November 30 – Stock futures pointed higher this morning following the release of favorable inflation data, along with jobless claim data that suggests a softening jobs market. Traders are betting that the data will reinforce pressure on the Federal Reserve to pivot its monetary policy in the months ahead. The VIX is trading near 13 again this morning, while the dollar index is trading notably higher near 103.4, as Treasury yields rise again. Yields on 10-year Treasuries are trading near 4.32%, while yields on 2-year Treasuries are trading near 4.69%. Crude oil prices are 1% higher are reports that OPEC+ is expected to agree to additional production cuts of at least 1 million barrels per day in 2024, led by Saudi Arabia rolling over its voluntary additional cuts. The grain and oilseed sector was mixed to weaker, with corn getting a modest boost from a surge in export demand.
Personal income increased 0.2% month-on-month in October, matching analyst expectations, while the September reading was revised up a tick to 0.4%. Personal consumption expenditures also matched analyst expectations by rising 0.2% month-on-month, which is down from 0.7% the previous month. The PCE price index, which is closely followed by the Federal Reserve, was flat in October, falling short of analyst expectations of 0.1% growth, and well below the 0.4% growth seen the previous month, largely due to declining energy prices during the period. The PCE price index was up 3.0% year-on-year in October, down from expectations of 3.1% and below the 3.4% posted in September. The core PCE price index that excludes the more volatile food and energy sectors was up 0.2% month-on-month in October, matching analyst expectations, but down from 0.3% the previous month. The core PCE price index was up 3.5% year-on-year in October, again matching analyst expectations, although down from the 3.7% seen in September.
First-time claims for unemployment insurance rose to 218K in the week ending November 25, up from 211K the previous week, but near analyst expectations of 219K. The four-week moving average was virtually unchanged at 220K claims, versus 220.5K the previous week. Continuing claims for the week ending November 18 surged by 86K to 1.927 million. The four-week moving average for continuing claims rose 28,750 to 1.866 million. This latter number is still at a relatively low level, but it has taken a notable turn to the upside in recent weeks; perhaps indicating the beginnings of a softening of the job market.
Additional losses in Chinese equities were seen today on disappointing PMI data showing that its manufacturing sector continues to contract. Reports that two state-backed Chinese insurance firms will launch a joint 50-billion-yuan ($7 billion) fund to buy domestic equities did little to shore up investor confidence. This is China’s version of quantitative easing. Slumping export demand from Europe and the United States as they deleverage from China continues to hurt the Chinese economy. International agencies are now downgrading 2024 growth projections for China’s economy to the 4.6 – 4.7% range, down from expectations of 5.2 – 5.4% this year. China continues to invest in infrastructure as a means of supporting its economy, but observers question whether that old method will remain effective amid China’s new challenges of geopolitical risks, low birth rates and an aging and declining population.
Export sales picked up the pace in the week ending November 23, with China being a featured buyer of U.S. corn, soybeans, wheat, and grain sorghum. Reported export sales during the week included 75.9 million bushels of corn, 69.6 million bushels of soybeans, 22.9 million bushels of old-crop wheat and 7.3 million bushels of grain sorghum. Yet, early market reaction has been very subdued thus far, with this morning’s sales apparently not convincing traders that we have seen any meaningful long-term switch in the demand outlook. Brazilian soybeans continue to make up nearly half of the shipments heading to China, while Brazilian and Ukrainian shipments of corn to China are expected to remain strong as well. Ukraine shipped 2.4 million metric tons of corn in November, primarily to China, with another 2.2 mmt already contracted for December shipment. That keeps the focus on South American weather for now. Stress is rebuilding in half of Brazil’s soybean belt this week due to hot dry conditions, focused primarily over the Center-West region, while southern areas remain quite wet. Forecasters see wetter risks for Center-West Brazil late in the five-day period, with 6- to 15-day rains still expected to ease dryness concerns. Longer-term deficits will continue, although the opportunities for periodic moisture relief will continue into December – perhaps increase a bit. Meanwhile, things look much better further south in Argentina’s grain belt, where the pattern has shifted more favorable.
