June 29 – Stock futures had a firmer tone over night as the major banks sail through the Federal Reserves stress tests in good order, although that enthusiasm is capped by expectations of more rate hikes from the central bank, with Fed Chair Jerome Powell stating this morning that most policymakers expect they’ll need to push rates higher at least two more times this year. The VIX is trading near 14 in early trade this morning, while the dollar is again rallying as the euro falls, with the greenback trading at a two-week high near 103.3. Yields on 10-year Treasuries are trading at a two-week high near 3.83% this morning, while yields on 2-year treasuries are trading near 4.88%, which is its highest level since early March. Crude oil prices are modestly weaker in early trade, while the grain and oilseed sector traded mostly lower overnight in follow-through trade as wet Midwest weather forecasts continue to move forward.
First-time claims for unemployment benefits fell to 239K in the week ending June 24, down from 265K the previous week and below analyst expectations of 270K claims. This puts the four-week moving average at 257.5K claims, up slightly from 256K the previous week. Continuing claims for the week ending June 17 fell another 19K to 1.742 million. The four-week moving average for continuing claims fell 13K to 1.757 million. These numbers remain at historically low levels, reflecting a tight jobs market amid signals that it is getting tighter in recent weeks. This supports the Fed’s notion that more rate hikes will be needed to tame wage inflation. Other data released today also supported a more hawkish Fed stance, including an upward revision of First quarter GDP to 2.0% growth, up from the 1.3% growth estimate previously released and above analyst estimates of 1.4%. Personal consumption during the first quarter remained unchanged at 3.8% growth.
China is bracing for what appears to be imminent steps by the United States to tighten the flow of artificial intelligence chips to China, so it is taking steps of its own. China implemented the Foreign Relations Law on Wednesday, covering a wide range of issues, such as global governance, security, judicial cooperation, and the protection of Chinese citizens overseas. The law has a particular focus on national security, offering legal guarantees for Chinese regulators dealing with foreign affairs. The above steps are seen as necessary to protect Chinese citizens and businesses operating overseas, but they’re also seen as one more step to deepen the divide between China and the West, adding more uncertainty to the willingness of corporations to invest in China’s economy, as it may raise fears that Chinese authorities could take legal actions against them based on political considerations. China cannot afford to scare away foreign investment that is essential for its growth.
Heat is expected to ease in North China Plain corn and soybean areas over the coming week, although the region remains dry. Nonetheless, the milder temperatures are expected to ease crop stress. Lingering stress would be expected to start negatively impacting corn yields the second week of July if rains remain absent. Further south, extreme wet and hot conditions threaten this year’s rice crop during the crucial ripening period for the early crop, which is typically harvested in late July. Forecasts show expectations of another round of heavy rains hitting parts of the rice belt around the Yangtze River over the next three days, with heat persisting over the next week, increasing the risk of heat damage, moldy heads and sprouting. Paddy rice is the second largest crop in China next to corn. A low-quality rice crop on top of the low-quality wheat harvest would further eat into corn feeding demand this year.
Forecasters expect to see an increase in thunderstorm activity in the Midwest starting over the next 24 hours, continuing over the next seven days. The anticipated rains are expected to bring good 1 – 2” rains, locally heavier amounts, to much of the Midwest stretching from Nebraska east across southern Iowa, northern Missouri, all but northern Illinois, and most of Indiana and Ohio. Activity is expected to pick up in areas to the north of that region as we get into week #2, when temperatures are also expected to start trending cooler as we move into the critical month of July. Forecasters indicate that this is the pattern that they expected two to three weeks ago, which did not happen, but they now have a higher level of confidence that it will happen this time. While some damage has already been done to crops, the rains – if they verify – come at a critical time to reverse the fortunes of much of the rest of the crop. We’ll still need to monitor the forecasts to see how rains develop over the coming month over the northwestern 25 – 30% of the Midwest that I’ve had as an area of concern over the past month, but there is a growing sentiment among forecasters that this is a crop-saving flip in the weather pattern.
