Daily Market Color July 24, 2018Markets Focus on Earnings, USDA Announces Farm Aid $12 Billion in Aid for Farms The escalating trade war seems highly likely to hurt American farmers, especially producers of soybeans. Agricultural goods have seen prices fall as the tariffs have decreased the number of markets where US products can be sold without additional tariffs. The federal government (through the US Department of Agriculture, USDA) is planning to deliver $12 billion in aid to those who are affected by the tariffs on US agricultural goods. The payments are set to begin by Labor Day ahead of the fall harvest and mid-term elections. The USDA issued a press release outlining three areas of support for farmers. These represent a mixture of payments to farmers, purchases of food for aid programs and help to promote US crop sales in new markets. The Market Facilitation Program, authorized under The Commodity Credit Corporation (CCC) Charter Act and administered by Farm Service Agency (FSA), will provide payments incrementally to producers of soybeans, sorghum, corn, wheat, cotton, dairy, and hogs. This support will help farmers manage disrupted markets, deal with surplus commodities, and expand and develop new markets at home and abroad. Additionally, the USDA will use CCC Charter Act and other authorities to implement a Food Purchase and Distribution Program through the Agricultural Marketing Service to purchase unexpected surplus of affected commodities such as fruits, nuts, rice, legumes, beef, pork and milk for distribution to food banks and other nutrition programs. Finally, the CCC will use its Charter Act authority for a Trade Promotion Program administered by the Foreign Agriculture Service (FAS) in conjunction with the private sector to assist in developing new export markets for our farm products. Several Republican Senators were critical of the plan: Sen. Jerry Moran (R-KS) “What is the endgame? What is it that gets us into, or keeps us in a [trade] agreement? And what gets us out of the ever-escalating tariff one-upsmanship?” Sen. Charles Grassley (R-IA) commented that the aid was: “encouraging for the short term. What farmers in Iowa and throughout rural America need in the long term are markets and opportunity, not government handouts.” Earnings Remain in Focus Equity markets were led higher today as markets continue to focus on earnings. Two of the three major indices posted gains on the day, with the DJIA leading the way (+0.79%) and the S&P 500 higher by 0.48%. However, the Nasdaq couldn’t quite finish the day in positive territory, falling a marginal 0.01%. Across the curve Treasury yields were mostly unchanged. The yield on the 10-year Treasury closed near 2.95%, almost unchanged on the day. In foreign exchange markets, the USD Dollar (USD) had another strong day as it gained 0.4% against the British Pound (GBP) and 0.05% against the Euro (EUR), although it was slightly lower again today (-0.1%) against the Japanese Yen (JPY). WTI crude futures settled higher, up (0.9%) on the day at a price of $68.48/barrel. This follows estimates that US crude stockpiles will decline by a further 3 million barrels when they are reported tomorrow. Manufacturing Sector Ticks Up According to the IHS Manufacturing PMI (Purchasing Managers Index), manufacturing ticked up one tenth from 55.4 in the month of June to 55.5 in the month of July, exceeding estimates of 55.1. The June number was revised upward from an initial reading of 54.6, but this is still a decrease from the highs in May and April. PMI though, continues to show the strength of the US manufacturing sector. The increases in new orders have been buoyed by domestic demand, which is helping to offset decreased demand from abroad as the trade war continues to effect exports. Employment and production volumes in the sector also showed gains in the current report.