Washington Fails (To Reach A Deal To Avoid Sequestration)

March 1, 2013 12:05 AM

What Traders are Talking About:

* Sequestration to start. Congressional leaders and the Obama administration failed to reach a deal to avoid the across-the-board budget cuts (sequestration) by today's deadline. As a result, President Obama will sign an order directing government agencies to begin implementing the 85.3 billion in cuts (really just a reduction in spending growth) sometime today. Most of the cuts will be phased in, due largely to many workers getting at least a 30-day notice of a furlough. Attention now turns to the next Washington budget deadline, March 27, when the current stop-gap spending measure expires and the government runs out of money.

The long and short of it: The biggest potential short-term impact to agriculture will be what happens on the meat inspection front. USDA Secretary Tom Vilsack has been warning of the likely impacts, though "rolling" furloughs are likely, which will keep the meat industry running. Because of that and the fact livestock markets have been factoring in the sequestration for weeks, it could turn into a "sell the rumor, buy the fact" situation.

* China to sell wheat, rapeseed oil. China will sell 1.285 MMT of wheat and 100,000 MT of rapeseed oil from state reserves between March 6 and 8, according to state-run China National Grain and Oils Information Center. In total, China plans to sell 1 MMT of older rapeseed oil stocks, while it's unknown if there will be additional wheat sales. The wheat sales are an attempt to cool domestic prices, while rapeseed oil stocks are being trimmed prior to the arrival of new-crop supplies in May/June.

The long and short of it: Market impact should be limited, although the sale of older wheat reserves could calm Chinese end-user demand for feedgrains for a brief period.

* China's official PMI slips. China's official purchasing managers' index (PMI) dipped to a five-month low of 50.1 in February from 50.4 in January. That signals China's manufacturing sector slowed last month, but is still above the expansion threshold. (50). Export orders dropped to 47.3 in February from 49.5 in January, reiterating that's the biggest challenge to China's vast manufacturing sector. Earlier this week, China's HSBC flash PMI, which measures smaller manufacturers, slipped to 50.4, a four-month low, after a final reading of 52.3 in January.

The long and short of it: The Chinese manufacturing data is giving global markets a reason to pause as it highlights the struggle China could have given tepid growth in the U.S. and ongoing struggles in Europe -- China's two biggest customers of its manufactured goods.


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