February 10 – Tariffs and inflation are expected to be the focus on Wall Street this week. President Trump is expected to make more tariff announcements to start the week, while we’ll also get inflation data at the consumer and producer levels on Wednesday and Thursday, followed by retail sales data on Friday. Stock futures are pointing higher to start the week, but we’ll see where the headlines take us. The VIX is trading near 16 this morning, while the dollar index is trading near 108.2. Yields on 10-year Treasuries are trading near 4.48%, while yields on 2-year Treasuries are trading near 4.27%. Crude oil prices are posting 1% gains this morning, while the grain and oilseed sector was generally mixed to firmer, with corn and wheat prices firming as U.S. trade desks opened this morning.
President Trump intends to impose new 25% tariffs today on imports of steel and aluminum, according to comments that he made to reporters on Sunday. Those countries expected to be hit hardest by the new tariffs would include Canada, Mexico, Germany, and Asian exporters, although the United States imported steel from 79 countries in 2024, while importing aluminum from 89 countries, with a combined value of just over $49 billion. The new 25% tariffs would be expected to be on top of any existing tariffs. Canada exports roughly $7.1 billion of steel to the United States annually, while Mexico comes in second at $3.5 billion. Canada exports $9.4 billion in aluminum to the United States, followed by the UAE at less than $1 billion. The above tariffs would be separate from the 25% tariffs on all goods coming from Canada and Mexico that are currently waived while Trump assesses whether the two countries are following through on their commitments to help seal their borders with the United States. President Trump is also expected to make announcements early this week on reciprocal tariffs, whereby we would match tariffs currently being applied to the United States by other countries. The latter announcement is expected to come either Tuesday or Wednesday of this week, whereby the aluminum and steel tariff announcement could come today.
Trump paused his 10% tariffs on China for smaller parcels valued at less than $800, but the pause wasn’t a concession so much as it was logistical. The pause is expected to be in place just long enough to allow the U.S. Customs Office to have its system in place for collecting the revenues. There’s been chatter in both China and in the United States that we could see a revival of the trade agreement between China and the United States during Trump 1.0, but the current sense is that such an agreement could take time. Trump and China’s President Xi Jinping seemed to be moving quickly toward each other in January, but things have cooled somewhat as we moved into February. The Phase One trade agreement reached in Trump 1.0 provided a boost for agriculture, and there was speculation that reviving the agreement could do the same this time around as well, with chatter suggesting initial purchases of up to 3 million metric tons of U.S. soybeans and 2 mmt of U.S. corn – both of which would likely go into China’s reserves. However, China has stepped up purchases of Brazilian and Argentine soybeans over the past week. Brazilian soybeans are just plain cheaper than U.S. soybeans, but they are not allowed to go into China’s reserves, since they don’t store as well. But the Argentine purchases suggest that the U.S. is no longer considered China’s top option for soybeans for its reserves.
We’ll get U.S. consumer price data released on Wednesday of this week. China released its CPI data today, reflecting a modest increase in inflation in some of those areas receiving stimulus. The headline CPI rose 0.5% year-on-year in January, while rising 0.7% month-on-month. The year-on-year number beat expectations, rising at its fastest pace in five months. Tourism led the gain in January, surging 11.6% on the month and 7% on the year. Services saw 5.4% increases on the year. However, prices remained suppressed by soft demand in most other areas, with clothing off 0.4% on the year, while shelter prices were down 0.2%. Pork prices were up 1% on the month and 13.8% on the year, while beef prices were down 0.1% on the month and down 13.1% on the year. Meanwhile, the producer price index, reflecting prices at the wholesale level, fell 2.3% year-on-year in January, marking the 28th consecutive month of deflation at the producer level in China. The PPI is considered a leading indicator for China’s overall inflation, suggesting that its economy will remain in an overall deflationary mode for some time yet; further reducing demand for commodities.
Friday’s CFTC commitment of traders report confirmed the continued trend toward fund managers building ownership in the grain and oilseed sector. The fundamentals of supply and demand come closest to supporting that in corn and wheat, but soybeans have participated in that positive money flow as well – at least to this point. South American weather continues to shift more favorable. Tomorrow’s USDA crop report likely sees increased U.S. corn exports, and modest adjustments to South American production estimates, with another reduction in Russian wheat exports for the current marketing year. Otherwise, tomorrow’s report is expected to be relatively quiet.
