November 3 – Stock futures received a boost from a weaker than expected monthly jobs report this morning, fueling additional speculation that the data moves us closer to a policy pivot by the Federal Reserve. Fed fund futures are trading less than 11% odds of a rate hike by January this morning, down from 28% odds yesterday, and down from 47% odds a month ago. The market is now pricing in expectations of the Fed’s first rate cut, or a pivot in policy, by the central bank’s May meeting. I’m less convinced that will happen, but I do believe that the Federal Reserve will likely need to review its policy on reducing the balance sheet in the first half of next year as credit begins to tighten. Much of that will be exasperated by the rising supply of debt certificates being offered to the market as Congressional spending continues to expand. The VIX fell to a fresh six-week low near 15 following this morning’s data release, with the dollar index dropping notably to trade near 105.3, putting it on the cusp of fresh six-week lows as Treasury yields dropped. Yields on 10-year Treasuries are trading near 4.51%, marking five-week lows for them, while yields on 2-year Treasuries dropped to two-month lows near 4.86%. Crude oil prices are 1% lower, after initially getting a boost from the jobs data, while the grain and oilseed sector also managed to finish in the green ahead of the pause, also getting a boost from the monthly jobs data release as the dollar fell notably lower.
The economy created 150K jobs in October, falling short of analyst expectations of 180K. Furthermore, the September data was revised to 297K jobs created, down from the 336K originally reported last month. The August total was also revised down to 165K jobs created, down from the 227K originally reported. August and September combined were revised down by 101K, which is a significant revision for the two months. The private sector created 99K jobs in October, down from analyst expectations of 143K, and down from a downwardly revised 246K private sector jobs created in September. The manufacturing sector lost 35K jobs in October, versus analyst expectations that it would lose 23K, and versus 14K gained in September. Healthcare added 58K jobs in October, while government added 51K jobs. Construction added 23K jobs
The unemployment rate ticked higher to 3.9% in October, versus analyst expectations that it would remain unchanged at 3.8%. The labor participation rate ticked lower to 62.7% during October. The survey revealed that there are 6.5 million people unemployed in America, which is little changed from September, but up roughly by 849K from the low in April. The portion of that group that has been unemployed for 27 weeks or more was little changed at 1.3 million people, accounting for 19.8% of the larger unemployed group. The survey revealed that 4.3 million of the unemployed didn’t even look for a job in the previous four weeks, or they were “unavailable” to work. Average hourly earnings rose 0.2% month-on-month in October, which was down from analyst expectations of 0.3% growth, and less than the 0.3% growth posted in September. Average hourly earnings were up 4.1% year-on-year in October, beating analyst expectations of 4.0%, but down from the 4.3% posted in September. The average hourly workweek also ticked lower to 34.3 hours.
Last week’s data reflected a resilient economy. This week’s data suggests that the economy is slowing down. The markets focused on the latter, allowing the VIX to fall to its lowest level of the past six weeks, despite ongoing risks from the war in the Middle East. Those risks continue to have traders monitoring headlines, but similar to the start of the Ukraine war, Wall Street grows increasingly comfortable with the status quo each day that the war lingers without spreading outside the existing borders of the conflict. Crude oil prices rallied when this morning’s jobs data was released, causing the dollar to fall sharply, but those gains quickly disappeared as traders refocused on removing the war premium – focusing more on rising supplies relative to eroding demand as the economy slows. Weak manufacturing data in both China and the United States refocused the trade on demand concerns this week, while poor GDP data in Saudi Arabia raised questions about how long that country could afford to curtail crude oil exports needed to support its economy.
Chinese soybean crush totaled 1.94 million metric tons last week, down from 2.2 mmt the previous week, but still a solid number similar to what we saw for much of the third quarter. This suggests that feed demand remains strong in China, despite rumors of African Swine Fever creating panic liquidation in the hog herd in the northern part of the country. ASF does appear to be increasing again as it always does this time of year, with this year’s variant thought to be a bit stronger than last year’s variant. That has led some farms to sell pigs early – mostly small and medium sized farms, but we don’t see evidence of anything beyond that at this point. Thunderstorms are arriving in dry portions of Center-West Brazil today, continuing over the next several days. The models have pulled back somewhat on anticipated rainfall totals, which has become the pattern over the past month, so follow-up rains will be essential over the next 10 days. We should know a lot more about the weather pattern’s impact on the Brazil soybean crop as we get into next week.
