June 1 – Wall Street cautiously waits for the U.S. Senate to vote on the debt ceiling bill, after it passed the House of Representatives last night, while also processing another round of economic data this morning. Yet, the VIX is trading near 17 at this hour, reflecting relative calm on Wall Street. The dollar index is trading near 104.0 in early trade. Yields on 10-year Treasuries are trading near 3.60%, while yields on 2-year Treasuries are trading near 4.38%. Crude oil prices are modestly lower in early trade, while solid gains are seen in the grain and oilseed markets to start the new month with a weaker dollar and new money flowing into these markets. Many commodities came off their lows yesterday as traders squared their books for the end of the month.
The private sector created 278K jobs in May, according to this morning’s ADP report. That far exceeded analyst expectations of 160K job creations during the month. The April numbers were revised to 291K jobs created, down slightly from the 296K originally reported. Other data showed that first-time claims for unemployment benefits rose only slightly to 232K for the week ending May 27, up from 230K the previous week, but below analyst expectations of 235K claims. This resulted in the four-week moving average slipping to 229.5K claims, down from 232K the previous week. Continuing claims for the week ending May 20 rose 6K to 1.795 million, essentially offsetting a downward revision of 5K for the previous week. The four-week moving average for continuing claims sits at 1.798 million, which is still a relatively low number historically.
Non-farm productivity fell at an annualized rate of 2.1% in the first quarter of this year, in today’s second reading of the data, versus a 2.7% decline in the first reading given last month. Unit labor costs rose at an annualized rate of 4.2% in the first quarter, which is still too high, but that is down from the 6.3% first reported. The above jobs numbers provide more fodder for the hawks on the Federal Reserve desiring to raise interest rates another time or two. The unit labor cost data provides fodder for them as well, but not to the extent that it did the previous month when the initial numbers came out. However, Fed fund futures trading now only puts the odds of a June rate hike at 28%, which is down from 52% a week ago. Yet, that doesn’t mean that traders no longer expect another rate hike. They’ve simply delayed it until the July meeting amid expectations that Fed members will want to hit the pause button at the upcoming meeting in two weeks.
Foreign investors are pulling money out of Chinese stocks at a concerning rate, due to softening domestic demand and bleak corporate earnings predictions. Refinitiv data shows that $1.71 billion of mainland shares were sold via the Stock Connect link between Mainland China and Hong Kong exchanges in May, escalating from sales of $659 million in April. This contrasts with a surge of buying totaling $20.92 billion in January as China emerged from Covid amid expectations of a sharp economic rebound. However, that rebound never reached its potential, with current data suggesting a weakening economy. National urban unemployment is 5.2%, but youth unemployment in China for those 16 to 24 years old jumped to 20.4% in April. As such, Henan, China’s third most populous province, implemented a 100-day plan aimed at assisting university graduates find jobs. Approximately 870K graduates are expected to join the workforce this year, with many unable to find work.
Russia once again brought a halt to the grain initiative, according to Ukraine this morning. Russia apparently has blocked registration of ships for inspection as part of the grain initiative. As a result, the Joint Coordination Center reports that it is impossible to draw up an inspection plan for today. The United Nations is working feverishly to create a win-win scenario that would allow Russian anhydrous ammonia to pass through pipelines in Ukraine territory for export while facilitating the export of Ukrainian grain, but no substantial progress has yet been made.
The National Weather Service calls for drought development to spread from Iowa east to Pennsylvania in June, while persisting in northern Missouri, western Iowa, and eastern Nebraska. Today’s forecast models removed a bit of the rain that has been showing up in the second week of June, raising the risk that the transition in the atmosphere toward a more El Nino pattern is being delayed somewhat. A look back at history finds that a dry May in the Midwest often boosted final yields, but yield erosion starts when that dryness builds into June, which is a risk that we must respect. It doesn’t guarantee low yields, but the risks start to elevate somewhat. This will be something that traders will be monitoring closely over the next week to 10 days.
