China’s Central Bank Cut Rates for First Time in Two Years While Xi Comments on Crackdowns

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Brent crude at highest level since 2014 | Two-year Treasury yields above 1% first time since 2020


                                                In Today’s Digital Newspaper


Market Focus:
• Crude oil prices continue to rise, with Brent at highest mark since 2014
• Treasury yields rise on increased speculation of Federal rate hike in March
WSJ survey: Outlook for economic growth darkening amid latest wave of Covid-19
• Bank of Japan shifts view on inflation risk for first time since 2014
• Estimates of Brazil’s soybean crop keep being lowered
• Florida's orange expected to be smallest since World War II
• Underwater volcano in South Pacific erupted violently on Saturday

Policy Focus:
• Update on lingering policy issues

China Update:
• Xi defends crackdowns to ‘make the pie bigger’ and divide it fairly
• China’s central bank cut rates for first time in two years
• China’s economy is slowing
• China increasing Covid testing requirements
• China’s birth rate at historic low
• China: Rail-borne trade with North Korea restarted

Livestock, Food & Beverage Industry Update:
• USDA reports confirmation of HPAI in wild bird in South Carolina
• Vilsack writes letter to WSJ re: meat inflation editorial

Coronavirus Update:
• Fourth dose of the Pfizer-BioNTech vaccine insufficient to prevent infection with Omicron
• Americans can begin ordering free at-home rapid Covid-19 tests Jan. 19

Politics & Elections:
• GOP Rep. Katko not running for re-election
• Ohio’s Supreme Court struck down state’s new congressional district map

Other Items of Note:
• North Korea fired two short-range ballistic missiles off its east coast on Monday



Note: Today’s dispatch is a modified version as I’m off on a very early flight to Costa Rica.

Equities today: European stocks are pointing down with U.S. futures. Another round of big banks will report their fourth-quarter results, including Goldman Sachs Group Inc. and Truist Financial Corp. Bank of America Corp. and Morgan Stanley will report Wednesday morning. In some results thus far, JPMorgan's fourth-quarter profit fell 14% and Chief Financial Officer Jeremy Barnum warned that the bank will likely miss a key profit target in the next two years. Citigroup profit declined 26% year over year. Wells Fargo & Co., meanwhile, saw its profit jump 86% in the fourth quarter, to $5.8 billion from $3.09 billion, a rise aided by the sale of its corporate trust and asset management businesses.

     U.S. equities Friday: The Dow ended with losses while the S&P 500 and Nasdaq moved into positive territory later in the session and finished higher. The Dow was down 201.81 points, 0.56%, at 35,911.81. The Nasdaq rose 86.94 points, 0.59%, at 14,893.75. The S&P 500 was up 3.82 points, 0.08%, at 4,662.85.

     For the week, the Dow lost 0.9% while the S&P 500 and Nasdaq were 0.3% lower.

     For the year so far in 2022, the Dow has slipped 1.2%, versus a 2.2% decline for the S&P 500 and 4.8% for the Nasdaq.

     Stocks 011422

Outlook for economic growth in the first quarter and 2022 is darkening amid the latest wave of Covid-19, as consumers grapple with high inflation and businesses juggle labor and production disruptions. Forecasters surveyed by the Wall Street Journal this month slashed their expectation for growth in the first quarter by more than a percentage point, to a 3% annual rate from their forecast of 4.2% in the October survey (link for details). The combination of higher inflation, supply-chain constraints and the fast-spreading Omicron variant caused economists to trim their forecast for growth to 3.3% for the current year as a whole, based on the change in inflation-adjusted gross domestic product in the fourth quarter of 2022 from a year earlier, from 3.6% in October. Last year, output rose 5.2%, economists estimate.

     The current pandemic-related shortage of workers is expected to keep wages rising at an intense clip over the next few months, as employers offer higher pay packets to retain and hire staff. Economists expect average hourly earnings to be up 4.9% from a year earlier in June; they rose 4.7% in December.

     By the end of 2022, wage inflation is expected to cool slightly to a 4.5% year-over-year increase in average hourly earnings. Still, economists expect workers to reap annual wage increases of roughly 4% for the best part of the next two years. On average, survey respondents expect annual inflation to moderate to 5% in June, up substantially from the 3.4% they forecast in October, as measured by the consumer-price index. They expect it to cool further to 3.1% at the end of this year, up from last quarter’s forecast of 2.6%.

The Bank of Japan shifted its view on inflation risk for the first time since 2014, with price rises in food and energy. However, Japan’s central bank made no change to its monetary stance, opting to keep its negative interest rate, asset purchases and yield curve control policies unchanged. The BoJ revised its inflation projection upward from 0.9% to 1.1% for the fiscal year starting in April. The central bank, which said that a pick-up in Japan’s economy had become “evident,” also changed its price risk assessment from “skewed to the downside,” an expression that had been used since October 2014, to “generally balanced.”

Market perspectives:

     • Outside markets: Brent crude is at the highest since 2014 amid increased demand expectations and shrinking global oil inventories. Treasuries fell across the curve, with two-year yields soaring above 1% for the first time since 2020 on increased speculation of a Federal Reserve rate hike in March. Ten-year Treasury yields rose up to seven basis points to 1.85%, the highest since January 2020. Swaps markets are pricing in four 25 basis-point hikes within a year.

     • Commitments of Traders report (Source: Barron’s):


     • Estimates of Brazil’s soybean crop keep being lowered. Safras released a Brazil crop of 132 million tons. Last Wednesday, Ag Rural estimated a crop of 133 million tons.  USDA estimated Brazil at 138 million tons. Analysts say late-season exports from the U.S. are very likely to increase from late July to August until the size of South America becomes better known.

     • Florida's orange crop is expected to be the smallest since World War II. USDA said last week that it expects Florida to produce 44.5 million 90-pound boxes of oranges this year, trimming its already low expectations and predicting that the crop will wind up smaller than the one that was ruined by 2017’s Hurricane Irma. If the forecast is accurate, it will be the smallest harvest since 1945. The big culprit this time around, the Florida Department of Citrus said, is citrus greening, an incurable disease that thins the crowns of trees and saps their vitality. Spread by invasive tree lice, greening has plagued Florida’s groves since it was first detected there in 2005. In a report on Wednesday, the Agriculture Department said a lot more oranges than usual are on the ground, and the fruit that is being harvested is unusually small.  Link for details via the WSJ.


     • An underwater volcano in the South Pacific erupted violently on Saturday, causing tsunamis to hit Hawaii, Japan, and Tonga's largest island, Tongatapu -- sending waves flooding into the capital.

     • NWS weather: Major winter storm begins to exit the Northeast; blustery conditions continue with lake-effect snows... ...Snow spreading across the upper Midwest to the Great Lakes on Tuesday ahead of an Alberta clipper... ...Snow spreading into the northern Rockies/High Plains followed by arctic air intrusion down the Plains on Wednesday...

        NWS 011822


 Quick update on key policy issues:

  • Build Back Better (BBB): The most likely effort ahead will be pulling out the climate change language and perhaps a few other items to get the votes of centrist Sens. Joe Manchin (D-W.Va.) and Kyrsten Sinema (D-Ariz.).
  • Fiscal Year 2022 funding: The current stopgap spending measure expires Feb. 18, with most signaling another short-term continuing resolution (CR) is likely to give lawmakers still more time they have been able to use before to reach agreement.
  • Covid aid: The White House is readying a Covid supplemental spending bill while some Democratic lawmakers are expected to push additional targeted aid for some sectors still reeling, including restaurants, bars and other businesses.
  • Elections reform: The partisan Democratic approach to the topic needs but does not have the votes of two centrist Democrats (Manchin and Sinema) to modify the filibuster in order to get one of two proposed measures through the Senate.



— Xi defends crackdowns to ‘make the pie bigger’ and divide it fairly. China’s “common prosperity” drive is not a pursuit of egalitarianism, President Xi Jinping said in a defense of the policy that rattled markets and China watchers last year. Xi was speaking via video link at the World Economic Forum’s annual meeting. being held online this year, rather than at the Swiss resort of Davos. “The common prosperity we desire is not egalitarianism,” Xi said. “We will first make the pie bigger and then divide it properly through reasonable institutional arrangements. As a rising tide lifts all boats, everyone will get a fair share from development, and development gains will benefit all our people in a more substantial and equitable way.”

     China is facing criticism for eroding democratic freedoms in Hong Kong, mistreating the Uyghurs of Xinjiang and posturing expansively in military affairs. In response, Beijing regularly rebukes the U.S. and its allies and partners for interfering with China’s domestic interests.

     The Chinese Communist party, pushed by Xi, has been reshaping the country’s business and cultural landscape via a months-long series of crackdowns, targeting industries including fintech, education and entertainment as well as celebrity culture, gaming and effeminate fashion trends. The moves, which have wiped billions of dollars from Chinese and foreign investors, have sparked international debate over the political and economic motives of the policy, and made the future of investing in China uncertain.

     Xi tried to ease some concerns, insisting China remained committed to being open to foreign business. “All types of capital are welcome to operate in China, in compliance with laws and regulations, and play a positive role for the development of a country.”

     Regarding the global economy, the Chinese president warned of “serious negative spillovers” if “major economies slam on the brakes or take a U-turn in monetary policies” as they deal with accelerating inflation. Developing countries would also “bear the brunt” of the changes. “The global low-inflation environment has notably changed, and the risks of inflation driven by multiple factors are surfacing,” he added.

— China’s central bank cut rates for the first time in two years. On Monday the People’s Bank of China also announced a 0.1 percentage point cut to two of its key policy rates. It acted after GDP grew by more than 8% in 2021, but slowed down in the fourth quarter, with growth of just 4% compared to the same period in 2020. Economists believe Beijing will enact more easing measures in the coming months in a bid to defend what they expect will be a bottom line of 5% economic growth in 2022. The government will formally release its annual growth target in March. Wei Yao, chief China economist at Société Générale, said new easing measures, including attempts to stimulate infrastructure spending and consumption, could come as early as annual legislative meetings set for March.

— China is increasing its testing requirement and mandating that all travelers headed to Beijing receive a Covid-19 test within 72 hours of arrival. The new rule took effect on Sunday and will last through the end of March. The Beijing Olympic Games are set to start on Feb. 4. The previous directive mandated travelers to be tested for the virus within 48 hours of their departure for Beijing. Meanwhile, tickets for the Beijing Winter Olympics Games will not be sold to the public and only selected spectators will be invited to attend on supervised trips, event organizers said on Monday.

— Births plummet in China as population growth stalls. After China's once-in-a-decade census had already corrected the number of births in the country downwards considerably in 2020, the latest release from the National Statistics Bureau of China (NBS) shows that in 2021, even fewer babies were born in the country. The statistic only counted 10.62 million births in 2021, down from twelve million in 2020. Meanwhile, China's population stagnated at around 1.41 billion people. The country's fertility rate stood at 1.3 children per woman in 2020. It has been below the 2.1 threshold necessary for a stable population since the 1990s. Despite the early warning signs, China only scrapped its long-standing one-child policy in 2016, as fear of overpopulation gave way to fear of aging societies. Ning Jizhe, head of the NBS, attributed the falling fertility rate to China's economic and social development. Countries tend to experience lower birth rates in line with economic development as increased education access and concentration on careers become new priorities for the population. That is certainly the case elsewhere in Asia, particularly in Japan and South Korea where birth rates have fallen to new lows. The situation is especially concerning in South Korea where there were more deaths than births last year. (Source: Statista)

     China births

— China says rail-borne trade with North Korea has restarted. China says trade via a railroad link with North Korea has restarted, giving a much-needed boost to Kim Jong Un’s battered economy as the neighbors restored a service Pyongyang cut about a year and a half ago due to pandemic fears. Link for details via Bloomberg.



— USDA reports confirmation of HPAI in wild bird in South Carolina. USDA’s Animal and Plant Health Inspection Service (APHIS) announced Friday (Jan. 14) that they have confirmed highly pathogenic Eurasian H5 avian influenza (HPAI) in a wild American wigeon in Colleton County, South Carolina. There has not been a case of Eurasian H5 HPAI since 2016 in a wild bird in the U.S. There was a case of HPAI (H7N3) in one commercial meat turkey flock in 2020 due to a North American lineage virus, APHIS said. The agency is determining the exact strain of the virus and expects results in the next few days. Eurasian H5 is considered low risk for humans, but dangerous for the poultry industry. "So far we have no indication that HPAI has jumped from wild migratory birds to poultry and we'd very much like to keep it that way," said Michael Neault, South Carolina's state veterinarian. The find in a wild bird had not generated any trade actions from global customers for U.S. poultry as of late Friday afternoon.

— Vilsack writes letter to WSJ re: meat inflation editorial. USDA Secretary Tom Vilsack wrote: “Regarding your editorial ‘Carving Up Biden’s Inflation Beef’ (Jan. 8): This isn’t about covering higher costs or a lack of product, as the editorial claims. From beef to pork to poultry, the industry is dominated by a small number of massive companies that use their leverage to extract as much profit as possible — and it isn’t trickling down to producers.

     “I’ve traveled the country and met with the hardworking ranchers and farmers that feed it. For example, I heard from producers in Iowa, where the beef packers are making $1,800 a head, while producers struggle. The challenge is not a lack of product; it is a lack of accessible options for producers to get their product to market at a fair price. This dynamic is harming Main Street, rural areas and Americans across the country.

     “Fifty years ago, ranchers got over 60 cents of every dollar a consumer spent on beef, compared with about 39 cents today. Hog farmers got 40 to 60 cents on each dollar spent 50 years ago, down to about 19 cents today.

     “This isn’t a new problem, but the pandemic made it worse and provided a new opportunity for large companies to leverage higher profits. In July 2021, President Biden signed an executive order to promote competition in the U.S. economy. Immediately after, the Agriculture Department got to work seeking input from producers on how to add capacity and competitors to the meat-processing bottleneck. Last week we announced the Action Plan for a Fairer, More Competitive, and More Resilient Meat and Poultry Supply Chain. We will not stand idle while these large companies use their market share to continue to overcharge consumers and set unfair prices for farmers and ranchers.”



— A fourth dose of the Pfizer-BioNTech vaccine was insufficient to prevent infection with the Omicron variant of Covid-19, according to preliminary data from a trial in Israel released Monday. Two weeks after the start of the trial of 154 medical personnel at the Sheba Medical Center in Tel Aviv, researchers found the vaccine successfully raised antibody levels, though that offered only a partial defense against Omicron.

— Americans can begin ordering free at-home rapid Covid-19 tests through a new gov’t website on Jan. 19, senior Biden administration officials said. Initially, orders will be limited to four tests per residential address. Tests will ship via first-class mail within 7-12 days of ordering, the officials said. The administration expects that timeline to shorten as the program ramps up, one of the officials said. The public will be able to order tests at


— GOP Katko not running for re-election. Rep. John Katko (R-N.Y.), one of ten Republicans who voted to impeach former President Donald Trump in 2021, announced he would retire from Congress at the end of his term. Katko is the ranking member on the Homeland Security committee and was poised to be chair if Republicans win back the House. Katko becomes the 14th House Republican to not seek re-election in 2022. Two other Republicans who voted to impeach Trump in 2021 — Reps. Adam Kinzinger (Ill.) and Anthony Gonzalez (Ohio) — are among those retiring. 

— Ohio’s Supreme Court struck down the state’s new congressional district map, saying it violated the state Constitution by favoring Republicans.



North Korea fired two short-range ballistic missiles off its east coast on Monday, its fourth weapons test in a month.


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