June 26 – Stocks continue to show a firmer tone as we approach the end of the month and the end of the fiscal quarter, trading very close to all-time highs. They took a bit of a setback when this morning’s jobs and durable goods data was released as investors digested the mixed messages contained in those reports. The VIX is trading below 17 this morning, just above four-month lows, with all of the above happening while we’re still in the midst of a tariff war. The dollar index is trading at a new three-year low this morning near 97.2. Yields on 10-year Treasuries are trading near 4.26%, while yields on 2-year Treasuries are trading near 3.74%. Crude oil prices are mixed to higher in consolidation trade, while the grain and oilseed markets were mixed overnight, with corn and soybeans posting modest bounces, while wheat prices continue to give way to seasonal harvest pressure.
Durable goods orders rose 16.4% month-on-month in May, blowing away analyst expectations of a 7.0% rise, and well above the 6.6% contraction seen in April when the reciprocal tariffs were announced. But much of that was transportation orders. Durable goods orders minus transportation rose 0.5% on the month, beating analyst expectations of a 0.1% rise, and up from flat orders in April. Core capital goods orders reflect business sentiment. They rose 1.7% month-on-month in May, which was impressive indeed. That compares to a contraction of 1.4% in April. This goes along with other data to suggest that we saw a rebound in economic activity in May.
First-time claims for unemployment benefits fell to 236K in the week ending June 21, down from 246K the previous week. The four-week moving average was essentially unchanged at 245K, down slightly from 245.75K the previous week. Continuing claims for the week ending June 14 rose 37K to 1.974 million, with the four-week moving average rising 16,750 to 1.941 million. The average is the highest since the first week of November 2021. Initial claims filed by former Federal civilian employees in the week ending June 14 totaled 480, down 55 from the previous week. Continuing claims filed by former Federal civilian employees in the week ending June 7 totaled 6,737, down 337 from the previous week. The weekly numbers are reasonable, but the continuing claims numbers reflect a softness in the jobs market. Firms aren’t laying off workers in significant numbers, but they’re not really hiring either amid the uncertainty that I referenced in yesterday morning’s commentary.
First quarter gross domestic product contracted by 0.5% in today’s final third reading of the data, down from the 0.2% contraction reported in the second reading. Personal consumption expenditures rose at an annual rate of 0.5% in the first quarter, down from the previous estimate of 1.2% growth. As such, the first quarter will go down as a quarter of economic contraction. A recession is defined as two consecutive quarters of GDP contraction. The Atlanta Federal Reserve’s model currently puts its running GDP estimate for the second quarter at 3.4% growth. The bottom line is that GDP data has been skewed by businesses responding to President Trump’s April 2 reciprocal tariff announcement. They hoarded inventories ahead of the announcement late in the first quarter. That tends to push the GDP calculations down. Then they “spent down” those inventories in April and May, which tends to push GDP up. In reality, real GDP growth is probably an average of the two, which currently appears to be closer to 2% for the first half of the year. Another data point to look at is the Chicago Fed national activity index, which came in at -0.28 in May, suggesting modestly below trend economic growth for the month of May, with the three-month moving average coming in at -0.16. And the major stock indices continue to trade near record highs for now.
Corn and soybean prices posted modest bounces overnight after seeing significant selling damage to the charts in recent days. It’s no secret that current old-crop corn and soybean supplies are adequate to get us to the next harvest, even if USDA further bumps export estimates for the crop produced last year. We’re not going to run out of supplies ahead of harvest. As such, the focus is on the new crop that is currently growing in the field. Crop ratings typically decline this time of year, but this year’s ratings are declining at a slower pace than normal, which works to push yield models upward rather than downward. The forecast remains favorable as we look into the early part of July, with temperatures moderating after a hot finish to June. Yet, we’re seeing some value buying come in this morning as end users figure that they face increased upside price risk at these low levels, as weather models are known for their ability to flip hot and dry this time of year. Likewise, speculators see an opportunity to take profits ahead of the end of the month and the end of the quarter on the same premise. Yet, there’s very little out there currently to give courage to market bulls to build positions. Keep in mind that the next week is often very pivotal for these markets as they absorb the June 30 USDA stocks and acreage potential surprises, and we get updated weather models that look deep into the pollination period for corn. Meanwhile, wheat prices continue to feel seasonal harvest pressure, with yields generally coming in at impressive levels.
