April 24 – Stock futures consolidated lower overnight, as investors reassess the current tariff situation while monitoring earnings reports. The White House continues to hint at possible informal discussions with China, although no formal trade talks appear to be occurring. Stocks found support on Wednesday from a news report that President Trump is considering cutting the reciprocal tariff rate of 145% on China to something in the 50 – 65% range, but that appears to be speculation about what could happen in the initial negotiation stage. Meanwhile, China remains strong in its position as it monitors the growing chorus of criticism against the Trump Administration from the U.S. media, and even some members of his own party, believing that time is on their side.
Stock futures found modest support from this morning’s economic data, allowing the major indices to firm into mixed territory, up from their overnight weakness. The VIX dipped below 28 on this morning’s reports, while the dollar index fell lower to trade near 99.3. Yields on 10-year Treasuries are trading near 4.32%, while yields on 2-year Treasuries are trading near 3.81%. Crude oil prices are trading roughly 1% higher in early trade, while the grain and oilseed markets are mixed, with hard wheat prices modestly lower on improved moisture supplies.
China’s Ministry of Finance plans to issue 1.3 trillion yuan ($178 billion) in ultra long special treasury bonds with durations of 20, 30, and 50 years from April to October to support its economy during this tariff war. The government’s bond program is one-third larger than the total issued last year as it goes deeper into debt to stand strong against the United States. Factories in China’s eastern and southern coastal regions reportedly started to shut down and layoff workers recently as the impacts of the trade war begin to be felt with slower demand for products. These layoffs are expected to expand as the trade war lingers on.
U.S. durable goods orders surged 9.2% month-on-month in March, up from 0.9% gains the previous month, and far exceeding analyst expectations of 1.4% growth. However, durable goods orders minus transportation were flat at 0.0%, down from 0.7% growth in February, and below analyst expectations of 0.3% growth. Orders for core capital goods rose by 0.1% on the month in March, which is an improvement from the 0.3% contraction seen in February, but it is still weaker than the 0.3% gains anticipated by analysts. This latter category is seen as an indicator of business sentiment. The Chicago Fed national activity index for March came in at -0.03, suggesting slightly below trend economic growth. That was down from +0.24 in February. The three-month moving average was -0.01.
First time claims for unemployment benefits rose to 222K in the week ending April 19, up from 216K the previous week, and up from analyst expectations of 220K, but still a relatively low number. Continuing claims for the week ending April 12 fell by 37K to 1.841 million. The four-week moving average for continuing claims fell by 1,500 to 1.864 million. This number remains modestly elevated, but it has seen wide swings week to week within a range that has held relatively steady for several months. Initial claims filed in the week ending April 12 by former Federal civilian employees totaled 629, up 87 on the week. Continuing claims filed by former Federal civilian employees in the week ending April 5 totaled 7,025, down 167 from the previous week.
Will we hear from the Environmental Protection Agency this week? Soybean prices have largely found good support this week, as have soybean oil prices. There continue to be rumors in the biofuel industry that this could be the week that we get definitive guidance from the EPA on the biomass diesel mandates, as well as possibly other areas of the biofuel sector. President Trump was frustrated during Trump 1.0 by the constant fighting between the biofuel industry and the oil industry. As such, he asked the two to meet earlier this year to come up with a solution. The big difference this time around is that “Big Oil” is heavily invested in the biofuel industry. The group recommended that the biomass diesel mandate be raised to 5.25 billion gallons, up from 3.35 billion gallons currently. We felt at the time that the EPA’s past pattern of modeling the mandate based only on domestic feedstock supplies would likely put the final mandate closer to 4.25 – 4.50 billion gallons, although that would still be supportive. But we’re now getting indications that the Trump EPA may be looking at other ways to model this in order to provide greater support to the Ag industry, while helping investors recover their investment in already built infrastructure. As such, we see the door opening for a mandate closer to 5.0 billion gallons, and possibly even above it. We’re still not convinced that the EPA will make its announcement this week, but that possibility must be respected. There’s still no indication on what the EPA will do with the 45Z tax credit program, or with small refinery exemptions, all of which could also have significant implications. I am expecting the Trump Administration to be supportive of a program that gradually expands ethanol blending in gasoline to 15%.
