December 4 – Stock futures poised themselves for another possible record run overnight, with this morning’s jobs data doing little to change that sentiment. U.S. stocks are thus far largely ignoring political turbulence in France and South Korea, keeping their focus on the upcoming Trump Administration and on this month’s Federal Reserve meeting. The VIX is trading at its lowest level since July near 13, while the dollar index is firming again to trade near 106.7 as the euro faces risks from today’s no-confidence vote in France. Yields on 10-year Treasuries are trading near 4.27%, while yields on 2-year Treasuries are trading near 4.19%. Crude oil prices are modestly higher on expectations that tomorrow’s OPEC+ meeting will result in another delay in production increases, while the grain and oilseed sector was mostly lower overnight.
The private sector created 146K jobs in November, according to today’s ADP employment report, falling short of the average analyst estimate of 165K. Furthermore, the October number was revised down to 184K jobs created, down from the 233K originally reported. That October report was far from the official government jobs report that showed a drop of 28K private sector jobs. As such, the market looked at today’s numbers with interest, but the numbers did little to change sentiment. Friday’s government report is expected to show 200K jobs created, bouncing back from the October number of 12K, when combining private and government sector jobs. Today’s ADP report showed that the best job growth came from the service sector, and from larger firms, with smaller firms still taking a more cautious approach as they wait to see how future Fed and fiscal policy will impact them. Manufacturing hiring was the weakest it has been since spring in today’s ADP report, while financial services and leisure and hospitality were also soft. Education and health services was the strongest sector hiring in November at 50K jobs added, while manufacturing lost 26K jobs. The big question continues to revolve around last month’s government jobs report covering the month of October. Was the poor report a product of the hurricanes that hit the southeast, and if so, has there been enough time for impacted businesses to rebuild and to start hiring again? The weekly continuing claims data would suggest not, while market expectations are that Friday’s data will show a bounce back in November.
France’s government is expected to be ousted today by a no-confidence vote, sending Europe’s second largest economy deeper into political turmoil at a time when it faces massive deficits. If so, it would throw Prime Minister Michel Barnier’s government out, requiring someone else to rise to the occasion to form a coalition government that could operate in France. President Emanuel Macron started the turmoil when he called for a snap election back in June, although his term in office continues until mid-2027. Barnier’s proposed budget to solve France’s fiscal problems attempted to address France’s fiscal deficit that is currently at 6% of gross domestic product. The plan would have raised taxes by 60 billion euros ($63 billion), while cutting spending, dropping the deficit to 5% of GDP. But people don’t want to experience the pain of higher taxes and lost benefits proposed to fix the problem. For comparison sake, this year’s U.S. deficit is 6.4% of GDP, up from 6.2% the previous year. President-Elect Donald Trump campaigned on a promise to fix the problem by creating the Department of Government Efficiency, headed by Elon Musk and Vivek Ramaswamy, targeting 30% cuts in spending. They’re going to face similar challenges when it comes to implementation of the proposed fixes. Argentina’s Milei Administration is finding some success in addressing fiscal deficit problems, but only because the problems became so great that the people of Argentina finally said that they were willing to pay the price. The problems they faced included 200+% annual inflation rates.
The Biden Administration hit China with more restrictions on China’s chip industry this week, with President Xi Jinping responding with counter measures, while warning Chinese companies that they should be wary of using “unsafe” U.S. developed chips. This reflects an escalation of the tensions between the United States and China. Keep in mind that previous tensions over the years have largely kept agricultural trade somewhat isolated to continue, and thus far that is the case here as well. I say that recognizing that China has been, and continues to, shift its buying from the United States to other sources. You could say that shift is related to these rising tensions, and that would make sense. But we also know that Chinese buyers are also very much value buyers, and the strong U.S. dollar makes it difficult to compete with alternative supplies from countries such as Brazil, Argentina, and Ukraine who have much weaker currencies. This comes at a time when we lack 45Z guidelines to provide subsidy guidance for the domestic production of biodiesel, renewable diesel and sustainable aviation fuel effective January 1st. Reuters reported Tuesday that the Biden Administration will not seek to complete those guidelines before January 20th, when the Trump Administration takes over, and it is unknown where the guidelines will fall within that team’s priority list. Ethanol production should continue at the current pace, but the green diesels and SAF production is expected to drop off, reducing demand for soyoil for an unknown length of time.
