December 5 – We continue to work through this week’s labor data, and thus far the data has done little to support arguments for active rate cuts by the Federal Reserve when it meets later this month. Meanwhile, traders keep their eyes on developments in France, where President Emmanuel Macron seeks to form a new government after last night’s no-confidence vote, and on South Korea, where President Yoon Suk Yeol faces possible impeachment following his failed attempt to impose martial law on his opposition, while Syria risks falling to rebel forces in the Middle East. We also see considerable focus on President-Elect Donald Trump’s cabinet nominees who are making their rounds on Capitol Hill in an attempt to secure affirmation votes.
Stock futures slipped lower following the release of this morning’s weekly jobless claim data as odds of a rate cut in two weeks slipped a bit lower. The VIX is trading near 13.5 at this hour, while the dollar index is trading weaker near 105.9. Yields on 10-year Treasuries are trading near 4.22%, while yields on 2-year Treasuries are trading near 4.17%. Value buyers provided support to many of the commodities that had recently approached support levels on the charts, including crude oil and the grain and oilseed sector.
First-time claims for unemployment benefits rose to 224K in the week ending November 30, up from 215K the previous week, and above analyst expectations of 215K. Yet, the total isn’t high enough to sound any alarms. The biggest increases were in California (+4,573) and Illinois (+2,814). The four-week moving average rose to 218.25K claims, up slightly from 217.5K the previous week. Continuing claims for the week ending November 23 dropped by 25K to 1.871 million, even after the previous week’s total was revised lower by 11K claims. The four-week moving average for continuing claims slipped by 3,250 to 1.884 million. I should note that today’s Challenger Job-Cut Report showed that firms issued notices of potential layoffs totaling 57,727 in November, which was only up slightly from a low number of 55,597 in October.
This now sets the table for tomorrow’s big monthly jobs report, which is expected to show that the economy created 200K jobs in November, with the unemployment rate creeping higher to 4.2% as more people join the workforce. There are good arguments being made in both directions ahead of tomorrow’s report. There’s now good data available to suggest that October’s bad jobs report was about more than just hurricanes and the Boeing strike, showing that other areas of the country added just 3K jobs during the month. That could lead to another bad report tomorrow. However, the contrarian points to industry surveys that provided anecdotal evidence that firms were holding off hiring until they saw who won the election, which would have a significant impact on future tax and regulation levels. Tomorrow’s report should provide greater clarity on which of these arguments carry more weight, with significant implications for Fed policy decisions in a couple of weeks. The market currently is pricing in just two rate hikes over the next six months, with one of those likely coming on December 18th.
China’s Central Economic Work Conference is scheduled to meet on Monday and Tuesday of next week to discuss possible changes in policy guidance going forward, although the results of the conference typically are not released until the “Two Session” policy meeting in March. Traders expect Beijing to stubbornly stick with expectations of 5% gross domestic product growth this year, and that will likely be the case for next year as well, even though major global investment banks are putting the target closer to 4%, factoring in expectations of a tariff war with the United States. Higher government growth targets suggest a commitment by policymakers toward greater stimulus. However, that may be necessary if Beijing is prepared to dig in with a trade war with the United States, which is starting to appear to be the case. China’s former central bank governor, Yi Gang, publicly commented on Wednesday following Beijing’s retaliative response to Washington’s new restrictions on Chinese chip enterprises that the retaliatory response may just be the start.
Palm oil prices surged to two-year highs this week after Indonesia committed last month to a three-year plan to ratchet up its palm oil-based biodiesel mandate to 50% of its gas oil supply by 2028. The mandate is currently at 35%, and it is expected to increase to 40% in 2025, increasing demand for palm oil. That has palm oil prices quicky closing the gap on soyoil prices, increasing demand for soyoil. For example, China may see increased demand for up to 200K tonnes of soyoil per month to substitute for palm oil currently being used, which may increase its desire to import soybeans and/or soyoil. For now, the rising demand partially offsets lost U.S. domestic demand for soyoil as green diesel producers pull back production plans in the absence of the new 45Z subsidy guidelines that have an unknown future in the Trump Administration.
