April 10 – The Trump tariff war continues to shape sentiment on Wall Street, and around the world. We continue to see greater fear levels overseas than we do here in the States, which is understandable, and that’s not meant to understate the fear levels here in the States. As such, the big rebound in stocks late on Wednesday did not translate into follow-through buying overnight. The market initially rallied on the release of this morning’s inflation and weekly jobless claim numbers, but then it chose to look at the data from a negative perspective, leading to more selling. The VIX is trading near 36 this morning, which is much better than the 60 we saw on Monday, but it is still above the psychological 30 level that tends to free up money a bit more. The dollar index is notably lower again this morning, trading near 101.6. Yields on 10-year Treasuries are trading near 4.32%, while yields on 2-year Treasuries are trading near 3.84%. Crude oil prices are trading near $60 per barrel this morning. While 4% lower on the session, it’s still nearly $5 above yesterday’s low. The grain and oilseed sector continues to be the one significant bright spot in the markets, pushing modestly higher overnight.
The headline inflation number this morning actually showed signs of deflation. The headline consumer price index fell 0.1% on the month in March, when analysts were expecting a 0.1% rise, following 0.2% gains in February. The headline CPI rose 2.4% year-on-year in March, down from analyst expectations of 2.6%, and down from 2.8% the previous month. Core CPI that excludes the more volatile food and energy sectors rose 0.1% on the month in March, down from expectations of 0.3%, and down from 0.2% the previous month. Core CPI rose 2.8% year-on-year in March, down from analyst expectations of 3.0%, and down from 3.1% the previous month. Energy prices were down 2.4% on the month, with gasoline prices down 6.3% and fuel oil down 4.2%. That was partially offset by a 3.6% gain in natural gas prices on the month. Medical care commodities fell 1.1% on the month, while transportation services were down 1.4%. Shelter costs rose by just 0.2% on the month, showing an ongoing slowing of inflation in that critical sector. Equity traders initially rallied stock values on the day, before selling off again as they focused on the negative month-on-month headline number, believing it to be an indicator of a possible coming recession.
First-time claims for unemployment benefits rose to 223K in the week ending April 5, up from 219K the previous week, but below analyst expectations of 225K. The four-week moving average remained unchanged at 223K. Continuing claims for the week ending March 29 fell by 43K to 1.850 million, with the four-week moving average slipping slightly to 1.868 million. Initial claims filed by former Federal civilian employees totaled 508 in the week ending March 29, which was down 56 from the previous week. There were 7,719 continuing claims by former Federal civilian employees in the week ending March 22, a decrease of 526 from the prior week. These numbers overall continue to show a stable workforce, although the market continues to anticipate seeing some deterioration in the weeks and months ahead.
The Dow Jones Industrial Average rallied a record one-day gain of 3,315 points at one point on Wednesday after President Trump announced a “pause” in his tariff program. He applauded the 75 countries that had come forth requesting to negotiate tariffs lower – some calling for zero tariffs – and rewarded them by lowering the tariffs for these 75 countries to the 10% baseline level that he established. However, he expressed frustration that China had “chose” to retaliate rather than to negotiate, raising the tariffs on it to 125%. The move led to a sharp rally in the equities and in the commodities as it eased recession fears. I previously stated that President Trump’s biggest challenge was to sustain sufficient support from the consumer while negotiating tariffs lower. By “pausing” the tariffs, he eased market concerns, allowing for the rally, which he then expects to ease consumer fears. The move rewards those nations that came forward to negotiate lower rates, while sending a message to those who were considering retaliation instead. Trade agreements are quite lengthy – often exceeding 1,000 pages in length. It takes time to do one agreement, let alone 75. This “pause” should help buy President Trump some time, but he’ll need to show significant progress soon – hopefully with an agreement with Japan and/or South Korea.
The Brazil farmer rewarded this week’s board and cash basis rally with active soybean sales. Week to date sales are estimated to be 3.3 million metric tons of old- and 1 mmt of new-crop. China was the primary buyer, purchasing an estimated 40 cargoes of Brazilian soybeans this week, with some putting the total closer to 50 cargoes. Soybeans landed at the port in China in May are priced more than 45 cents cheaper if they originate in Brazil than if they originate at the Gulf ports in New Orleans. So, Brazilian soybeans remain cheaper than U.S. origin soybeans, even without the retaliatory tariffs. The level of retaliatory tariffs are essentially meaningless currently for soybeans.
