January 23 – Stock futures consolidated around yesterday’s strength overnight, with the S&P 500 stock index sitting just below yesterday’s new record high. This morning’s weekly jobless claims provided more interesting fodder for Fed watchers, but the primary focus continues to be on headlines coming out of the new Trump Administration. The VIX is again trading near 15 this morning, while the dollar index is trading near 108.2. Yields on 10-year Treasuries are trading near 4.65%, while yields on 2-year Treasuries are trading near 4.30%. Crude oil prices are modestly higher in early trade, while the grain and oilseed sector is mixed.
First time claims for unemployment benefits rose to 223K in the week ending January 18, up from 217K the previous week, and up from the average analyst estimate of 218K claims. The four-week moving average is just below that at 213.5K claims, up slightly from 212.75K the previous week. Continuing claims for the week ending January 11 rose a sharp 46K to 1.899 million, which is its highest level since November 13, 2021. The four-week moving average rose by just 500 to 1.866 million. This continues to be the mystery of the jobs market, as weekly claims remain near seasonal levels, while the continuing claims number remains elevated, although that might be due to ongoing hurricane disruptions in the Southeast, where jobs were destroyed.
Donald Trump promised to bring a quick end to the Ukraine war while campaigning for the presidency. That won’t be an easy task, as the conflict is wrapped in centuries of history and mistrust, similar to the Middle East. Yet, hope is emerging that a peace agreement can be reached. One of the keys to peace may be Russia’s economic problems, which erode support for the war on the domestic front. Frustration over Russia’s sluggish economy and high inflation boiled over recently to the point where President Vladimir Putin publicly acknowledged Russia’s inflation problem, which led its central bank to hike its benchmark interest rate to 21%. His frustration was also apparent at a meeting with business leaders in mid-December, where he scolded his top economic officials. Massive military spending continues to weigh on the nation’s economy as well, while the country increasingly mourns the loss of its young men in the war. Meanwhile, some of the nation’s biggest business leaders are publicly critical of the high interest rates currently in place to try to contain runaway inflation. This sets the stage for Putin to be more amicable to peace talks. Putin continues to insist that he be able to keep territory taken already in the three-year war, and Ukraine has indicated a willingness to do so, as long as that is open to negotiation following the signing of any possible peace treaty. Of course, it has also taken Russian territory over the past year that it could leverage in those negotiations. Peace would help pave the way for restoring the flow of commodities out of the Black Sea unhindered, although there will be considerable agricultural infrastructure to be rebuilt in Ukraine.
China introduced more tools to support its equity markets. It believes that a healthy stock market is key to propping up consumer sentiment, and to a great extent that’s true. In America, we achieve that through policies that promote business growth, and therefore corporate earnings. In China, they implement policies that funnel more money into the stock market to prop it up, often through state-backed funds. China directed that 30% of annual insurance premiums paid to new coverage policies be used to invest in Chinese mainland stock markets. Furthermore, policymakers vowed to phase in pensions investing in Chinese stocks at an increase of 10% per year over the next three years. At least 100 billion yuan ($13.8 billion) of insurance funds are expected to flow into the stock market in the next six months, with half of that amount invested prior to next week’s start of the Lunar New Year holiday to prop up consumer sentiment in hopes of spurring spending. On a related matter, a survey conducted by the American Chamber of Commerce in China revealed that geopolitical tensions remain the top concern of U.S. corporations doing business in China, with 51% indicating such – the highest in five years. The portion of companies that no longer consider China a preferred investment destination rose to 21%, up from 10% pre-pandemic. In addition, 17% of the businesses indicated that they have relocated, or that they are planning to relocate away from China, up from 11% a year ago.
Corn and soybean prices continue to consolidate near this week’s highs as traders assess if the current rally has staying power amid increasing chances for showers in dry areas of southern Brazil and Argentina. Argentina will continue to struggle with low rainfall amounts in the near-term, but it won’t be totally dry either, with some indications that things may improve as we move into February, but confidence is low. Meanwhile, wheat prices are struggling to sustain the recent short covering rally due to this week’s winter kill event due to extremely low temperatures across the U.S. Plains and Midwest, as the damage assessment won’t be possible until the crop breaks dormancy in four to six weeks. Yet, the tightening global balance sheet also continues to provide underlying support on price breaks.
