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Democratic-led States Challenge Trump's Ability to Slash Grant Funding
Democratic state attorneys filed a suit on Tuesday, asking a court to declare that the Republican administration of President Donald Trump has been using a tool to cancel federal grant funding in an illegal manner. Attorneys general from 20 states, the District of Columbia and Pennsylvania joined forces with the governor of Pennsylvania to file a lawsuit in Boston Federal Court to challenge the administration's reliance upon a regulation that the White House Budget Office adopted during Trump’s first term which strengthened the agencies' ability to cancel grant awards. The White House Office of Management and Budget, in its 2020 regulation, states that federal agencies may terminate a grant when it no longer "accomplishes the program goals or agency priority." This language has been used by the Trump administration to cancel billions in federal funding for states and non-profits, as part of their efforts to reduce federal support for a variety of projects, such as those that it considers to be supporting diversity, inclusion, and climate change preparedness. Elon Musk, the billionaire who founded the Department of Government Efficiency (DGE), a major player in Trump's campaign to cut federal spending, was responsible for the DGE. States, nonprofits, and others have brought a variety of lawsuits to challenge these grant terminations. Last week, a Boston judge sided with Democratic states and declared that the termination of hundreds of grant applications by the National Institutes of Health because of their perceived connection to diversity-related issues was illegal. In court, the administration argued that it was within its rights to freeze and cancel grants which did not reflect new priorities of agencies following Trump's inauguration in January. The state attorneys general, however, argue that the Trump administration can't rely on OMB regulations to overrule the laws Congress passed appropriating grant funds. Letitia J. James, New York's Attorney General, said that Congress has the power to fund programs. The president can't cut billions of dollar of funding just because he does not like them. According to them, the regulations only allow agencies to terminate grants if additional evidence shows that it is ineffective for achieving program objectives. They asked the judge to declare that the rule prohibits termination of grants based on newly identified agency priorities after the grant has been awarded. The White House has not responded to a comment request. (Reporting and editing by Alexia Garamfalvi, Aurora Ellis and Nate Raymond from Boston)
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US cities record highest temperatures in heat wave
The oppressive heatwave that has been sweeping the United States since last week is expected to reach its worst on Tuesday. National Weather Service: Temperatures are expected to reach 101 degrees Fahrenheit in Washington and Boston, breaking previous records of up to 6 degrees. Central Park in New York City could see temperatures reach a record high of 99 F (37 C), exceeding the previous area high of 96. According to the NWS, there is the possibility of record heat in other parts across the Eastern U.S. including northern Georgia and the Carolinas. Bob Oravec is the lead forecaster for the National Weather Service, College Park, Maryland. He said that the Northeast is experiencing the most intense heat. Extreme heat in the Northeast is disrupting public transportation. Amtrak, the U.S. passenger rail company, has announced that it will have to reduce train speeds on Tuesday, between Washington and New York, and between Philadelphia to Harrisburg. This could cause delays. Construction companies are compensating for severe weather in order to keep their workers safe. Jeff Wagner, the communications manager for Fluor Construction, told reporters that the company provided cooling stations and heavy duty water bottles to more than 2,000 workers working on an Indiana pharmaceutical project. Wagner said that "we have safety meetings each morning. But knowing that this week was going to be exceptionally hot, we talked about hydration, and making sure employees are pacing themselves." Residents in New York City who wanted to vote in the primary elections were forced to endure scorching temperatures. Alex Antzoulatis (53), an accountant from Astoria in New York, said he regretted that he didn't vote by mail. He went to the polling place in 100-F heat because voting is his duty. "But the heat will keep many people away." Warm weather in the Plains of the U.S. and Canada has affected crops. The dry weather in June in Saskatchewan, Western Canada, where canola, wheat, and pulses are grown in large quantities, has affected newly-seeded plants. Bill Prybylski of Yorkton in Saskatchewan said that recent rains came too late. The damage was partially mitigated by the smokey air caused by wildfires which prevented direct sunlight from scorching crops. Oravec, at the NWS, said that temperatures would begin to drop on Wednesday. "For example, the forecast for Thursday in New York calls for a high of 84 F and Friday is 75 F." (Reporting and editing by Sandra Maler; Additional reporting in New York by Maria Tsvetkova, Ed White in Winnipeg and Heather Schlitz, Chicago.
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After Israel-Iran truce, UK midcaps are lifted by travel stocks
Travel stocks led the UK's midcaps on Tuesday as investors were encouraged by signs of eased tensions in Middle East, and a positive forecast from Carnival Cruise Lines. The domestically oriented FTSE 250 rose 1%, reaching a record high of more than a week. Carnival's UK listed shares rose 11.8%, outpacing gains in the midcap index. raised Its annual profit forecast was higher than expected and it beat the second-quarter earnings estimate. The FTSE 350 Travel & Leisure index rose 3.6% after U.S. president Donald Trump announced Israel and Iran reached a 12-day-old ceasefire. Both sides accuse each other Violations The truce was declared on Tuesday. There was relief, however, that a way out of the war had been mapped out. Prices of oil fell 5% as the expectation that the ceasefire would reduce the risk for disruptions in the supply of crude oil. BP and Shell, two British oil companies, fell by 4.8% and 3.8% respectively, weighing on the FTSE 100. The exporter-heavy Index closed flat. It was also affected by the 0.6% increase in the Pound. Data from Kantar, a market research firm, showed that the inflation rate for British groceries rose to 4,7% in the four weeks ending June 15, reaching its highest level since last February. This is a blow to low-income households. Andrew Bailey, Governor of the Bank of England, said that there are now signs of a softening of Britain's labor market. He also reiterated his belief that interest rates will continue to fall. This month, the BoE held interest rates at 4.25%. The markets are pricing in that the central banks will reduce borrowing costs by approximately 50 basis points before the end of the year. SThree, among other stocks, rose 7.4%, after the recruiter reported that improving contractual hiring on the U.S., its second largest market, helped slow down a decline in fees and maintain its profit target. Reporting by Twesha Dhikshit and Sruthi Shankar; Editing and production by Shailesh Kuber and Joe Bavier
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Britain, Kenya and Singapore lead a campaign to increase company demand for carbon credits
Britain, Kenya, and Singapore launched a coalition to encourage companies to purchase carbon credits. The guidelines are aimed at buyers. Carbon market experts describe this as the strongest policy support for such markets yet. Carbon market proponents have been trying to create a market to buy and sell credits that companies can use to offset their emission for decades. Corporate buyers are still hesitant despite the fact that nations agreed on a U.N. backed system at the COP29 conference in Baku. On Tuesday, Britain, France Kenya, Singapore, and Panama announced their intention to reach an agreement on a set of basic principles for business by the COP30 conference in Brazil, in November. This is to encourage demand for a new product that can channel billions in climate finance into countries in need. Ravi Menon is Singapore's Ambassador for Climate Action and one of the first signatories of the coalition. He said that carbon markets were a key lever to unlocking climate action but that buyers lack confidence in the market due to evidence of malpractices at certain projects. He said that the challenge was on the demand-side. Corporates are less willing to purchase credits because of risks associated with greenwashing. Bill Winters said that in the absence of taxation or government regulation, companies must have a reason for "doing the right thing." He said, "Our owners no longer want us to be involved in anything which doesn't generate money." "We must reestablish a virtuous cycle that does not work today." The rules for the use of carbon credits by companies are still not clearly defined. Even the main arbiter in corporate climate action is still consulting about how to use them. Menon said, "Standard setting bodies have done an excellent job. But there is nothing like government." According to Abatable data, the total number of credit cards used annually by buyers has remained around 160 million, even though the number has decreased. Kerry McCarthy, Britain’s climate minister, stated that the coalition wants to send "strong signals" on businesses' use of carbon credits.
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Former US nuclear regulators condemn Trump's firing NRC commissioner
On Tuesday, nearly 30 former employees and officials at the U.S. Nuclear Power Regulator criticized President Donald Trump for firing a commissioner from the independent agency. They said that the action placed politics above safety and public health. Why it's Important The firing of Chris Hanson this month, a Democrat at the five member Nuclear Regulatory Commission, followed Trump's Executive Orders on accelerating the Agency's reactor approvals, as artificial intelligence (AI) and data centers are driving the first increase in U.S. energy demand in 20 years. These orders also included efforts to restructure NRC and evaluate its staffing levels. Experts in nuclear power are opposing the efforts of the administration to increase its political influence on the commission. In recent decades, the nuclear industry has experienced several accidents including Three Mile Island (1979). The NRC is evaluating a variety of designs of new types of nuclear reactors, which supporters claim are safe. KEY QUOTES The authors of the letter sent to the remaining four NRC commissioners as well as to legislators said that "succumbing" to politics and giving up the NRC's autonomy would only decrease the effectiveness of nuclear regulations in the United States and around the globe, and increase the risk of an expensive accident. The signees of the letter, which included Stephen Burns, former NRC Chairman, wrote: "This action threatens the independence of NRC, as it raises a spectre of political considerations having greater weight than the public health and safety." Edwin Lyman, of the Union of Concerned Scientists said: "The Trump Administration's brazen effort to assume total control of NRC is irreparably harming the agency's reputation as a regulator both at home and abroad and poses a grave threat to public security and safety." REACTION Harrison Fields, White House spokesperson, said that Trump was "committed" to modernizing nuclear regulation, streamlining regulatory obstacles, and reforming Nuclear Regulatory Commission, while prioritizing both safety and resilience. The NRC didn't immediately respond to our request for a comment. (Reporting and Editing by Marguerita Chy)
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Steel imports to be subjected to tougher restrictions than anticipated
The British government will impose trade limits on steel that are more restrictive than anticipated, restricting imports from Vietnam and South Korea, as well as Algeria, to protect its domestic supply against the effects of a trade war. Britain is trying to protect its domestic steel industry from an oversupply in the global market. It has taken a number of measures to help it. These include negotiating the removal U.S. Tariffs, which are yet to take full effect, and taking control of British Steel, to stop it from closing down. The global trade upheaval caused by Trump's tariffs, and the fragile state of the steel industry has increased the scrutiny on Britain's trade defense regime. UK Steel, an industry body, had stated that the Trade Remedies Authority's (TRA) proposed measures in May to cap the amount of certain types of steel that could be imported. The levels of these caps were too high. The trade minister Jonathan Reynolds sent a letter to the TRA on Tuesday, stating that he would "reject the recommendations and take a different decisions" by opting for lower caps. These are due to be in force as of July 1. The letter read by us stated that the reason was to balance the need for supply security for the UK market with the effectiveness of steel safeguard measures in the UK. The TRA recommended initially that three categories of metal - UK imports dominated by Vietnam and South Korea, respectively - be subjected to caps. This means that each country could only supply 40% the remaining quota. Imports above that amount will be subjected to a 25% duty. Reynolds stated that the cap will be set at 20% for the categories of steel dominated primarily by Vietnam, and 15% for the categories dominated primarily by Korea and Algeria. This would limit the amount of steel these countries could import to Britain. UK Steel Director Gareth Stace called it a "tremendous result" and said that Reynolds' commitment to the steel industry was demonstrated. The measures will prevent the UK from being swamped by countries that flood the international market with cheap, unsustainable steel and drive our steel producers out of business. Reynolds wrote that the decision will be confirmed after World Trade Organization members have shared their views. Reporting by Alistair Smout, Editing by Topra Chopra
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New Barbados bond bolsters push for disaster debt pause clauses
Barbados issued a bond to help pay off its IMF loan, and free up some money. It also gives it two years fiscal breathing room if the country is hit by severe hurricanes, floods, or even an epidemic of COVID proportions. If it is well received, this could set a precedent for normalising the so-called climate resilient clauses in debt that have been lukewarmly accepted since they were introduced in recent years due to a perception that they might increase borrowing costs. Barbados' $500 million bond replaced an existing one. It is the first international bond of a "benchmark" size to include the climate and pandemic clauses. Most other examples are the result of debt swaps or restructurations. The debt was offered with an 8% discount, which, after adjusting for the modest difference between the maturity dates, was slightly below the 8.25% that Bahamas, the Caribbean counterpart, sold a bond last week. However, Bahamas' bond did not have payment deferral. White Oak Advisory managing Director Sebastian Espinosa advised Barbados and said: "This should put an end to the debate about whether the market would demand a premium if these clauses were included." The feedback we received confirms the fact that investors see these clauses in a practical way to deal with rising climate risks. This fits in with a larger push by Barbados Prime Minister Mia Mottley, and other world leaders from developing countries to try to avoid climate change pushing more vulnerable nations into debt crises. The Spanish government is also promoting them as part of the U.N. Development Finance Conference in Seville, next week. A number of top banks are expected to announce that they will offer them automatically in many of their loan products. The Barbados buyback is expected to release around $370 million from now until 2029. It will also help Barbados prepay some IMF loans, so that it can reduce borrowing and the surcharges currently paid to the Fund. (Reporting and editing by Alexandra Hudson.)
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Senior military official: Houthis in Yemen are likely to pose a persistent problem for the US
A senior U.S. official stated on Tuesday that Yemen's Iran aligned Houthi group will be a persistent issue for the U.S. even after Washington reached an agreement with the Houthis last month, ending a U.S. aerial campaign against the group. Air Force Lieutenant-General Alexus Grynkewich told lawmakers that the Houthis will likely be a persistent issue... with which we'll have to deal in the future. Grynkewich was nominated as the new commander of U.S. Military's European Command. Last month, Donald Trump announced that the U.S. was ceasing to bomb the Houthis who were firing on U.S. warships, as well as commercial vessels, off Yemen's coastline. Under the agreement, the group that had claimed to be acting in solidarity for Palestinians during Israel’s military campaign against Gaza stopped firing on U.S. vessels. During the U.S. bombing of Yemen, which lasted for nearly two months, rights groups expressed concern about civilian casualties. The Houthis warned last week that they would target U.S. vessels in the Red Sea again if Washington joined Israeli attacks against Iran. They haven't resumed their attacks despite the fact that the U.S. bombed three Iranian nuclear sites over the weekend. Trump announced a ceasefire agreement between Israel and Iran on Monday. Reporting by Phil Stewart, Idrees Al-Il; Editing by David Gregorio
McGeever: Bowman's turn and oil plunge challenges Fed's hawkish stance
In recent years, the financial markets have consistently underestimated the Federal Reserve’s willingness to reduce interest rates. The latest Fed talk, softer economic data and the dramatic drop in oil prices could indicate that they are right this time. Last week, the central bank appeared to snuff out traders' hopes of a dovish steering. The Fed's summary economic projections maintained its median "dot plot" projection of two rate cuts of 25 basis points this year. It was a close call and the Fed lowered its 2026 forecast from two rate cuts to just one.
In the days following, it was widely believed that the hawkish stance of policymakers reflected their desire to anchor inflation expectations. The traders' expectations for rate reductions this year dropped to less than 50 basis points.
This reading may be premature.
First, the fear of rising energy costs due to conflict in Middle East has disappeared. Oil prices have fallen back to their previous levels, despite the fact that they rose by as much as 17 percent in the days following the Israel-Iran conflict on June 13. The price of oil is falling and, late Monday night, U.S. president Donald Trump announced the two countries had reached a ceasefire.
The Fed has made a number of dovish remarks in the past few days, and they are not only from the usual suspects. This suggests that the U.S. Central Bank may be closer than previously thought to lowering rates.
NEGATIVE SURPRISE
It is not impossible to justify a more dovish approach.
Fundamentally, the U.S. economy is deteriorating. Citi's U.S. Economic Surprises Index has been declining since the end May, and is now a negative number. This means that economic data are underperforming expectations. It fell to its lowest level since September of last year.
It is important to be cautious when analyzing the economic surprise indexes following significant movements, because initial expectations could have been overly pessimistic. The current shift is a valid red flag.
We look at the surprise factor and how it compares to consensus expectations. Citi's Stuart Kaiser points out that both have fallen into negative territory. The 'hard activity data' index is also now negative.
What is 180 DEGREE Turn?
Michelle Bowman, Fed Vice Chair of Supervision, surprised investors by saying that she would vote for a rate reduction as early as July if the inflation pressures remained contained.
Bowman's remarks are important. She hasn't spoken about the economy for over two months. In March, she said that the labor market would be a more significant factor in policymaking.
Since her appointment as Fed governor in 2018, she has been consistently one of the most hawkish members on the Federal Open Market Committee.
The move came after Governor Christopher Waller said on Friday that a rate reduction next month was on the table. Waller is one of the FOMC’s most dovish members. This is not surprising. But traders and investors should take note if a FOMC hawk such as Bowman now sings from the same hymnal.
Cynics might question the timing of Bowman’s apparent 180-degree turnaround, which comes just as Trump intensifies his attacks against Fed Chair Jerome Powell over not reducing interest rates. There's no evidence that political pressure was at work.
The recent drop in oil prices will also help her case. It fell 7% on Monday, the largest drop in three years. It was more impressive when you consider that it opened the day at 6% and reached a five-month peak in response to Saturday's U.S. nuclear bombing.
The price of crude oil did not increase on an annual basis following Israel's initial strike against Iran on June 13. Oil prices have been falling since January and are down by 20% on a year-over-year basis. It's not energy prices that are causing inflation to be sticky.
Waller - and Bowman - will love this.
It is possible that traders are not overestimating the Fed’s willingness to reduce rates this time. They could be on the right track with their bets that 125 bps will be eased by the end next year.
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(source: Reuters)