Iran | Hurricane Maria | Harvey briefings | Farm bill | Fed statements | Bank of Japan | Tax reform | Senate health-care bill | NAFTA 2.0 | China responds to Lighthizer | CFTC | Antitrust group | Hack at SEC | CETA | Crop insurance | Markets
— Tillerson: U.S. wants changes to Iran nuclear deal. Secretary of State Rex Tillerson said the U.S. would remain a part of the 2015 Iran nuclear agreement only if it is modified. “If we are going to stick with the Iran deal, there has to be changes made to it,” Tillerson told Fox News Tuesday. He added that the sunset provisions — restrictions on Iran’s nuclear program that expire mostly by 2025 — are the accord’s “most glaring flaw.” Tillerson said the U.S. is looking to enlist the support of “European allies and others, to make the case as well to Iran that this deal really has to be revisited.”
Iran’s President Hassan Rouhani said it would be a great pity if a historic nuclear deal was “destroyed by rogue newcomers to politics.” President Donald Trump said he had made a decision on whether to pull out of the pact, but would not divulge what that decision was.
Meanwhile, British Prime Minister Theresa May chastised Trump for withdrawing from the Paris Climate Change accord during Wednesday remarks at the U.N. General Assembly, “It is this rules-based system which we have developed — including the institutions, the international frameworks of free and fair trade; agreements such as the Paris climate accord; and laws and conventions like the Non-Proliferation Treaty — which enables the global co-operation through which we can protect those values,” the British PM said.
— Maria slams Puerto Rico. Hurricane Maria arrived in Puerto Rico as a category four storm and reports indicate the island is pretty much entirely without power. And it could be a long slog for recovery. San Juan Mayor Carmen Yulín Cruz summed up the devastation to MSNBC: “We’re looking at four to six months without electricity” in Puerto Rico. The Trump administration “continues to direct all necessary Federal resources to protect the people of the United States territories affected by Hurricane Maria,” the White House said in a statement. Puerto Rico Governor Ricardo Rossello said he has requested a disaster declaration that could help speed the deployment of federal assistance. Expectations that help for Puerto Rico will be a factor in upcoming hurricane aid packages anticipated in the coming weeks.
— Congressional delegation and USDA Secretary Perdue heading to Texas to assess impacts of Hurricane Harvey. The congressional delegation is heading to Houston for a briefing and to view infrastructure damages. Lawmakers including Texas GOP Sens. John Cornyn and Ted Cruz, House Speaker Paul Ryan (R-Wis.), Appropriations Chairman Rodney Frelinghuysen (R-N.J.), Homeland Security Appropriations Chairman John Carter (R-Texas) and members of the Houston congressional delegation will be briefed on Hurricane Harvey recovery efforts. The group will take an aerial tour of storm damage and infrastructure to mitigate flooding. They are also scheduled to “help local residents clean out damaged homes,” according to Ryan’s office.
USDA Secretary Sonny Perdue will also be in Texas for the next two days, and will be joined by House Agriculture Chairman Mike Conaway (R-Texas) in holding a roundtable with producers in El Campo, southwest of Houston. He will also visit the Houston Food Bank. Cotton growers are expected to discuss the need for another round of ginning cost-share payments. Perdue will meet with the CEO of a cotton cooperative in the region as well as a board member of the Texas Farm Bureau, Bob Reed. On Friday, Perdue heads to west Texas with Conaway. Perdue will also speak to members of the Southwest Council of Agribusiness in Lamesa.
— Senate Ag panel to focus on farm bill rural development, energy programs at Sept. 28 hearing. The Senate Agriculture Committee on Sept. 28 will review the farm bill’s rural development and energy programs, the panel’s eighth farm bill-focused hearing. It will be the first time members will specifically consider rural development programs since USDA Secretary Sonny Perdue announced in May that his reorganization of the department would include eliminating the undersecretary of rural development post, moving rural development programming under an assistant to the secretary position. Unlike an undersecretary role, the assistant to the secretary post does not require Senate confirmation. Perdue has since named Anne Hazlett, former chief counsel to the Senate Agriculture majority, to the post.
— Bottom line on Federal Reserve statements. The FOMC held the Fed Funds rate steady but still expects to hike one more time between now and year-end (if so, most expect a December hike), as well as three further increases in 2018. The central bank will also begin to trim back its $4.5 trillion balance sheet next month with a $10 billion reduction. Fed Chairwoman Janet Yellen said the committee believed the recovery was on a “strong track” and that slack in the labor market had largely disappeared. Yellen continues to emphasize Fed policy is not on a preset course and the Fed would consider reinvesting in its balance sheet if there was a major shock to the economy, but the Fed funds rate remains the first monetary policy tool that will be used.
Longer term, the Fed sent a dovish message, with the “dots” showing a 20-basis point cut in the expected final resting place of the Fed Funds rate.
The Fed said storm damage will have only a temporary impact on the economy. “Hurricanes Harvey, Irma and Maria have devastated many communities, inflicting severe hardship... Storm-related disruptions and rebuilding will affect economic activity in the near term, but past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium term.”
Market impact. The FOMC actions helped push the dollar higher and lifted benchmark Treasury yields. In her press conference, Yellen dubbed the fall in inflation this year — now below the Fed’s 2% target — a “mystery.”
— Bank of Japan keeps policies steady. The Bank of Japan (BOJ) held its monetary policies steady at the conclusion of its meeting today, leaving the short-term interest rate target at minus 0.1% and pledging to guide 10-year government bond yields around zero percent. The decision came on an 8-1 vote, with new member Goushi Kataoka dissenting. “Given excess supply capacity remaining in the capital stock and labor market, monetary easing effects gained from the current yield curve aren’t enough to achieve 2% inflation around fiscal 2019,” as projected by the BOJ, Kataoka said in a statement. But BOJ Governor Haruhiko Kuroda signaled the dissent was not a problem and stressed that the BOJ will maintain or potentially even boost its stimulus program. “Price moves remain weak and there’s still some distance in achieving our price target. The BOJ will continue its powerful monetary easing to achieve 2% inflation at the earliest date possible,” Kuroda said. “We will take further monetary easing steps if necessary.”
— Tax reform timeline, details according to Hatch. Senate Finance Chairman Orrin Hatch (R-Utah) is downplaying the prospect that the White House and congressional Republican leaders will be able to deliver a unified framework for tax legislation next week, as other officials have promised. “I can’t say that they are” going to be able to produce a plan, Hatch said. “All I can say is that they are trying.” Hatch has said his panel will not necessarily be bound by the framework and won’t serve as a “rubber stamp” for any particular plan. “Everything gets in the way of tax reform, and we are going to have to be prepared to bulldoze through them,” Hatch said in an interview. He added that Tuesday’s agreement between the Senate budget panel’s members was a positive development.
Meanwhile, Hatch is pledging to pursue an ambitious plan to eliminate taxes on the overseas profits of U.S.-based companies despite a new Congressional Budget Office analysis that predicts the slowing of tax-avoidance deals known as inversions.
— McConnell opens door to health care vote next week. Senate leaders are preparing to hold a vote on an alternative to the 2010 health care law next week, although 50 Republicans have not confirmed they would vote for the proposal. “It is the Leader’s intention to consider Graham-Cassidy on the floor next week,” Don Stewart, a spokesman for Majority Leader Mitch McConnell (R-Ky.) said Wednesday. The push to vote on the plan crafted by Sens. Lindsey Graham (R-S.C.) and Bill Cassidy (R-La.) comes ahead of a crucial Sept. 30 deadline when Republicans would lose their chance to repeal parts of the law under the fiscal 2017 budget reconciliation rules. McConnell had told lawmakers he would not bring the measure to the floor without 50 votes.
Meanwhile, more states are seeking permission from the Trump administration to revamp their Medicaid programs, but the outlook for those proposals is complicated as Republicans make a final stab at repealing the 2010 health care law before a Sept. 30 deadline.
— Poll: 49% of Americans support renegotiating NAFTA. President Donald Trump disparaged U.S. trade agreements as unfair to U.S. workers during his presidential campaign and as president continues efforts to remake U.S. trade policy to incorporate concerns about U.S. trade deficits and imported goods. . But an Economist/YouGov Poll released Wednesday found that while a sizable portion of Americans support renegotiating the North American Free Trade Agreement (NAFTA), they are mostly unsure about the direction the United States should take on trade in general. While 49% of respondents said they approve of the Trump administration’s decision to renegotiate the 1994 pact with Canada and Mexico instead of withdrawing from it, 20% disapprove of the effort while 32% offered no opinion. The totals add up to more than 100 percent due to rounding.
— China responds aggressively to Lighthizer’s comments; says Beijing also has ‘sticks behind the door’. Beijing is pushing back against U.S. Trade Representative’s Robert Lighthizer’s remarks earlier this week that China represents an “unprecedented” threat to the world trading system. China said the criticism was “untenable” and said that “it’s actually the U.S. that acts unilaterally.”
“As U.S. trade representative, Lighthizer should exhibit more common sense knowing that trade isn’t sustainable if one side keeps profiting from the other,” the Chinese state-run media outlet Global Times wrote in an editorial. “Washington doesn’t need to act as if it has been taken for a ride.”
The commentary accused Washington of taking action that has led it to be a defendant in nearly a quarter of cases brought to the WTO. “It is the U.S.'s degeneration from leader of the international trade system to destroyer-in-chief that represents an unprecedented threat to global trade,” the piece noted.
“Lighthizer better not think he can make China yield just because he leads a probe into alleged intellectual property violations,” it continued, referring to the recently launched Section 301 case. “China won’t easily fall victim to U.S. bullying. Beijing also has sticks behind the door.”
— CFTC agenda. Commodity Futures Trading Commission (CFTC) Chairman J. Christopher Giancarlo will testify before the House Agriculture Committee Sept. 27, the panel said. Giancarlo, who served as acting chairman until he was sworn in in August, will discuss his plans for the agency and his agenda for promoting “strong risk management markets,” Committee Chairman Michael Conaway (R-Texas) said.
In CFTC staffing developments, Steptoe & Johnson partner Matthew Kulkinhas been named director of the Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight, the agency announced yesterday. The division chiefly oversees swap dealers, futures brokers, and futures industry self-regulatory organizations. Kulkin is co-chairman of the DC Bar’s Derivatives, Securitization, and Project Finance Committee. He will replace Eileen Flaherty, who will return to the private sector after approximately two years at the agency, according to the commission.
— New antitrust group targets tech ‘super monopolies’. Tech giants like Google and Amazon will be prime targets of the Open Markets Institute, a newly incorporated Washington think tank designed to bolster Democrats’ calls to change antitrust laws. Open Markets is highly critical of Google. The group believes that market concentration is at the root of “the most crumbling ills in America,” including “crumbling communities and broken families and individuals crippled by mass marketed addictions,” according to its website. Besides the technology sector, the group will be flagging concerns about industries ranging from retail to transportation.
The limited scope of the U.S. antitrust regime has allowed technology companies such as Google and Amazon to become “super-monopolies,” Open Markets says. These super-monopolies are armed with massive amounts of consumer data and the ability to leverage diverse operations across markets. Because these companies operate across different markets, they avoid scrutiny from regulators who tend to deploy antitrust enforcement only when isolated markets are hurt.
Acting Federal Trade Commission Chairman Maureen Ohlhausen, a Republican, has said the current approach used by antitrust regulators is flexible enough for the digital age.
Meanwhile, Macron vowed to name and shame tech groups. The U.K., France and Italy have promised to hold technology companies to account if they fail to block online terrorist or extremist content, with Emmanuel Macron, the French president, promising to “name and shame” companies that do not take robust action. Macron was flanked by Theresa May, the U.K. prime minister, and Paolo Gentiloni, her Italian counterpart, at the meeting in New York, but the tech companies did not send their chief executives to hear the concerns from Europe.
— Another hack... this time at SEC. SEC hacked Hackers may have exploited a software flaw in the Securities and Exchange Commission’s (SEC’s) online filing system to gain access to nonpublic information and reap “illicit” trading gains, SEC chairman Jay Clayton said. Commission officials said a previously detected 2016 cyber attack, which exploited a “software vulnerability” in the online Edgar reporting system, may have involved improper securities trading. The software flaw did not result in unauthorized access to personal information or involve systemic market risk, the SEC said.
— CETA between the EU and Canada enters into force. The Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada enters into force provisionally. The accord scraps most customs duties and cuts prices. Proponents say it improves choices for consumers while opponents say it undermines labor, environmental and consumer standards.
All chapters of the deal entered into force at midnight except for one: The Investment Court System that would allow foreign investors to sue governments over allegations of discrimination or expropriation.
More action ahead. CETA needs to pass 42 national and regional parliaments in 28 EU countries. Each of them has the power to block the accord. Only six countries so far have finalized the ratification: Latvia, Denmark, Malta, Croatia, the Czech Republic and Portugal.
Canada has pointed to CETA and other deals in the works as reasons it is not willing to bend over backward to the United States’ will when it comes to the ongoing renegotiation of NAFTA.
— Most crop insurance claims are from drought, floods. About 72% of crop insurance indemnities paid to farmers and ranchers between 2001 and 2015 were due to losses from drought and flooding, according to a new report by the USDA Risk Management Agency (link). Hail and low prices each were the cause of 7% of payouts, while cold temperatures were responsible for 6%. The report, which RMA plans to publish every four years, is an analysis of market penetration and market potential of the federal crop insurance program for field crops, produce and nuts and livestock.
— Brief items of note:
* Jeff Gerrish, Trump’s pick to serve as a deputy U.S. trade representative, who is currently awaiting confirmation from the Senate Finance Committee may have voted illegally in Virginia in last year’s presidential election, the Washington Post reported. Link.
* Avoiding a U.S.-China trade war. Cui Tiankai, China’s ambassador to the U.S., said President Donald Trump’s upcoming visit to Beijing will help avoid a “trade war, currency war or whatever war,” the South China Morning Post reported. Link. Meanwhile, ahead of Trump’s visit, China is cracking down on violations of patents and trade secrets to reassure investors and appease foreign companies, the Associated Press reported. Link.
— Markets. U.S. stock futures were lower this morning, following news the Federal Reserve in October would start gradually shrinking its balance sheet. It also signaled one more interest rate hike this year. On Wednesday, the S&P 500 and Dow closed at record highs and bank stocks surged.
Global fund managers are trading out of U.S. stocks, reducing their holdings to the lowest level since 2007, according to a survey released last week by Bank of America Merrill Lynch. They are now more overweight ub emerging market stocks than they have been in seven years, Barron’s notes.
S&P Global Ratings downgraded China’s long-term sovereign credit rating by one notch to A+ from AA-, citing increasing risks from the country’s rapid build-up of credit. S&P’s downgrade follows a similar demotion by Moody’s Investors Service in May. Moody’s Investors Service took the same step in May. Recent government steps could stabilize financial risks in the medium-term, S&P said. “However, we foresee that credit growth in the next two to three years will remain at levels that will increase financial risks gradually,” the agency said.
