August 17 – Stock futures firmed this morning following positive news from weekly jobless claims data, as well as from the manufacturing sector, while continuing to digest the minutes of the last Federal Reserve meeting that were released late on Wednesday. However, gains were limited by rising yields on Treasuries. The VIX is trading near 17 this morning, while the dollar index is trading near 103.1 after hitting a fresh two-month higher earlier in the session. Yields on 10-year Treasuries are trading near 4.28% after posting fresh 10-month highs today, while yields on 2-year Treasuries are trading near 4.94%. Crude oil prices are trading 1% higher, while the grain and oilseed sector was mixed to lower in early trade.
First-time claims for unemployment benefits fell to 239K in the week ending August 12, down from 250K the previous week, and slightly below analyst expectations of 240K claims. The four-week moving average for claims rose modestly to 234.25K, up from 231.5K the previous week. Continuing Claims for the week ending August 5 rose 32K to 1.716 million, while the four-week moving average fell by 8,250 to 1.693 million. Today’s numbers again confirm that the jobs sector remains quite tight, supporting ongoing wage inflation. Other data released this morning revealed that the Philadelphia Fed manufacturing index rose to 12 for August, up from -13.5 in July and much better than the -10 anticipated by analysts. That was the first positive reading for the Philadelphia Fed district in a year. The numbers suggest overall expansion for the sector this month, with indices for current activity, new orders and shipments moving into positive territory. But surveyed firms continue to indicate overall increases in prices and declining employment, while also anticipating lower expectations for growth over the next six months.
Concerns are rising within the Federal Open Market Committee that its rising interest rates may hurt the economy, leaving “some” members reluctant to raise rates further at future meetings. The above revelation was seen in the minutes of the July meeting of the Federal Reserve that were released on Wednesday afternoon. However, the minutes also revealed that “most” members still believe that the focus must be on staying the course to tame inflation amid concerns that they do not make the same mistake made by the Fed in 1980 when it pivoted too soon, and the nation paid a steep price for getting things back under control following that mistake. Keep in mind that the whole point of rate hikes is to hurt the economy in order to slow hiring to tame wage inflation while slowing consumer buying. The Fed continues to say that it is focused on the data. There’s still plenty of data to come out yet ahead of next month’s meeting, but the data to this point suggests that we could see another rate hike – possibly as soon as the September meeting. That would likely surprise most traders.
China’s economic problems continue to multiply. Seventy percent of the assets held by Chinese households are tied up in property, so a downturn in the property sector tends to cause a pullback in consumer spending, which has been the case. Lower property values create fear among consumers that results in decreased spending. Data released this week shows that property foreclosures rose by nearly 20% in the first half of this year due to mortgage payment defaults. The data indicates that foreclosures were filed on 304K properties, including 179K homes due to payment defaults as businesses failed and incomes declined. Chinese President Xi Jinping asked people to be patient and urged resilience in pursuit of “national rejuvenation,” but concerns are growing amid the lack of any meaningful government reform. Xi’s statements were published in state media, highlighting the reality of a large population and big disparities between urban and rural China. Analysts interpreted his comments as a tolerance toward slow growth for China. However, today’s edition of China Direct, published by our Shanghai office, highlights a victory for China. CATL, which is the world’s largest electric vehicle battery maker located in China, unveiled a new fast charging battery. This battery allows the vehicle to travel 400 kilometers (roughly 250 miles) on a 10-minute charge. The invention should help China stay ahead in the global EV market.
New-crop soybean export sales were solid in the week ending August 10 at a net 51.7 million bushels as Chinese buyers continued to take advantage of a dip in U.S. prices below those of Brazil to purchase 34.5 million bushels. However, that’s a lower purchase total than we otherwise would have seen due to buyers returning to the Brazil market during the week as prices there dipped back below U.S. levels. Chinese buyers have already purchased more than 2 million metric tons of Brazil soybeans for October shipment, which is typically peak shipment time for U.S. soybeans going to China. Brazil looks to be selling soybeans right through the end of the year.
