September 14 – Is the proverbial glass “half full or half empty?” Typically, that question is one of focus. What is one focusing on – the positive or the negative? Wall Street continues to focus on the positive following this morning’s data dump, assuming that the Federal Reserve will do the same thing. It’s been wrong about the Fed for the past year and a half, but it continues to hold out the hope, like a broken clock, that it will eventually be right. And maybe it will be right this time. For today, at this hour, optimism reigns. Stock futures are higher, while the VIX traded below 13 for the first time since late July. The dollar is stronger, having hit a fresh six-month high near 105.3 after the European Central Bank signaled that its rate hike today will likely be the end of the line, signaling a pivot. Yields on 10-year Treasuries are trading near 4.25%, while yields on 2-year Treasuries are trading near 4.97%. Crude oil prices pushed to fresh 10-month highs above $90, even as Wall Street celebrated the “end of inflation” in its view. The grain and oilseed markets traded mixed to mostly weaker overnight, lacking a demand story to do otherwise.
The producer price index rose 0.7% month-on-month in August, up from an upwardly revised 0.4% the previous month and up from analyst expectations of 0.4%. The PPI rose 1.6% year-on-year in August, up from 0.8% the previous month and up from analyst expectations of 1.3%. However, the core PPI that excludes food and energy rose just 0.2% month-on-month in August, down from an upwardly revised 0.4% in July and matching analyst expectations. Core PPI rose just 2.2% year-on-year in August, down from 2.4% the previous month and below analyst expectations of 2.3%. Those are good core PPI numbers – there’s no doubt about it. Inflation at the wholesale level appears under control, drawing near the Fed’s 2% mandate. Never mind that those higher energy prices eventually tend to find their way into core inflation via packaging, processing, freight, etc. For today, the news is good, and Wall Street chooses to say that the “glass is half full.”
Retail sales rose 0.6% month-on-month in August, up from a downwardly revised 0.5% the previous month, but still much higher than the 0.2% gains expected by analysts. Retail sales minus vehicles also rose 0.6% month-on-month in August, down from a downwardly revised 0.7% growth in July, but up from analyst expectations of 0.4%. But retail sales minus vehicles and minus gas sales rose just 0.2% month-on-month in August. That’s above analyst expectations of 0.1% growth, but it’s down sharply from a downwardly revised July number of 0.7%. Wall Street sees this as a solid number, when you exclude gasoline sales, suggesting a soft landing for the economy.
First-time claims for unemployment benefits totaled a low 220K in the week ending September 9, up slightly from 217K the previous week, but down from analyst expectations of 225K claims. This dropped the four-week moving average to 224.5K claims, down from 229.5K the previous week. Continuing claims totaled 1.688 million in the week ending September 2, up 4K from the previous week. The four-week moving average fell by 5,750 to 1.697 million. These numbers reflect a tight jobs market. Employers are posting fewer job openings, dropping the ratio for openings to available workers below 1.5, down from the peak just below 2.0. But employers are also holding on tightly to the workers that they do have, hoping for a soft landing that would allow for growth again in this tight labor market. Furthermore, fewer workers are jumping out of jobs in the current environment. As such, wage inflation remains a problem that has not yet seen substantial relief, which continues to show up in the Fed’s super-core inflation number of services minus shelter.
China surpassed Japan as the world’s largest auto exporter this year, driven largely by EV sales, with more than half of those cars going to Europe. However, the European Union has opened a probe into China’s EV program, claiming that large state subsidies created unfair competition. This is indicative of the larger decoupling of the United States and of Europe from dependency on Chinese products. Reuters cited a report from Rhodium Group stating that US and European firms are shifting investment away from China toward other developing markets. India is the biggest winner in this shift, followed by Mexico, Vietnam, and other South Asian countries. US and European investment in India increased by $65 billion in 2022, up 400% on the year, while investment into China fell below $20 billion, down from $120 billion in 2018. This doesn’t bode well for the future of China’s economy.
The grain and oilseed markets are drifting, lacking a demand story, or sufficient supply threat, to justify a rally that would further ration demand. Wheat prices are trying to put in yet another bottom, but it is yet to be seen if this one will do any better than the others at holding, as long as Russia continues to dump record volumes of wheat on the world market. India insists that it has no plans to import wheat from Russia, which had been a potential supportive story. Rains are falling in the Plains ahead of wheat planting, and US wheat continues to struggle to be competitive. Seasonal harvest pressure continues for corn and soybeans following a lack of bullish fodder from USDA to do otherwise on Tuesday.
