December 2 – Stock futures were quietly mixed overnight, with the start of a new month focused on holiday spending assessments and jobs. Analysts believe that we had a good holiday spending weekend, but they will be looking for the proof of that in the data. Meanwhile, we are scheduled to get the JOLTS report tomorrow, the ADP employment report on Wednesday, the Challenger job-cut and weekly jobless claims reports on Thursday, and the government’s monthly jobs report on Friday, all of which will help set the tone for the Federal Reserve’s next policy meeting in two weeks. The VIX is trading near 14 this morning, reflecting relative calm on Wall Street, while the dollar index is notably higher again at 106.3 as the euro sinks on fears of possible government collapse in France that would stall efforts to solve its growing budget deficit. Yields on 10-year Treasuries are trading near 4.23%, while yields on 2-year Treasuries are trading near 4.22%. Crude oil prices are bouncing off Friday’s low near $68 – an area that has seen value buyers in the past – while grain and oilseed prices started the new month mostly lower.
President-Elect Donald Trump continues to make headlines, even though he won’t be in office until January 20th. His cabinet appointments demonstrate the direction that he wishes his policies to take, and one can argue that he’s already starting to implement policy with his statements. Wall Street took note of last week’s threat to use his executive powers on day #1 of his second term in office to put 25% tariffs on Canada and Mexico and 10% tariffs on all goods coming from China until illegal immigrants and drugs stop flowing across our borders. The threat got an immediate phone call from Canadian Prime Minister Justin Trudeau, that was followed by a dinner meeting between the two in Florida over the weekend. There’s a real possibility that differences between Trump and Trudeau will be worked out by January 20th. Trump’s tariff threat also triggered a call from Mexican President Claudia Sheinbaum that resulted in a dialogue on the issues. Sheinbaum, as a newly elected president, needed to look tough when talking to Trump, but there’s also a chance that an agreement can quickly be reached between her and Trump early next year as well. It will likely take more time to work things out with China, but China can ill-afford to escalate a trade war with the United States with its current weak economy.
Trump escalated the issue with China a bit more over the weekend. President Xi Jinping believes that the United States reached its point of economic and military strength in the world because the U.S. dollar has been the global currency of choice since World War II. He would like to topple the dollar from that position. Xi has worked to implement his strategy through BRICS and countries participating in his Belt and Road Initiative. Trump threatened over the weekend to put 100% tariffs on goods flowing from the nine member countries of BRICS if the bloc takes action to create a currency to replace the U.S. dollar. Like the above, the threat of a 100% tariff is likely meant to create conditions for negotiations. However, Trudeau and Sheinbaum were quick to get on the phone with Trump following last week’s threats, because they saw his willingness to follow through on his threats in his first presidency. The question then is, how will Xi respond regarding this weekend’s threats that were clearly targeting his efforts in China. Trump also threatened to impose 271.2% tariffs on solar products imported from four Southeast Asian countries, based on a U.S. Commerce Department finding that 80% of the companies behind the products from those four countries are Chinese companies.
Ukraine President Volodymyr Zelensky reportedly stated over the weekend that he is willing to cede some land taken by Russia in order to get peace. But his comments also seem to suggest that he would insist on keeping Russian territory in Kursk that Ukraine invaded this fall. I stated at the time that I felt that the move into Kursk was an attempt on Zelensky’s part to get bargaining chips ahead of Trump-forced pace talks. Trump stated during the campaign that he would very quickly bring the Ukraine war to an end. Russian President Vladimir Putin has insisted that any peace talks must recognize captured territory as his own. Zelensky made a move to have a bargaining chip of his own. Now we wait to see how Trump brings them to the table. Either way, it provides further evidence that some sort of ceasefire or peace agreement may be on the horizon for the Black Sea Region.
Export quotas for Russian wheat were set at 11 million metric tonnes for mid-February through June, down from something closer to 28 mmt the previous year. This was in line with market expectations, with global demand met in the meantime by the Southern Hemisphere harvest. Nonetheless, it does emphasize tightening supplies among global exporters, especially if Russia has another short crop next year. Crops continue to look good in Brazil, while no significant problems are currently seen in Argentina either, although things lean to the dry side there. This month’s focus is largely on demand ahead of those South American supplies hitting the market, while traders also monitor negotiations around the above-mentioned tariff threats.
