U.S. Inflation Eases More Than Expected in October on Falling Gasoline and Used Car Prices
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Johnson to consider two-step CR under suspension of the rules
— Equities today: Asian and European markets were mixed to firmer in overnight trading. U.S. Dow opened up around 355 points higher. In Asia, Japan +0.3%. Hong Kong -0.2%. China +0.3%. India closed. In Europe, at midday, London -0.4%. Paris +0.1%. Frankfurt +0.4%.
U.S. equities yesterday: U.S. stock indices ended narrowly mixed after a session saw all three trade in positive territory but the Dow was the only one able to end higher. The Dow was up 54.77 points, 0.16%, at 34,337.87. The Nasdaq lost 30.36 points, 0.22%, at 13,767.74. The S&P 500 fell 3.69 points, 0.08%, at 4,411.55.
— Analysts cut their projections for fourth-quarter earnings at companies in the S&P 500 by 3.9% in October, according to FactSet, more than twice the 10-year average of 1.8%. That marks the deepest reduction during the first month of a quarter in more than three years.
— Quotes of note:
- National debt warning. Former New York Fed President Bill Dudley suggests that the U.S. is on an unsustainable financial path, with interest payments on the national debt increasing by 87% in October compared to the previous year.
- “This is a long-overdue step by the justices.” — Sen. Sheldon Whitehouse (D-R.I.), after the Supreme Court issued its first-ever code of conduct Monday.
- “The peak season holiday hiring is nothing like it had been in previous years.” — Brian Devine, CEO of warehouse-staffing agency Ignite Industrial Professionals.
— Annual inflation rate in the U.S. slowed to 3.2% in October 2023 from 3.7% in both September and August, and below market forecasts of 3.3%.
Core inflation — which strips out volatile food and energy prices — was also slightly weaker than economists had predicted, dipping from 4.1% to 4.0% on a year on year basis. Core inflation rose by 0.2% month on month.
Energy costs dropped 4.5% (vs -0.5% in September), with gasoline declining 5.3%, utility (piped) gas service falling 15.8% and fuel oil sinking 21.4%.
Additionally, prices increased at softer rates for food (3.3% vs. 3.7%), shelter (6.7% vs. 7.2%) and new vehicles (1.9% vs. 2.5%) and continued to decline for used cars and trucks (-7.1%).
Prices rose faster for apparel (2.6% vs. 2.3%), medical care commodities (4.7% vs. 4.2%), and transportation services (9.2% vs. 9.1%)
Compared to September, the CPI was unchanged, the least in fifteen months, and below forecasts of a 0.1% rise, mainly due to lower gasoline prices.
— U.S. opens FY 2024 with slightly smaller monthly deficit. In October, the U.S. gov’t recorded a monthly deficit of $66.6 billion, which was slightly larger than anticipated but represented an improvement compared to the $88 billion deficit in October 2022. This improvement was due in part to a boost in gov’t receipts, reaching a record high of $403 billion. These increased receipts were partly attributed to tax payments from Californians who had deferred their tax bills due to severe late-winter storms.
On the expenditure side, government outlays also increased, reaching $470 billion, compared to $406 billion in the same month the previous year. Notably, interest payments on the national debt experienced a substantial surge, rising to $88.9 billion in October, up from $47.6 billion in the same month of the previous year.
Of note: It was the smallest October deficit since 2017.
— Retail supply chains are experiencing a shift in hiring trends, signaling a potential lack of holiday cheer this year. Compared to recent years when businesses struggled to hire seasonal workers for tasks like stocking shelves and handling year-end deliveries, there is now a reduced need for extra staff. According to Challenger, Gray & Christmas, the number of advertised seasonal job positions has reached its lowest point in a decade.
The National Retail Federation estimates that this year’s seasonal workforce will range between 345,000 and 445,000 workers, marking a potential decrease of up to 40% compared to the recent high in 2021.
In the logistics sector, companies such as United Parcel Service (UPS) and XPO are maintaining hiring at the same levels as last year, while others are bringing on fewer seasonal workers than in the previous year.
Labor Department data also reveals a 14.6% decrease in job openings in the warehousing, transport, and utilities sector in September compared to the same period the previous year.
Bottom line: These trends suggest a shift in hiring dynamics within retail supply chains during the holiday season.
— Outside markets: The U.S. dollar index was weaker, with the euro and British pound firmer against the greenback. The yield on the 10-year U.S. Treasury note was lower, trading around 4.62%, with a weaker tone in global government bond yields. Crude oil futures were little changed, with U.S. crude around $78.25 per barrel and Brent around $82.50 per barrel. Gold and silver futures were narrowly mixed ahead of CPI data, with gold weaker around $1,950 per troy ounce and silver firmer around $22.44 per troy ounce.
— The euro strengthened to $1.08, marking its highest level since early September. This surge was driven by investors selling off the U.S. dollar after data revealed that the U.S. inflation rate in October had slowed more than anticipated. Earlier, the euro had already gained ground due to better-than-expected German investor confidence in November, reaching positive territory for the first time since April. ECB President Christine Lagarde reaffirmed that interest rates would remain restrictive for several quarters. Additionally, a Bloomberg survey suggested the possibility of Eurozone inflation dipping below the ECB’s 2% target by early 2025, which is earlier than previously predicted. This could lead to an initial rate cut in June 2024, a shift from the previously expected date of September.
— Glencore Plc reached an agreement to acquire a majority stake of 77% in Teck Resources Ltd.’s coal business for $6.93 billion. This deal brings an end to a prolonged process and also paves the way for Glencore to eventually exit the coal business. Link to details via Bloomberg.
— California bridge fire could impact goods transit from ports. A fire deliberately set under Interstate 10 in Los Angeles has raised concerns about the transit of goods from the ports of Los Angeles and Long Beach. The extent of damage to the roadway is still being assessed, and it remains unclear whether it can be repaired or if a complete reconstruction will be necessary. While the fire has caused significant disruptions for commuters, there is also worry about its potential impact on the movement of goods.
Federal Highway Administrator Shailen Bhatt acknowledged that this situation won’t be quickly resolved, and it’s uncertain whether it will take weeks or months. Despite the challenges, the ports of Los Angeles and Long Beach are still operational, and goods are continuing to move. However, the removal of a section of the interstate, which typically handles 300,000 vehicles a day, is expected to have spillover effects. The priority is to expedite the reopening of the roadway to minimize impediments to the flow of goods.
— Australia’s ports face 30,000 container backlog after cyberattack. Australia’s ports, including those in Melbourne, Sydney, Brisbane, and Fremantle, are grappling with a backlog of 30,000 shipping containers following a cyberattack on DP World, which led to a temporary shutdown of operations.
— The Global Port Tracker estimates container imports into major U.S. ports fell 4.2% in October from the same month last year.
— Panama Canal is facing a significant challenge due to a lack of rainfall, resulting in the depletion of a crucial lake that supplies the canal. October marked the driest month since record-keeping began in 1950. This water shortage is leading to reduced traffic through the canal.
By February, it is expected that only 18 ships per day will be able to traverse the canal, which is roughly half the number from the previous year. This situation affects virtually every type of commodity and manufactured product, but it is particularly critical for the energy sector. In the previous year, nearly half of the goods, measured by weight, passing through the canal’s locks consisted of oil and gas-based products. These products include diesel, gasoline, and liquefied petroleum gas (LPG), and the global energy supply chain heavily relies on the canal for their transportation.
This issue becomes even more relevant as the U.S. is exporting propane, a type of LPG commonly used in barbecues and outdoor heaters, at record levels. In October, propane shipments reached a record of 2.1 million barrels per day, up significantly from an average of approximately 1.3 million barrels per day in 2022, as per data from the U.S. Energy Information Administration.
— USDA daily export sale: 101,745 MT corn to Mexico during 2023-2024 marketing year.
— Thailand’s cabinet approved a 56-billion-baht ($1.55 billion) aid package for rice producers, providing 1,000 baht for each rai of land (0.16 hectares) owned by farmers, up to a maximum of 20 rais. This financial assistance is designed to support approximately 4.68 million farmers and comes in addition to a previously approved loan program totaling 55 billion baht.
Additionally, the government has given the green light for a 10% increase in the domestic sugar price. This decision aims to assist sugarcane producers who are facing higher production costs. Thailand is the world’s second-largest sugar exporter and has experienced reduced sugar production this year due to drought conditions, resulting in an estimated production of 8 million metric tons (MMT). Out of this, 2.5 MMT will be used domestically, while 5.5 MMT is earmarked for export. In the previous year, Thai sugar exports amounted to 7.69 MMT.
— Raw sugar futures are currently trading at 27.6 cents per pound, remaining close to a 12-year high of 28 cents reached on Nov. 6. This surge in sugar prices is driven by concerns over supply from major producers.
India, the world’s second-largest sugar producer and exporter, has been facing droughts due to El Niño weather conditions, negatively impacting cane yields in key regions like Maharashtra and Karnataka. As a result, the Indian government has extended export restrictions indefinitely, raising the possibility of further reductions in export quotas, which had already reached 6 million tons in the previous marketing year.
Brazil, the world’s top sugar producer and exporter, is also facing bottlenecks in its ports, limiting the amount of sugar it can sell to foreign markets.
Furthermore, rising fuel costs have prompted cane crushers to prioritize more profitable ethanol production over raw sugar, further constraining the supply of sugar.
All these factors combined have contributed to the elevated sugar prices in the market.
— Johnson to consider two-step CR under suspension of the rules. Support for House Speaker Mike Johnson’s (R-La.) “two-step CR” (Continuing Resolution) was weak among House Republicans, leading to the decision to consider the bill under suspension of the rules. This process requires a two-thirds majority for passage, or 290 yes votes. Some 50 House Republicans are expected to vote against the CR, but the exact scale of opposition will become clearer after the GOP conference meeting today. House Minority Leader Hakeem Jeffries (D-N.Y.) and other senior Democrats are also cautious and want to consult with their party members before committing to this maneuver. While Democrats don’t love the GOP plan, they want to avoid a government shutdown.
Of note: One challenge for Johnson is the possibility that more Democrats may vote in favor of the bill than Republicans. This situation could have political repercussions for him.
The two-step: Under the two-track temporary compromise, the House would extend funding for military construction, veterans’ benefits, transportation, housing, urban development, agriculture, the Food and Drug Administration and energy and water programs through Jan. 19. Funding for all other federal operations, including defense, would expire on Feb. 2.
President Biden hasn’t said what he would do if the bill came to his desk. “I’m not going to make a judgment on what I’d veto or what I’d sign. Let’s wait and see what they come up with,” he said Monday.
Don’t forget: The CR measure includes a 2018 Farm Bill extension through September 2024 and funding for 21 “orphan” programs paid for via biorefinery programs.
— Schumer welcomes House Speaker Mike Johnson’s plan to avert government shutdown. Senate Majority Leader Chuck Schumer (D-N.Y.) on Monday said he is “pleased” with Speaker Mike Johnson’s (R-La.) plan to avoid a government shutdown. Schumer said Johnson’s “laddered” stopgap spending bill — which funds four bills through Jan. 19 and the remaining eight through Feb. 2 — is “far from perfect,” but indicated the “clean” measure provides a path to funding the government for the next two months. “For now, I am pleased that Speaker Johnson seems to be moving in our direction by advancing a CR that doesn’t include the highly partisan cuts that Democrats have warned against,” the Democratic leader said on the floor. “The Speaker’s proposal is far from perfect, but the most important thing is that it refrains from making steep cuts,” Schumer continued, adding that it is important that the deadline to fund defense items would come in February.
— Israeli troops reached at least one of the gates of Gaza’s largest hospital where Israel says Hamas conceals a major operations center, while medical staff reported deteriorating conditions inside. A lack of fuel and electricity has halted the hospital’s operations, making it “nearly a cemetery”, according to a spokesperson for the World Health Organization. Thousands of people are believed to be sheltering within the complex.
— Ukraine’s grain exports through the Black Sea corridor have reached nearly 4 million metric tons since it began operating in August, as reported by Ukrainian President Volodymyr Zelenskyy. He noted that the grain corridor is functioning well, and they are making positive progress.
Grain exports as of Nov. 6 in the 2023-24 marketing year have reached 9.8 million metric tons, according to data from the Ukrainian Agriculture Ministry, This represents a decrease from the 14.3 million metric tons exported at the same point in the previous 2022-23 marketing year.
— Payments made under the Emergency Relief Program (ERP) have seen a slight increase, reaching a total of $8.24 billion as of Nov. 12, up from the previous week’s total of $8.23 billion. Specifically, payments under ERP Phase 2 have risen to $788.02 million, distributed to 10,046 recipients, compared to $783.89 million distributed to 10,024 recipients in the previous week. There are no reported payments issued under the newly launched ERP 2022 program at this time.
— China to halt cotton reserve sales. China will stop auctioning cotton from state reserves from Nov. 15, according to an announcement posted by the China Cotton Reserves Management Company. China started selling state-owned cotton reserves in late July, with strong demand into early fall, though buyer interest has faded recently.
— Biden and Xi to announce agreement on fentanyl crackdown. President Joe Biden and Chinese President Xi Jinping are expected to announce an agreement to crack down on the manufacture and export of fentanyl. Under this deal, according to Bloomberg, China would take action against chemical companies involved in the production of fentanyl and its source materials. In return, the Biden administration would lift restrictions on China’s forensic police institute, which has faced allegations of human rights abuses.
This agreement, set to be announced during their meeting on the sidelines of the Asia-Pacific Economic Cooperation summit, is seen as a significant victory for President Biden, as voters consider the issue of fentanyl trafficking a priority for the 2024 election. Republicans have criticized the administration’s handling of fentanyl trafficking, making it a potential liability for Biden’s reelection prospects.
While the deal is viewed as a potential breakthrough, officials emphasize that stringent enforcement is crucial to producing results. The success of the agreement may also depend on the state of U.S./China relations, as any deterioration in ties could threaten its implementation.
Fentanyl, a synthetic opioid, has been a major contributor to the opioid crisis in the United States, often linked to overdose deaths. Mexican cartels frequently use Chinese components in the production of this drug. Overdose deaths related to synthetic opioids have surged in recent years, making it a pressing public health issue.
— White House postponed its announcement of the Indo-Pacific Economic Framework for Prosperity due to push back from Democratic lawmakers. Originally, the Biden administration intended to unveil the trade pact at an international gathering of Asia-Pacific leaders in San Francisco this week. However, concerns raised by Democratic lawmakers, particularly regarding worker protections, have led to the delay of the pact’s announcement. New York Times.
— Biden, AMLO to meet. President Biden and Mexican President Andrés Manuel López Obrador will discuss ongoing efforts to strengthen bilateral relations and “address issues of shared concern” during a meeting on Friday in San Francisco, said the White House.
ENERGY & CLIMATE CHANGE
— Boston pulls out of a pilot program to ban fossil fuels in buildings. More than three years after filing her Green New Deal plan for Boston as a mayoral candidate, Mayor Michelle Wu now says that the city will not be participating in a state program that allows 10 communities to ban fossil fuels in new buildings. Boston Globe.
— Biden administration extends arctic oil plan review amid criticism. The Interior Department is extending the public comment period on a proposal to impose new restrictions on oil development in the National Petroleum Reserve-Alaska. The Bureau of Land Management will now accept comments until Dec. 7, providing a total of 90 days for feedback instead of the originally planned 60. Additionally, the department emphasized that nation-to-nation consultation is not bound by the public comment period and can continue at any time. Proposed federal rules that are not finalized by late spring next year could face a higher risk of repeal under the Congressional Review Act.
— U.S. climate report warns of worsening crisis amid continued fossil fuel use. The Fifth National Climate Assessment, a federally mandated report released recently, highlights that the impacts of the climate crisis are being felt across the entire United States and are projected to worsen in the next decade if fossil fuel usage continues. While the report acknowledges a slow decrease in planet-warming pollution in the U.S., it emphasizes that this reduction is insufficient to meet the nation’s climate targets.
In response to the report, President Biden today is expected to announce over $6 billion in funding aimed at enhancing climate resilience. This funding will focus on strengthening the country’s electric grid, improving water infrastructure, reducing flood risks in communities, and advancing environmental justice initiatives.
— Exxon Mobil is diversifying its business by venturing into lithium mining, a sector that competes with traditional fossil fuel production. The energy giant has commenced lithium drilling operations in Arkansas, aiming to produce the mineral for use in electric vehicle (EV) batteries by 2027 and become a major supplier to EV manufacturers by 2030. This strategic move by Exxon is driven by its long-term vision for the rise of EVs and electrification in the transportation industry the Wall Street Journal reports.
However, Exxon’s entry into the lithium market comes at a challenging time. Lithium prices have dropped by more than 60% in the year through early October due to an influx of new supplies and a slowdown in the growth of EV sales. Despite this, Exxon anticipates that demand for internal combustion fuels in light-duty vehicles will peak around 2025. The company projects a nearly 25% increase in global EV sales and a fourfold increase in lithium demand by 2030, underscoring its commitment to positioning itself for the future of the automotive industry.
POLITICS & ELECTIONS
— Nate Silver, a prominent political statistician, has expressed skepticism about President Joe Biden’s ability to run for re-election in 2024. In a post on his Substack newsletter, Silver argued that if Biden cannot run a “normal” re-election campaign, he should consider stepping aside and allowing another Democratic candidate to take the lead. Silver’s concern is that if Biden struggles to maintain a typical campaign schedule or makes errors during the process, it could become a significant issue for both voters and the media, potentially hindering his candidacy. However, Biden’s campaign has dismissed Silver’s analysis.
— Former President Donald Trump is reportedly considering a mass detention and deportation strategy for undocumented immigrants if he were to regain power in 2024. These plans include apprehending undocumented immigrants already in the United States and placing them in detention facilities until deportation. Trump has indicated his intention to sign an executive order on the first day of a potential second term to stop funding for shelter and transportation for undocumented immigrants. Additionally, he has expressed a desire to reinstate several immigration policies from his first term, such as the travel ban on predominantly Muslim countries and reviving the Covid-era policy known as Title 42. These plans would likely face significant political and legal challenges.
OTHER ITEMS OF NOTE
— Supreme Court released its first-ever code of conduct, addressing concerns about the ethical standards for the justices. The 15-page document formalizes existing practices and aims to clarify that the justices are not exempt from ethics rules. Reports earlier this year revealed potential ethical issues involving some justices, leading to calls for a code of conduct. The Senate Judiciary Committee, led by Democrats, advanced legislation to tighten Supreme Court standards, but Republicans on the committee temporarily blocked efforts to subpoena individuals mentioned in the ethics stories.
Of note: This comes after months of news stories alleging that conservative Justices Clarence Thomas and Samuel Alito accepted lavish gifts and took part in other controversial off-bench activities. All nine judges signed the 14-page document, but it remains unclear who will enforce the self-imposed code.
— Syngenta has paid a $280,000 fine in Arkansas for failing to report ownership of a research farm within the state. Arkansas Attorney General Tim Griffin characterized this fine as a warning to other Chinese state-owned companies operating in Arkansas.
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