August 22 – The Federal Reserve’s annual Jackson Hole, Wyoming Economic Symposium kicks off today, but the headlines will likely be created when Fed Chair Jerome Powell speaks at 9 a.m. local time tomorrow morning. Wall Street remains cautiously optimistic, which is reflected in this morning’s stock futures values, that Powell will lay the groundwork for a rate cut at the central bank’s September meeting. The question for traders is, will he provide indications of an aggressive rate cut schedule to match that already priced into the markets? As for the minutes of the last meeting that were released yesterday, they showed that a vast majority of policymakers on the Federal Open Market Committee felt that rate cuts are likely as we head into the September meeting, with a few wanting a cut at the July meeting. But that was largely known based on what Powell told us in the press conference following the July meeting.
The major stock indices had a firmer tone ahead of this morning’s open on Wall Street, while the VIX hovered around 16 this morning and the dollar index traded firmer near 101.3, after hitting fresh lows for 2024 yesterday near 100.9. Yields on 10-year Treasuries are trading near 3.83% this morning, while yields on 2-year Treasuries are trading near 3.98%. Crude oil prices are modestly higher after falling to their lowest level since February 5th yesterday. The grain and oilseed markets had a mostly negative tone this morning ahead of the pause in trade, with the Pro Farmer Midwest Crop Tour continuing to confirm big crops this year.
The Chicago Fed national activity index is a weighted average of 85 previously existing economic indicators created to equal zero when the economy is growing at a historic trend rate, with a standard deviation of one. The index fell to -0.34 for July, reflecting below-average economic growth during the month. That was down from analyst expectations of -0.15. Furthermore, the June number was revised to -0.09, down from the +0.05 originally reported.
First-time claims for unemployment benefits rose to 232K for the week ending August 17, up from 228K the prior week, but down from analyst expectations of 234K claims. That dropped the four-week moving average to 236K claims, down from 236.75K the previous week. Continuing claims for the week ending August 10 rose by 4,000 to 1.863 million, which remains the highest since the week ending November 27, 2021 when it was at 1.878 million. The four-week moving average rose by 4,750 to 1.866 million. Yet, this number has been relatively stable in recent weeks. The Department of Labor released one of two annual revisions yesterday that showed that the economy created 818,000 fewer jobs than previously reported in the year ending March 31 of this year. In other words, it has been over-reporting job creations in its monthly job reports. However, the market response has been relatively muted, because the adjustment was largely anticipated by analysts.
Analysts and traders are losing hope that Chinese authorities will be able to engineer an economic turnaround anytime soon, leading to further downgrades in forecasts for its economy. Repeated strong promises of action from government authorities have resulted in policies that were deemed too small to make a difference, or they were slow to be implemented at all. Some are arguing that this spells doom to China’s dreams of economic and military superiority, which it deems as one and the same. I would argue that it’s too early to make such assumptions. China still has many tools in its tool chest, but it seems unwilling to utilize them while the United States still has high rates.
Big crops get bigger, especially when August Midwest weather is very mild, and this crop has a big start. The Pro Farmer Midwest Crop Tour reported last night that its corn yield estimate for Illinois is the biggest on record at 204.1 bushels per acre, surpassing the previous tour record set in 2014, up from 193.7 last year, and above the three-year average of 193.6 bpa. Yields may end up much bigger considering how this year’s Midwest weather favors larger seed size not considered in this week’s yield considerations and considering the strong tendency of the tour to understate final USDA yields. Furthermore, the statewide average soybean pod count for Illinois came in at a new tour high for any state since 2000 at 1,419 pods in a 3’ X 3’ square, up from 1,271 pods last year, and up from the three-year average of 1,267 pods. The western leg of the tour found more mixed results in western Iowa, with portions of the region adversely impacted by the heavy rains and flooding that impacted results in southeastern South Dakota on the first day of the tour. Some areas saw higher corn yields and soybean pod counts than last year and the three-year average, while others saw mixed to lower results. The tour will wrap up with both the eastern and western legs coming together tonight in Rochester, Minnesota to estimate Iowa and Minnesota yields and pod counts, although they’ll only see the southern end of Minnesota. Pro Farmer will issue its formal yield estimates on Friday, which will take the tour results into consideration, but they will not be solely determined by the tour results.
