 3 to 6 cents lower, HRW wheat was 2 to 3 cents lower and HRS wheat was 1 to 2 cents lower. Front-month crude oil futures were around $1.50 lower, and the U.S. dollar index was more than 600 points higher.
Equities: Asian and European stock markets were mostly lower in overnight trading. U.S. stock indexes are pointed to lower openings. In Asia, Japan +0.3%. Hong Kong -1.8%. China -0.3%. India -0.2%. In Europe, at midday, London -0.7%. Paris -1%. Frankfurt -1.3%.
On Monday, the Dow closed up 407.51 points, 1.16%, at 35,473.13. The Nasdaq rose 85.16 points, 0.61%, at 13,994.40. The S&P 500 was up 40.41 points, 0.90%, at 4,518.44.
Outside markets: The U.S. dollar index is firmer, with the euro and British pound weaker against the greenback. The yield on the 10-year U.S. Treasury note was lower, trading just under 4%, with a lower tone in global government bond yields. Crude oil futures have come under pressure, with U.S. crude around $80.15 per barrel and Brent around $83.60 per barrel. Futures had risen in Asian action, with U.S. crude around $82.20 per barrel while Brent was around $85.60 per barrel. Gold and silver futures were lower, with gold around $1,961 per troy ounce and silver around $22.96 per troy ounce.
Philadelphia Federal Reserve President Patrick Harker on Tuesday indicated that the central bank could be at the end of its current rate-hiking cycle. A voter this year on the rate-setting Federal Open Market Committee, the central bank official noted progress in the fight against inflation and confidence in the economy. “Absent any alarming new data between now and mid-September, I believe we may be at the point where we can be patient and hold rates steady and let the monetary policy actions we have taken do their work,” Harker said in prepared remarks for a speech in Philadelphia.
The Mississippi River, a prominent route for waterborne commerce, is facing a threat due to lowered water levels, which could potentially interrupt trade for the second year running, the Wall Street Journal reports (link). These dropping water levels are attributed to dry soil conditions and insufficient rainfall. The river, which traverses through ten US states, serves as a crucial transportation corridor for agrarian and industrial goods. Currently, the water levels in St. Louis and Memphis are 10 to 20 feet below the levels around the same time in 2020 and 2019, which is a result of decreased rain.
The Army Corps of Engineers has started regulating the water levels, and maintaining the depth of the waterway and ports. They’re conducting dredges to ensure that the water channels and harbors remain sufficiently deep to permit the smooth operation of transit.
In the past year, the reduced water levels significantly affected the economy, with losses amounting to around $20 billion. The majority of shippers that rely on these waterways could find it prohibitively expensive to switch to land-based transport due to the cost-efficiency of barges on the river.
China experienced a significant decrease in trade during July 2023, with both imports and exports recording double-digit declines due to weakening demand both domestically and internationally. The country saw a 14.5% year-on-year drop in sales, marking the steepest decline since the start of the Covid-19 pandemic in February 2020. Meanwhile, imports plummeted by 12.4%, constituting the sharpest decrease since January. These declines were larger than expected, signaling potential economic concerns for China.
Of note: Exports to Southeast Asia are no longer providing a buffer against weaker demand from Western countries. Shipments to the Asian region dropped 21.4% y/y in July.
Bottom line: Trivium China says: “Weaker overseas demand for Chinese goods increases deflationary pressure at home that deters household spending and business investment. With exports falling, a strong policy response is needed to boost domestic demand.
China’s soybean imports sharply above year-ago. China imported 9.73 MMT of soybeans in July, down 5.3% from June but 23.4% more than last year. Chinese crush margins turned positive in mid-June, driven by stronger demand for soymeal and soyoil, while some cargoes that were delayed by tightened port inspections were offloaded. Through the first seven months of this year, China imported 62.3 MMT of soybeans, up 15.0% from the same period last year.
China’s meat imports inch up. China imported 679,000 MT of meat during July, a 2.1% increase from June and 5.6% more than last year. China doesn’t break down meat imports by category, though the increase was driven by stronger pork arrivals. China imported 4.49 MMT of meat in the first seven months of the year, up 9.5% from the same period last year.
Credit ratings agency Moody’s has downgraded the credit ratings of numerous small and mid-sized U.S. banks due to mounting concerns regarding the U.S. banking sector. Major lenders, including Bank of New York Mellon, U.S. Bancorp, State Street, Truist Financial, Cullen/Frost Bankers, and Northern Trust, have also been placed under review with the potential for future downgrades. Furthermore, Moody’s modified its outlook to negative for 11 banks such as Capital One, Citizens Financial, and Fifth Third Bancorp. The agency expressed warnings that under particular circumstances, these banks may still be vulnerable to sudden market losses or diminished consumer confidence, especially in an environment with high interest rates.
Consumers pull back on credit card use. In June, U.S. consumer credit grew more than anticipated, by $17.9 billion. This was largely led by non-revolving credit elements such as car loans and student loans, which increased by $18.5 billion, or 6%. As a result, total consumer debt surged to $5 trillion. However, there was a noticeable decline in revolving credit, which includes credit cards and bank cards. The use of revolving credit decreased by $605.4 million, marking a 0.6% drop, the first monthly drop since April 2021. Despite this downturn in revolving credit usage, the report by the Federal Reserve noted that most consumers’ payments remained up to date.
If this behavior of reduced credit card usage continues, it could interpret as an indication that consumers are beginning to cut back their spending. This is a significant observation as consumer spending habits have broader implications for the overall economy.
There has been a significant 21% increase in crude oil prices over the last six weeks. This rise is heavily impacting several sectors in the United States. For individual workers, the cost of commuting to and from workplaces has surged. Likewise, commercial freight operators are also dealing with increased expenses while transporting goods to warehouses and back. Moreover, this hike is affecting a wide array of industries by inflating production costs of diverse goods — from plastics and fertilizers to garments. Thus, the rise in crude oil prices is not limited to the transportation sector; it’s a ripple effect impacting multiple industries.
This situation presents a significant challenge as it threatens to bolster inflation. It comes at a delicate time when financial market participants were becoming optimistic about decreasing inflationary pressures, expecting that the Federal Reserve might soon conclude its current cycle of interest rate hikes. The new oil price dynamics could potentially alter these expectations.
Gold prices have gained about 8% this year to around $1,970 a troy ounce. Inflation, interest-rate increases, bank failures and market craziness have lured individual investors to precious metals such as gold and silver.
Reuters: Phillips 66, ADM in talks on low-carbon jet fuel joint venture. Archer-Daniels-Midland (ADM), a grain trading firm, and Phillips 66, an oil refiner, are discussing a potential joint venture to produce greener jet fuel, says a Reuters report citing unnamed sources. The proposal aims to repurpose ADM’s dry corn milling operations to transform grain-based alcohol fuel into more sustainable jet fuel. ADM, previously aiming to shed its dry corn mills, had restructured these assets into a subsidiary, Vantage Corn Processors, and has already sold its dry mill in Peoria, Illinois. The two remaining mills can manufacture 613 million gallons of ethanol annually.
Additionally, technology firm Axens SA has committed to provide ADM and Phillips 66, or a possible joint venture, with its ethanol-to-fuels conversion technology. Axens, together with Gevo Inc., exclusively licenses this conversion technology. The agreement, if finalized, could result in payments of a minimum of $125 million to Gevo.
Iowa, Nebraska sue EPA over E15. The attorneys general of Iowa and Nebraska have filed a lawsuit against the Environmental Protection Agency (EPA), demanding that the temporary waiver allowing year-round sales of E15 fuel become permanent. E15, a fuel blend with a higher ethanol concentration, was not previously sold during summer months due to environmental concerns. The states had requested the EPA last year to allow year-round E15 sales. However, attorneys general Brenna Bird of Iowa and Mike Hilgers of Nebraska argue that the EPA has failed to address their request within the 90-day response deadline specified by law. They note that over a year has passed since the expiration of that period, yet the EPA has not provided a definitive answer. On April 28, EPA issued an initial, temporary E15 sales waiver, valid for 20 days. Since then, they have granted five such waivers, the most recent of which ends August 9. The attorneys general seek to make these waivers a permanent fixture.
Ukrainian officials have reported thwarting an alleged attempt on President Volodymyr Zelenskyy’s life, contending that the potential assassination was orchestrated by Russia. An alleged Russian informant was arrested after reportedly gathering intelligence about the president’s anticipated visit to the Mykolaiv region at the end of July. The information was allegedly to be used for a Russian airstrike designed to assassinate Zelenskyy. The detained woman, a local resident formerly employed at a military store, remains unnamed.
House Democrats urge SEC to finalize climate reporting rule. Some 80 House Democrats have urged the Securities and Exchange Commission (SEC) Chairman, Gary Gensler, to finalize a climate-reporting rule requiring public companies to disclose climate-related risks. The lawmakers stated that the rule is essential to protect investors and maintain a fair and efficient market. They believe that such information, which includes business, operational, or financial risks due to climate change events, should be timely and easily accessible to investors. The proposed rule by the SEC was introduced in April 2022, with intentions to finalize action by October as per the Biden administration’s regulatory agenda. However, there have been concerns about the rule’s scope, particularly regarding a potential requirement for farmers to report their greenhouse gas (GHG) emissions under Scope 3 of the SEC plan. Critics argue for a defined exemption for farmers from this reporting provision.
Posted by :
Jack Dempsey, President
401 Gold Consultants LLC
jdemp2003@gmail.com