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Fed minutes: Need to hike rates faster, reduce balance sheet quickly... During its Dec. 14-15 policy meeting, Federal Reserve officials said the U.S. labor market was “very tight” and the U.S. central bank might need to raise interest rates sooner than expected and also reduce its overall asset holdings to tame high inflation, according to the minutes released on Wednesday.
“Participants generally noted... it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated. Some participants also noted that it could be appropriate to begin to reduce the size of the Federal Reserve’s balance sheet relatively soon after beginning to raise the federal funds rate,” stated the minutes.
They agreed to hasten the end of the pandemic-era program of bond purchases and issued forecasts anticipating three quarter-percentage-point rate increases during 2022.
The minutes also noted risks of the Omicron variant of Covid on the economy. On that front, the minutes stated: “In particular, the possibility that Covid-19 cases could continue to rise steeply, especially if the Omicron variant proves to be vaccine resistant, was seen as an important source of downside risk to activity, while the possibility of more severe and persistent supply issues was viewed as an additional downside risk to activity and as an upside risk to inflation. Members also agreed that, with the emergence of the Omicron variant, it was appropriate to note the risk of new variants of the virus in their assessment of risks to the economic outlook.”
The minutes were broadly regarded as more hawkish than investors expected, signaling markets must adjust to the likelihood of quicker and more aggressive Fed actions.
Fed Chair Jerome Powell will appear before the Senate Banking Committee next week for a hearing on his nomination for a second four-year term as head of the central bank and is likely to update his views about the economy at that time.
Analysts might start cutting Argentine corn estimates due to dryness... Due to dryness in Argentina, the Buenos Aires Grain Exchange says it might start marking down their record high 2021-22 corn harvest estimates if it gets too dry next month. “There is a risk of having to lower our corn production projection,” Esteban Copati, head analyst at the exchange, said. The current forecast is for a record 57 MMT corn crop.
Concerns about Argentina’s corn crop are also echoed by the Rosario exchange, which estimates the crop between 55 MMT and 56 MMT. “Early corn planted in the provinces of Santa Fe, Cordoba, Entre Rios and Buenos Aires is in a particularly delicate situation, and in the eastern part of the country, yield losses ranging from 20% to 40% are confirmed,” the Rosario report said. “We may be facing a serious problem if the forecast of scant rains during the first half of January is confirmed,” it added. “But we can’t confirm anything yet because late-planted corn could compensate for these potential yield losses in early-planted corn, as has happened in other seasons.”
Paraguay announces drought relief measures... Paraguay announced a cut in the corporate income tax in the first quarter and debt refinancing credit lines through a state-run lender and other state agencies aimed to support 21,000 small-sized farmers due to the ongoing drought.
The country had expected to harvest a crop of about 10 MMT of soybeans for the 2021-22 growing season. Crop Consultant Dr. Michael Cordonnier estimates the Paraguay soybean crop at 8 MMT and says it may be smaller. “I have a neutral to lower bias going forward. The situation in Paraguay is bad and getting worse,” he said in his weekly comments.
Some of the soybean fields in eastern Paraguay have had fires invading and destroying the crop.
Much of the country’s economic growth is supported by the agricultural sector and hydroelectric power generation, which was also affected by the drought.
Paper: China’s yuan faces depreciation pressure in 2022... After two years of gains, China’s yuan could be facing depreciation pressure in 2022, according to a newspaper co-founded by the People’s Bank of China. Negative factors include shrinking yield advantages, a strengthening dollar, a narrowing trade surplus and uncertainties in global markets.
In 2021, the yuan gained 2.7% against the dollar. China’s central bank twice told directed financial institutions to hold more foreign exchange reserves to slow down the appreciation.
Indonesia subsidizes cooking oil for consumers to tamp down prices... Indonesia’s government announced it will offer 1.2 billion liters of cooking oil to consumers at subsidized prices to help temper food price inflation, spending 3.6 trillion rupiah ($250.78 million) on the effort. The subsidy is funded via a levy on palm oil exports, chief economics minister Airlangga Hartarto and trade minister Muhammad Lutfi told a joint news conference.
The government will sell cooking oil at 14,000 rupiah per liter, the officials said, compared with branded cooking oil priced at more than 20,000 rupiah per liter. The effort will involve 70 producers of cooking oil. There was no timeline given for the action.
Thailand stops live pig exports for three months... Due to expected domestic supply shortages and higher prices, Thailand suspends live pig exports until April 5, according to the country’s commerce ministry. The country typically produces 19 million pigs per year and consumes 18 million of those animals. This year, it only produced 13 million pigs. According to an industry group, farm pig prices have increased from $2.41 per kg to $3.16 per kg from January 2021 to January 2022.
Malaysia aims for B20 mandate by the end of the year... The country’s palm oil board said Malaysia will move forward with plans to implement its nationwide adoption of the B20 palm oil by the end of 2022. The plan was initially announced in January 2020, but it was delayed due to Covid-19 outbreaks.
“We will do it stage-by-stage basis depending on the government’s financial capabilities,” Ravi Muthayah, the commodities ministry’s secretary general said during a seminar.
New York Fed index: Global supply pressures may be nearing peak... High pressures on global supply chain networks and a surge in inflation may have peaked, according to the New York Federal Reserve Global Supply Chain Pressure Index (GSCPI). The index uses 27 variables including shipping rates and air freight costs between the United States, Asia and Europe.
“More recently, the [index] seems to suggest that global supply chain pressures, while still historically high, have peaked and might start to moderate somewhat going forward,” the researchers wrote in a blog post. Researchers found “enormous growth” in shipping costs since the beginning of the recovery from the lows at the start of the pandemic. However, the growth has started to slow.
The index, drawing on data going back to 1997, shows global supply chain pressures are substantially higher than in previous times of stress.
A separate report suggested that supply constraints are starting to ease as delivery times improve. The Institute for Supply Management (ISM) survey also found that prices paid by manufacturers fell last month by the most in a decade.
Private payroll jobs are more than double expectations... Private payrolls added 807,000 jobs in December, according to ADP National Employment Report. Economists polled by Reuters had forecast private payrolls would increase by 400,000 jobs. ADP revised its November report to show 505,000 jobs added, down from 534,000 that was initially reported.
The increases in jobs were led by the leisure and hospitality industry, professional and business services, manufacturing and construction.
The ADP report was published ahead of the Labor Department’s more comprehensive and closely watched employment report for December on Friday. However, this report has a poor record of predicting the Bureau of Labor Statistics employment report. It is still a sign of solid job growth. Worker shortages are constraining the labor market’s recovery. On Tuesday, the government reported that there were 10.6 million job openings at the end of November.
The survey was done in mid-December before the increase in Covid-19 cases. Experts expect Omicron’s effect to be reflected in the ADP report for January.
Manchin says he’s not working with White House to find a path forward on Build Back Better (BBB)... “There’s no negotiations going on at this time,” Sen. Joe Manchin (D-W.V.) said Tuesday afternoon, disputing some prior reports that negotiations were taking place. Nevertheless, Democrats and Biden said they planned to work with Manchin to negotiate a bill he will approve, but nothing is happening so far, Manchin said. “I’ve never turned down talks with anybody,” Manchin told reporters. “I was very clear on where I stand, and I thought it was time to do that.” Manchin said he’s never altered his opposition to the bill after months of negotiating with Democrats and the White House. “But to just continue on and on as we have for five-and-a-half months, I haven’t changed from the first day I talked to leadership. Everyone’s been working I think in the best good faith they possibly can. I’ve just had a very difficult time and understanding where we are and where our country is and the concerns I have.” Manchin cited the nation’s high inflation rate and unemployment numbers as well as global geopolitical unrest as more pressing concerns for the White House.
Later Tuesday, Senate Majority Leader Chuck Schumer (D-N.Y.) said the pair talked at least briefly about the BBB bill while the Senate was on its holiday break. “I talked to Sen. Manchin numerous times during the break,” Schumer told reporters. “Most of the discussions were on voting rights, but we did touch on BBB and I believe the Biden administration will be having discussions with Manchin with his cooperation and participation on BBB as we move forward.” Biden and Manchin spoke about two weeks ago, White House press secretary Jen Psaki said Tuesday, but she did not say whether they planned additional talks.
Bottom line: Senate Democrats are putting the BBB plan on ice with negotiations stalled. However, Manchin said it’s likely Democrats will have an easier time coming to an agreement on climate change than on other areas of President Biden’s proposed climate and social spending bill. “The climate thing is one that we probably can come to an agreement much easier than anything else,” he told reporters. Asked about the climate provisions, he said, “There’s a lot of good things in there.”
Manchin meets with Schumer, others re: filibuster... Manchin met Tuesday evening with Schumer and several other Senate Democrats about getting rid of the filibuster to pass an election overhaul package. When he left the session in Schumer’s office, Manchin said the “filibuster needs to stay in place any way, shape or form that we can do it.” However, Manchin outlined a few areas in the Senate rules he’s willing to change, noting he is willing to get rid of the cloture vote on the motion to proceed to a bill — this would allow more bills to come to the floor for debate.
Current bird flu has higher risk of spread to humans... Due to the high number of variants of the bird flu in Asia and Europe, there is a higher risk for it to spread to humans, according to the World Organization for Animal Health (OIE). However, any human outbreak will likely be contained.
“Eventually, the risk is that it mutates or that it mixes with a human flu virus that can be transmitted between humans then suddenly it takes on a new dimension,” said OIE Director General Monique Eloit told Reuters.
Fifteen countries had reported bird flu outbreaks in poultry between October and the end of December, mostly the H5N1 strain. Italy was the worst hit in Europe with 285 outbreaks and nearly four million birds culled.
In the past, various strains including H5N1 and H5N6 have infected people.
Most countries had learned to contain outbreaks and transmissions to humans would be sporadic as bird flu is usually passed through close contact, Eloit stressed.
