May 16 – Stocks are poised to add to record gains in today’s trade after Walmart raised its full-year sales and profit forecast, even as members of the Federal Reserve double-down on their “higher for longer” rate policy. The VIX is trading near 12 this morning, while the dollar index is trading near 104.5. Yields on 10-year Treasuries are trading near 4.35%, while yields on 2-year Treasuries are trading near 4.76%. Crude oil prices are modestly higher, while the grain and oilseed sector was mostly higher overnight as well.
First time claims for unemployment benefits fell to 222K in the week ending May 11, down from 232K the previous week. The four-week moving average rose to 217.75K claims, up 2,500 from the previous week. Continuing claims for the week ending May 4 rose 13K to 1.794 million, while the four-week moving average dropped slightly to 1.779 million, which continues to be a relatively low number, reflecting a tight jobs market.
Housing starts jumped to an annualized rate of 1.360 million units in April, up from a downwardly revised 1.287 million the previous month, but still well below analyst expectations of 1.435 million units. New permits for housing starts slipped to an annualized rate of 1.440 million, down from an upwardly revised 1.485 million the previous month, but below analyst expectations of 1.480 million.
Wednesday’s softer inflation data was a welcome sight, but it was not enough to justify a rate cut anytime soon, according to New York Federal Reserve President John Williams. And that’s pretty much been the message of late coming from various members of the Federal Open Market Committee. They’re disappointed that we have not seen more progress toward the 2% mandate, but they continue to believe that they have the correct policy in place to get there, even though we’ve been above 3% for the past several years. They would like to cut rates – everyone wants to do the popular thing – but they also understand that doing so currently would simply add more stimulus to the economy, making their job of getting to the 2% mandate even more difficult. Meanwhile, the economy continues to chug along. It’s growth isn’t impressive, but neither does it justify adding stimulus at a time when inflation still is not under control, giving room for the Fed to maintain its “higher for longer” policy. In fact, the Fed is beginning to feel the frustration of an economy that is somewhat stagnant, but with high inflation still a problem. There are structural issues within the economy that make those dynamics difficult for it to manage, which is another reason why I do not believe that the Fed will be able to justify a rate cut this year.
Chinese President Xi Jinping used Russian President Vladimir Putin’s visit to snub the United States, while condemning what he called aggressive behavior in the world. Today’s comments from Xi come weeks after U.S. Secretary State Antony Blinken flew to Beijing to convince Xi Jinping to pull back on his support for Russia’s war on Ukraine. Instead, Xi publicly stated his support for Putin, stating that the China-Russia relationship is hard earned and that the two sides must continue to cherish and nurture it. Xi expressed that China is in total support of Russia on the Ukraine issue, and that the United States is the source of the problems. President Xi stated that, “China is willing to . . . jointly achieve the development and rejuvenation of our respective countries, and work together to uphold fairness and justice in the world.” Putin described his relationship with Xi as one of the stabilizing factors in the world currently. He stated, “Together we are defending the principles of justice and a democratic world order reflecting multipolar realities and based on international law.” The Biden Administration could not have been pleased to see this bold proclamation of support for Russia coming from Xi Jinping. The tensions will only grow stronger between the United States and China.
Russia’s Ag Minister stated today that crops killed by recent freezes cover 830,000 hectares, or about 1% of total crop area. That includes spring crops, in addition to winter wheat, and it presumably does not include crops damaged, but not killed, nor does it include lost yield potential due to this year’s drought. Local estimates for Russia’s total wheat crop are hovering in the mid-80’s million metric ton range, which is a pivotal range for starting to impact global trade flows, particularly in the last half of the 2024-25 marketing year. Meanwhile, U.S. wheat tour participants pegged the average yield for western and southern Kansas at 42.4 bushels per acre, which is above the five-year average of 40.8 bpa, although that five-year average includes last year’s devastating 27.6 bpa estimate. Looking to the U.S. Midwest growing season, planting progress is expected to remain slow from the Plains across the southern Midwest over the next two weeks, creating concerns about getting the corn and soybean crops planted in a timely manner, although we should see some progress in the northern crop belt.
