October 6 – Today’s monthly jobs report provided plenty of fodder for Wall Street, once again raising fears of a more hawkish Federal Reserve, as the numbers came in quite different from Wednesday’s private sector report by ADP. The VIX surged to trade near 20 on the data release this morning, although it is now near 19 again, while the dollar index is trading near 106.8 as it follows Treasury yields higher. Yields on 10-year Treasuries are trading on the cusp of fresh 16-year highs near 4.84% at this hour, while yields on 2-year Treasuries are trading near 5.10%. Crude oil prices are mixed following this week’s massive losses, while the grain and oilseed sector traded mixed to weaker overnight.
The economy created 336K jobs in September, which was more than double the 160K expected by analysts. The August number was also revised upward by 40K to 227K jobs created. It’s generally believed that the birth rate adds about 100K workers per month to the workforce, so we continue to add jobs to the economy at a much faster pace than we do workers, and that pace appears to be picking up once again. The private sector added 263K jobs in September, up from 177K the previous week, above analyst expectations of 150K, and well above the ADP estimate of 89K on Wednesday. Leisure and hospitality added 96K jobs in September, far exceeding the 12-month average increase of 61K. Employment in the food services and drinking establishments is now back to pre-pandemic levels. Government employment rose by 73K in September, with education accounting for 29K and local government accounting for another 27K jobs. Healthcare added 41K, which is a bit below the 12-month average gain of 53K. Manufacturing added 17K jobs in September, up from 11K jobs added in August and triple the 5K job increase expected by analysts for the sector.
The unemployment rate remained unchanged at 3.8% in September, while analysts had expected 3.7%. The job participation rate was unchanged at 62.8%. Average hourly earnings rose 0.2% month-on-month in September, matching the previous month’s gains, but slightly below analyst expectations of 0.3%. Average hourly earnings rose 4.2% year-on-year in September, down from 4.3% the previous month and below analyst expectations of 4.3%. The average workweek remained at 34.4 hours in September. The slight downward adjustment in average hourly earnings was about the only good news for Wall Street in this report, which reflected a healthy economy that continues to create jobs at an impressive rate. Wage inflation, which is a key part of the “super-core” inflation followed by the Fed may have ticked slightly lower, but it remains well above levels needed for overall inflation to get to the 2% mandate, and that won’t be helped by many of the labor strikes in the current work environment that are seeking big wage increases. I understand why the labor unions are doing what they’re doing, but that doesn’t help the Fed reach its inflation target, and Wall Street is reacting negatively as a result. Fed fund futures are currently trading 45% odds of another rate hike by December, up from 33% yesterday.
The war continues to escalate in the Black Sea. The trend continues to be one of “one-upmanship” between Russia and Ukraine, with Russia now talking about nuclear testing in press conferences. Russia hit a café in a northeast city in Ukraine yesterday that killed 51 people who had gathered for a memorial service, raising the anger level of Ukrainian officials. A cargo ship hit a mine believed to have been placed by Russia as it moved towards a Ukraine port. The ship only received minor damage, but the stakes are rising, which makes speculative funds holding large short positions in corn and wheat nervous. Ukraine exported 6.9 million metric tons of grains and pulses in the first quarter of its marketing year, down 2.7 million than the previous year’s pace. That included 3.5 mmt of wheat and 2.8 mmt of corn, along with smaller amounts of other commodities. An increasing number of ships are lining up to move to and from Ukraine ports through its humanitarian channels, leading to a steady barrage of attacks on port infrastructure by Russia, which is gradually reducing operational capacity at the ports. Meanwhile, exports via land routes are gradually increasing once again as agreements are reached to move grain west. The market doesn’t care a great deal currently, as the world is adequately supplied by cheap wheat from Russia following two bumper crops, and by corn from Brazil following a record crop there. It would make a big difference if shipments from Russia were curtailed. The odds of that remain low, but those odds slowly creep higher as the war lingers and escalates.
Much of the recent price strength in the grains was tied to speculative short-covering and end user bottom-picking. Next week’s USDA WASDE crop report will answer many questions about the size of this year’s crops, allowing the focus to shift more towards the demand side of the balance sheet, which isn’t good, as well as to South American weather. I see encouraging signs of increasing moisture for Brazil’s Center-West growing region, but the forecasts seem to keep those rains in the five to 10-day period. A look at the lineup of ships loading and/or transporting soybeans to China shows 35 at Pacific Northwest Ports, four ships in the Gulf of Mexico, but 129 ships at Brazilian ports. That would seem to suggest that this year’s U.S. soybean export campaign is going to be disappointing for the fourth quarter of the year.
