January 2 – Happy New Year! A new year is upon us, and with that new opportunities, including some opportunities that will be wrapped up as challenges. Stock futures found solid buying interest overnight as traders enter the new trading year with a bias of optimism. That optimism may be challenged a few times in the weeks and months ahead, but it provides early tailwinds for starting the year. The VIX is trading near 17 this morning, while the dollar index is trading at fresh two-year highs near 108.9. Yields on 10-year Treasuries are trading near 4.55% this morning, while yields on 2-year Treasuries are trading near 4.23%, after touching fresh three-week lows this morning. Crude oil prices are nearly 2% higher at fresh eight-week highs to start the year, while the grain and oilseed markets are waiting for an old-fashioned morning open this morning.
First-time claims for unemployment benefits fell to 211K in the week ending December 28, down from 220K the previous week, and down from analyst expectations of 225K claims. The four-week moving average fell to 223.25K claims, down from 226.75K the previous week. Continuing claims for the week ending December 21 fell by 52K to 1.844 million, while the previous week’s total was also dropped by 14K. This dropped the four-week moving average by 6,750 to 1.871 million. Weekly claims have been holding at relative seasonal levels, but the concerns had been for rising continuing claims. However, this morning’s report eases those concerns somewhat.
Chinese President Xi Jinping spoke with great optimism about China’s future as he addressed the nation earlier this week ahead of the end of the calendar year, as he sought to instill confidence in the citizens of his country ahead of the New Year celebrations. Xi addressed the nation via television, indicating that the country was on pace to hit its 5% growth target for gross domestic product in 2024. He promised that the government would take the decisive steps necessary to prioritize growth in 2025 as well, even as China faced new challenges from geopolitical risks, as well as the challenges of transitioning the Chinese economy to be more of a consumer-driven economy versus one that is dependent on exports to the West. Part of that transition also includes new partnerships with Belt and Road Initiative countries. It’s interesting to note that Xi again spoke of reunifying Taiwan, but his comments lacked any mention of a timeline or sense of urgency this time.
Yet, the markets were not convinced regarding his comments on the economy. The Shanghai composite index fell by 2.66% on the first trading day of the new calendar year, while the Shenzhen composite index dropped by 3.14%. The official onshore trading of the yuan fell to 7.3 per dollar, where there continues to be appearances of intervention by the government to support it there, while the unofficial offshore trading fell to a two-year low of 7.37 yuan to the dollar. A preliminary look at year-end data for China reveals concerns that the fourth-quarter stimulus efforts are losing momentum. Box office revenues were down more than 22% in 2024 from the previous year’s level, and down by a third from 2019 levels. China’s top 100 real estate companies reported revenues declines from home sales of 30.6% from the previous year’s level. They did see a late-year surge in buying that produced a nearly 29% month-on-month increase in sales, but that was an increase from an extremely low level, and inventories reman massive in a country where the population is in decline.
The U.S. House of Representatives starts its new term tomorrow, with the first item on the agenda being to select its speaker for the new term. President-Elect Trump came out with a strong endorsement of current Speaker Mike Johnson earlier this week, hoping to avoid another weeks-long battle to find a new speaker that could delay certifying the 2024 election results, as well as implementing an aggressive Trump agenda in the first 100 days of his administration. Stability is also needed in the House for addressing the debt limit issue, which needs to be quickly dealt with early in the year. Wall Street will be keeping a close eye on Friday’s vote in the House, where Johnson cannot afford to lose another vote of support in the closely divided assembly.
Heat and dryness continues to build in Argentina, where 25 – 30% of the crop is currently under stress. That is expected to expand to 40 – 50% by mid-January, based on the current forecasts. Crop stress in southern Brazil is expected to expand from 15% currently to 30% by mid-January. I’m not currently worried about soybean supplies. StoneX Brazil is expected to release its January customer survey later this morning, and I anticipate that we’ll see a notable increase, likely joining other estimates north of 170 million metric tons. That could change going forward, but the crop to watch for now is Argentina’s corn production. Otherwise, look for the grain and oilseed markets to continue to position for this year’s index fund rebalancing, which is expected to provide at least modest tailwinds for the sector ahead of the January 10th USDA WASDE crop report.
