Perspective: Morning Commentary for April 4

By: Arlan Suderman, Chief Commodities Economist

Thu, 04 Apr 2024, 12:50

Perspective: Morning Commentary

Arlan Suderman

Chief Commodities Economist

Guest Commentary by Matt Zeller, Senior Market Intelligence Analyst

April 4 – Federal Reserve Chairman Jerome Powell yesterday in comments to Stanford’s Business School said that the Fed’s inflation fight was “not yet done”, and that the central bank needs “greater confidence” that prices are pulling back before cutting rates. He reiterated their 2% inflation target – a number that has not yet been reached as inflation readings remain sticky, and the economy and jobs market remain strong. Fed officials seem to be in alignment with no hurry to cut interest rates in the coming months, but still pointing towards 2-3 reductions in the latter half of 2024. The CME’s FedWatch tool still shows the trade optimistic for the first rate cut in June or July, and at least one more in September, November, or December.

The Dow Jones is set to rebound today after three straight losing sessions, with trade fears over steady or even higher interest rates somewhat soothed by Fed Chair Powell’s speech yesterday, still setting the table for interest rate cuts later this calendar year. The 10-year Treasury yield edged higher to 4.37%, while the U.S. dollar extended losses after nearly a five-month high for the USD index on Tuesday, and the VIX retreated after a spike yesterday.

Initial jobless claims for the week ending March 30 came in at 221,000, above the average trade estimate of 214k, with the week prior revised up from 210k to 212k as well. Continuing claims for the week ending March 23 came in at 1791k, below the average 1811k trade guess, with the week prior revised lower from 1819k to 1810k as well. The initial claims figure is the highest since January and is consistent with a recent uptick in job cuts, but the U.S. labor market remains fairly resilient overall in the face of elevated interest rates. Tomorrow’s payrolls numbers for March will be closely watched by the trade, expected to fall from 275k in Feb to 213k in March, while the unemployment rate is expected to tick lower from 3.9% to 3.8%.

The U.S. trade deficit continued to grow in February, now up to a $-68.9 billion as the value of imports exceeded the value of exports; that’s compared to $-67.6 bln both last month and as estimated for the current report. It’s the largest trade gap in nearly a year, and will likely shave at least half a percentage point from Q1 U.S. GDP…

The U.S. sold just 7.1 million bushels of soybeans on the week ending March 28, below already-pessimistic expectations and the lowest total in five weeks; more sales were shifted out of the “unknown” category than shifted into China’s bucket, a common occurrence as of late. Cumulative 2023/24 soybean sales stand at 1.490 billion bushels, now 338 mbu behind last year’s pace, with the USDA looking for just a 272-mbu entire-year bean export deficit. Seasonally, that’s 5% behind the pace needed to hit that current USDA mark. The government will likely have to shift more export demand into crush demand in coming monthly reports, with that latter metric running plenty robust. Good planting weather into mid-April is the focus of a bearish overall grain trade at this point.

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