March 13 – Wall Street continues to sing the tariff blues this morning, even as Senate Democrats threaten to block a continuing resolution to fund the government over the next six months, risking a partial government shutdown as early as Friday night. Shutdowns always seem like a good idea to the minority party until they actually happen, and then they quickly give in to reopen the government. As such, few shutdowns last very long, and as such, Wall Street rarely cares until they do. Meanwhile, geopolitical tensions continue to rise, with Russia scoffing at a Ukraine ceasefire and China meeting with both Russia and Iran to discuss nuclear weapons. The VIX is trading near 24 this morning as anxiety remains elevated on the Street, while the dollar index firms to trade near 104.0. Yields on 10-year Treasuries are trading near 4.34% as they slowly firm once again, while yields on 2-year Treasuries are trading near 4.00%. Crude oil prices are slipping modestly once again, while the grain and oilseed sector bounced off of yesterday’s losses in overnight trade.
First-time claims for unemployment benefits slipped to 220K in the week ending March 8, down from expectations of 230K, and down from 222K the previous week. Yet, the four-week moving average crept upward to 226K claims, up modestly from 224.5K claims the previous week. Continuing claims for the week ending March 1 totaled 1.870 million people, down 27K from the previous week. However, the four-week moving average crept modestly higher to 1.872 million, up 6,250 on the week. There were 8,215 claims filed by former Federal employees in the week ending February 22, up 803 from the previous week. We’re still not seeing the big anticipated rise in numbers due to federal employee layoffs, although some of that may be because some employees accepted financial departure packages that mean that they can’t file until those payments end down the road.
There was more good news on the inflation side today. The headline producer price index was flat month-on-month in February, down from analyst expectations of 0.3% growth, and dramatically lower than the upwardly revised 0.6% seen in January. The PPI rose 3.2% year-on-year in February, down from expectations of 3.4%, and down from 3.5% in January. The core PPI that excludes the more volatile food and energy prices fell 0.1% on the month, below expectations of 0.3% and down from an upwardly revised 0.5% the previous month. The core PPI was up 3.4% year-on-year, down from 3.6% the previous year. This week’s data shows that we still haven’t “solved” the inflation problem, but we’re entering the “tariff era” with lower inflation than expected. The debate continues over the inflationary aspects of the tariffs, but this eases those concerns a bit, since we’re entering the tariff period from a lower base. As such, the Federal Reserve has to decide whether it’s going to focus on sticky inflation or on growth concerns in this new tariff environment? In the end, it will likely just sit on the sidelines and wait for things to unfold.
Russia sees the U.S.-backed ceasefire agreement as a mere opportunity for Ukraine to regroup, according to the Kremlin. However, the spokesman stopped short of saying that Russia was rejecting the proposal, while adding that President Putin will address Russia’s position more directly later today. Meanwhile, Russia is preparing to participate in nuclear weapons talks with Iran and China in Beijing on Friday. This appears to be yet another way for Chinese President Xi Jinping to stay relevant in the Trump era where President Trump seems to be garnering the headlines while developing a better working relationship with President Putin. There’s a growing fear in Beijing that the Ukraine peace talks could strengthen the working relationship between Trump and Putin, isolating Xi in the process. None of the three trust each other, but they all know that they must deal with each other. Putin might become more worried about his neighbor to the South growing stronger and have a desire to align more with the United States once / if a Ukraine peace agreement is reached that reduces his worries about a threat from the West. Another aspect of the above is Iran seeking new avenues to access nuclear weapons technology as President Trump tightens the vise on its ability to do so itself. It may be hoping that either Putin and / or Xi will see leverage against the United States if they provide that assistance to Iran.
The grain and oilseed markets found fresh buying interest overnight after coming under pressure on Wednesday. Keep in mind that the market sold off following USDA’s February WASDE report after being disappointed that the agency failed to raise export targets. That disappointment selloff was delayed a day this time around. Yet, prices are already so low that end user buying emerges each time that the selloff pauses. That lifts prices, although buyers are still reluctant to chase prices too high amid so much tariff uncertainty. That will likely remain the case until we see how things get worked out with Canada and Mexico, with Mexico being the most critical market at this point, even more critical than China over the long run. That’s not to minimize the negative impact for specific commodities if trade is disrupted with China and / or Canada, but long-term trade with Mexico has the broadest impact.
