April 29 – Today marks President Trump’s 100th day in office. Stock futures were quietly mixed overnight, as investors continue to maneuver their way through the tariff maze, seeking a view of the future. The VIX is trading below 25 this morning, where it has been consolidating in recent days, while the dollar index is trading near 99.1. Yields on 10-year Treasuries are trading near 4.19%, a new three-week low, while yields on 2-year Treasuries are trading near 3.67%. Crude oil prices are trading near $61 per barrel this morning, reflecting worries about demand going forward amid the tariff war, while the grain and oilseed markets are mixed.
It's day #20 of the 90-day pause on President Trump’s reciprocal tariffs. The clock is ticking for the president to begin producing trade agreements with major trading partners. Meanwhile, the major stock indices are trading near the high end of the range that has largely contained their values since April 3rd, when the markets first plummeted on the reciprocal tariff news. The markets are adjusting. That doesn’t mean that they can’t break lower again. That doesn’t mean that they’re necessarily going to rally from this point. But it does suggest that the markets are doing what they historically have tended to do – they’ve adjusted to the new environment that we’re in. We saw the initial shock move on April 3rd, and in the days immediately after the announcement, and now the markets and the economy are adjusting. That adjustment has largely taken place in an absence of hard data about the impact of President Trump’s reciprocal tariffs. That hard data is beginning to come in now. Purchasing Managers surveys are reflecting a notable rise in input costs – some of which they are passing down the line toward the retailer. We’ll get the April jobs report from the U.S. Department of Labor on Friday. That data was derived from both the establishment and household surveys that were conducted during the week of extreme uncertainty for businesses. As such, there is risk that it will show a low jobs creation number. The market expects it to show 130K jobs created in April, but there’s some fear that it could come in much lower – or even negative. This week’s earnings reports have largely been supportive, but we’ll need to get through Friday’s jobs report to see how it will impact the markets.
The primary focus this week, in the absence of any major trade agreement announcements, has focused on China, where massive reciprocal tariffs remain in place. Both governments are releasing their views of that trade war, shaping the picture for their constituents. The White House says that trade talks are occurring with China, while Beijing says that no negotiations are taking place. In reality, we believe that talks are taking place, but at such a low level that it represents the two sides talking about how to negotiate rather than actually negotiating a deal. Amazon has reportedly announced that it will resume shipments of products from China, passing on higher costs due to the tariffs to the consumer while stipulating what that increase is. That doesn’t mean that the consumer will actually purchase the products at those higher prices, but it allows the consumer to make the decision. Meanwhile, China is in the process of very quietly exempting products that it needs to buy from its retaliatory tariffs, so that it still gives the appearance of standing up against the “bully” America, while acquiring the commodities it needs without the increased cost of those tariffs. It waives the tariffs item by item when alternatives are not available. For example, today we learn that ethane imports were added to the exempt list. It adds items very quietly, but we’re already aware of exemptions for pharmaceuticals, microchips and aircraft engines.
But it’s biggest challenge is the hit to its manufacturing sector created by the U.S. reciprocal tariffs at 145%. That necessitates that it increase its debt to inject stimulus into the economy to encourage domestic spending among consumers who frankly are quite scared right now. Mass layoffs have started, so the government is financing retraining programs while creating other types of jobs – all at the expense of the government. Direct foreign investment continues to decline, leaving it up to the government to inject money into the economy, which is financed through debt certificates. China’s local governments issued 1.24 trillion yuan ($172 billion) of new bonds in the first quarter of this year, up 47% from the previous year. Those local government bonds rose to 437.5 billion yuan ($60 billion) in March alone this year, up nearly 24% on the month and up 66% on the year. China’s Ministry of Finance data shows that outstanding local government debt stands at 50.165 trillion yuan ($6.87 trillion) as of the end of March, which is up by more than 20% year-on-year. Yet, I believe that China feels that this is a fight that it must fight for the good of its long-term goals of becoming the world’s top economy with the top military.
Today’s grain and oilseed markets have a negative tone to them, led by weakness in soybeans and in soybean oil as the market continues to wait for word from the U.S. Environmental Protection Agency regarding the updated biomass diesel mandates. Frankly, the grain and oilseed sector simply lacks a story right now. That could change at any time with such an announcement, but weather is currently conducive to production in both Brazil and the U.S.
