September 10 – Stock futures were mixed to firmer overnight, as Wall Street remains cautious ahead of this week’s inflation data. We get inflation data at the consumer level tomorrow, while inflation at the producer level is reported on Thursday, along with weekly jobless claims. This week’s data then sets the final stage for next week’s meeting of the Federal Open Market Committee, which is expected to start the interest rate cut cycle. Traders are paring back expectations of a 50-basis point rate cut following recent mixed employment data, with Fed fund futures trading 73% odds of a 25-basis point rate cut this morning, although traders are still pricing in expectations that we will be up to 225 basis points lower by June. Stock futures generally firmed into the start of the day session. The VIX is trading near 19, while the dollar index is trading near 101.6. Yields on 10-year Treasuries are trading near 3.70% this morning, while yields on 2-year Treasuries are trading near 3.66%. Crude oil prices are 1% lower after OPEC ratcheted its demand estimates a bit lower, while the grain and oilseed markets are mixed to weaker ahead of Thursday’s big USDA WASDE crop report.
The small business optimism index, produced by the National Federation of Independent Business, slipped to 91.2 in August, down from 93.7 the previous month, and below analyst expectations of 93.6. The August decline wiped out all of July’s gains for the index, and it marked the 32nd consecutive month that the index has remained below the 50-year average of 98. The survey’s uncertain index rose to 92 in August, which is its highest level since October 2020 during the pandemic. Inflation remains the top issue for small business owners, with sales expectations dropping, and cost pressures increasing.
Better than expected exports in August gave the Chinese stock market a lift today. Chinese exports rose 8.7% year-on-year in August, up from 7% in July and exceeding analyst expectations of 6.5%. It was the fastest growth seen in 17 months, although the year-on-year comparisons are in the context of very slow shipments a year ago. Nonetheless, Chinese exports were strong in August after the Biden Administration delayed implementation of the highly publicized tariffs that were set to go into effect on August 1st, that included 100% tariffs on electric vehicles, 50% tariffs on semiconductors and solar cells, and 25% on lithium-ion batteries and key minerals, steel and aluminum, ship-to-shore cranes and syringes. The U.S. trade representative delayed implementation of the tariffs to September 1st, but the tariffs were delayed again after White House National Security advisor Jake Sullivan returned to Washington following several days of talks with senior Chinese officials in Beijing, that also included a meeting with Chinese President Xi Jinping. As a result, exporters continue to ship as much product as possible before a possible implementation of the tariffs.
China’s trade with Brick and Road Initiative countries reached 13.5 trillion yuan ($1.89 trillion) in the first eight months of the year, up 6.8% from the previous year’s pace, while trade with the European Union rose by just 1.1% to 3.71 billion yuan. China is counting on the increased pace of trade with BRI countries to eventually offset lost trade with Europe and the United States as they deleverage from it over geopolitical tensions. Meanwhile, China’s import data raised more concerns. China’s year-to-date imports increased 2.5% over the previous year’s pace, slowing from 2.8% in the previous reporting period. Crude oil imports year-to-date slowed by 3.1%, while the pace of imports of iron ore and coal also slowed. However, soybean imports reached an all time high of 12.14 million metric tons in August, up 30% from the previous year, boosted by some delays in July shipments due to weather. Soybean imports averaged 10.38 mmt between April and August, up from 9.73 mmt the previous year. September and October imports are also expected to remain high, based on shipments already on the water and/or scheduled to be loaded. That resulted in downward adjustments to anticipated imports for later months. Crush demand is expected to average roughly 7 mmt per month from September to January, down from 7.5 mmt the previous year, due to lower meal demand. China has thus far committed to 3.9 mmt of current-year U.S. soybeans, down from 6.37 mmt the previous year at this point. That’s a 39% or 91 million-bushel decline in Chinese buying versus the previous year. The Panama Canal is handling bigger volumes due to better water levels this year, but transaction costs for using the canal remain high, resulting in cargoes still choosing to flow around the southern tip of Africa when originating from the U.S. Gulf.
Grain and oilseed prices are chopping around in a consolidation pattern ahead of Thursday’s highly anticipated USDA WASDE crop report. This will be the first report with summer crop production estimates based on actual field sampling, which leaves the door open for potential surprises. Thursday’s report should go a long way toward communicating to the market whether it has fully priced in the size of this year’s crops.
