June 11 – It’s Day #1 of the Federal Reserve meetings, although that’s not expected to provide any news today. Rather, Wall Street is focused on tomorrow morning’s inflation data, that will proceed the next statement from the Fed. Traders expect tomorrow’s data to show more incremental progress toward the Fed’s 2% mandate, but it’s wary of another hot report where numbers come in above expectations, as they’ve seen far too many times this year. The VIX is trading near 13 this morning, while the dollar index is trading near 105.3, which is just below yesterday’s four-week highs. Yields on 10-year Treasuries are trading near 4.45%, while yields on 2-year Treasuries are trading near 4.85%. Crude oil prices are quietly mixed following yesterday’s big gains, while the same was true for the grain and oilseed markets as well.
The National Federation of Independent Businesses’ small business optimism index rose to 90.5 in May, up from 89.7 the previous month, but still the 29th consecutive month that it has remained below its historical average of 98. Yet, the May reading is the highest reading for this calendar year, reflecting a glimmer of optimism among small business owners. Small business owners plans to hire rose 3 points in May to a seasonally adjusted 15%, which is the highest reading of the year for that indicator. However, a seasonally adjusted net 28% of business owners anticipate that they will implement price hikes, up 2 points from the previous month, indicating that inflation pressures remain alive and well. The survey revealed that 6% of owners reported that financing was their top business concern, up 2 points on the month and the top business concern for the first time since June 2010. A seasonally adjusted 18% of small business owners plan to raise wages for their employees in the next three months, which is down 3 points from April, and the lowest reading since March 2021. Yet, 42% of business owners reported job openings that they were unable to fill, reflecting the tightness of the jobs market.
China’s Ministry of Culture and Tourism reported 110 million domestic trips were made during its recent three-day Dragon Boat Festival, which was up 6.3% year-on-year, with spending rising by 8.1% year-on-year – a good sign for China’s economy. But Chinese consumers have largely been willing to spend on near-term pleasure activities. The problem is that weak consumer confidence makes them reluctant to spend on big-ticket items. Chinese Premier Li Qiang urged more specific measures to stabilize the property market in a State Council executive meeting on Friday, which is an indication that authorities are still not satisfied that recent stimulus efforts were adequately effective at turning that sector around. Yet, the path that such additional assistance could provide is not clear at this point. He did reinforce the need to provide adequate financing to complete existing development projects, while also speeding up development of a new model for the property sector that focuses on building more government subsidized housing.
Turkey will impose additional 40% punitive tariffs on all types of vehicles imported from China effective on July 4, creating more challenges for China’s economy in the wake of the recently imposed U.S. tariffs. This comes ahead of this week’s scheduled European Commission decision to implement tariffs on imported Chinese electric vehicles, despite significant efforts by China’s leadership to head off the punitive tariffs. Weekend elections in Europe that saw reflected a significant shift to the right in the European electorate raise fears that the European Commission decision will not be favorable for China. As such, Chinese Geely-owned Volvo is reportedly considering opening production facilities in Belgium to avoid the tariffs, and we may see similar efforts by Chinese automakers elsewhere. China’s stock market came under modest pressure today, fearing that this week’s Federal Reserve meeting will take a hawkish tone, making it even more difficult for Chinese authorities to implement stimulus measures without further weakening the yuan, which has continued to slowly lose value versus the dollar over the past six months.
Seventy-four percent of the U.S. corn crop is rated Good to Excellent this week, while the same is true for 72% of the U.S. soybean crop. Yes, a small portion of both crops remain unplanted, but prevent-plant acres are expected to be near “normal” levels. Ponding in excessively wet areas will take their toll, but the crops outside of these areas look quite good. As such, the market will focus on the growing season ahead. Heat is expected to build across the Midwest in the weeks ahead, establishing a summer weather pattern that will likely include a high-pressure building somewhere. Forecasts vary widely on where that high-pressure will get established. The location where that occurs will significantly impact the summer weather pattern – be it favorable or unfavorable for the Midwest Corn Belt. Forecast models vary widely in their views, but we should know a lot about the pattern that we will be dealing with for the remainder of the growing season by the end of this month.
