September 15 – Stock futures benefited from follow-through strength overnight, as traders continue to ride a wave of optimism that monetary policy is about to pivot without the economy slipping into a recession, which has implications for the commodity sector as well. However, gains were limited by the beginning of a strike by U.S. autoworkers that could negatively impact that outlook. The VIX slipped below 13 to pre-pandemic levels overnight, reflecting the optimism that has gripped Wall Street following the release of this week’s inflation data. The dollar index pulled back modestly from yesterday’s fresh six-month high as the euro bounced following yesterday’s fall. Yields on 10-year Treasuries are trading near 4.33% as they continue to reflect a trend toward higher levels, while yields on 2-year Treasuries are trading near 5.05%. Crude oil prices pushed above $91 per barrel in early trade to set a new 10-month high on rising supply concerns, while the grain and oilseed complex had a weaker tone overnight.
The United Auto Workers staged simultaneous labor actions at factories owned by all three major auto companies this morning – Ford, General Motors, and Chrysler. The coordinated strikes are not industry wide for these three companies at this point, but rather a phase one application of the work stoppage in what is being considered the most ambitious U.S. industrial labor action in many decades. It’s the first time that the UAW has initiated a strike at all three of the Big-Three automakers at the same time but managing a strike that would be company-wide at all three is also very costly to manage for the UAW, so therefore it is beginning with a targeted strike that it threatens to spread to more factories if it fails to get its wishes at the bargaining table. The labor union is demanding a larger share of the profits and greater job security as the companies migrate toward more electric vehicle production. This initial strike action involves 12,700 auto workers at plants in Wayne, Michigan, Wentzville, Missouri, and at Toledo, Ohio. The expectation is that the strike will include more plants if negotiations fail to make the desired progress over the next week or two.
The UAW is reportedly asking for a 40% pay increase, whereas the car makers have offered a 20% increase without key benefits also demanded by the union. The two sides are far apart, but somewhere in the middle is a lot of wage inflation. Ford claims that meeting the UAW’s demands would double its labor costs, while making it uncompetitive with non-unionized automakers. General Motors stated that meeting the union’s demands would cost it $100 billion. All that cost gets passed down to the consumer via higher costs for the vehicle. At the heart of the conflict is the White House’s push toward EV cars that threatens the jobs of union combustion engine workers. The White House is putting billions of dollars of subsidies behind the push toward EVs, putting it at conflict with the UAW. I say that because the White House has incentive to see this labor conflict quickly settled ahead of an election year, but the solutions are not easy. Either way, it’s inflationary, and that’s not good for President Biden’s re-election either, let alone the economy as the Fed tries to bring inflation down to its 2% mandate.
China’s total retail sales in August made the strongest growth in three months, as reported in today’s edition of China Direct, published by our Shanghai office. Retail sales rose 4.6% YoY, which was above market expectation of 3%, and up from a rise of 2.5% in July. Retail sales excluding autos rose 5.1% YoY in August, up from 3% in July. The retail sales of goods in all categories were up 3.7%, which was better than 1% in July and 1.7% up in June, while growth of catering sales slowed to 12.4% in August, down from 15.8% in July. On a monthly basis, the total retail sales were 0.31% up in August, revising from (-0.02%) in July. Looking into each category, customers’ spending on clothing and wearing was up 2.1% MoM, while spending on entertainment was up 5.4% MoM, both were better than the trend in June and July. It is positive to see people were more willing to spend on services and goods beyond necessities. Cosmetics sales were up 30% MoM and 9.7% up YoY, while jewelry sales were sharply up by 30% MoM, and 8.5% up YoY. Yet, China’s central bank cut its bank reserve requirements by another 25 basis points to pump another 500 billion yuan ($68.7 billion) into the economy, suggesting that concerns about the economy continue to build – especially for the property sector where debt payment worries are growing ahead of the end of the year. China continues to step up efforts to reverse problems in the sector, but to no avail thus far.
Grain and oilseed prices continue to drift as the fall harvest slowly gains momentum. Forecast models are finally raising hopes that we will see a significant shift in moisture possibilities across the central and western Midwest in another week or so, but that will largely be too late for this year’s crop development, and it will instead hamper harvest efforts. Yet, the rain is needed to restore water levels on the Mississippi River to allow movement of this year’s crops to the export market, even though that export demand remains disappointing.
