March 5 – We saw a broad recovery bounce unfold overnight in the broader markets, following a very partisan speech by President Trump last night before a joint session of Congress, although this morning’s private sector jobs report provided a dose of reality. Stock futures were modestly higher this morning, but the VIX continues to trade elevated near 24. The dollar index continued its recent slide overnight, trading at fresh five-month lows near 104.9. Yields on 10-year Treasuries are trading near 4.21%, while yields on 2-year Treasuries are trading near 3.91%. Both had been bouncing overnight until this morning’s jobs data was released. Crude oil prices continue to trade near longer-term areas of support near $67 per barrel, although prices remain under pressure due to signs of economic decline combined with reports that OPEC+ will move forward with starting to increase output next month. However, the grain and oilseed markets bounced notably overnight as end users stepped in to get coverage once the slide in prices slowed. The recent price collapse made U.S. commodities much more competitive on the world market, which has triggered some demand for now.
It was one of the most partisan speeches before a joint session of Congress that I’ve seen in my lifetime, but the post-speech polls indicate that roughly three-fourths of those who viewed it found hope in the message. That eased the fear trade that we’ve seen in recent days – at least for now. President Trump effectively provided a sense of purpose to the chaos created in Washington in a way that resonated with Republicans, Independents, and even some Democrats. It added a bit of perspective to what had appeared to be haphazard actions by the president over the past few weeks in the eyes of many Americans, buying President Trump a bit of time with the American public to carry out his agenda. Political support can be very fickle. It comes and goes with the next headline. But for now, he garnered a bit more support and more time.
Notably absent in his comments was much focus on China, even though I am increasingly convinced that many of his actions have the ultimate goal of containing our largest rival. As such, I still expect that the current tariffs challenges with Canada and Mexico will soon be cleared up with agreements that ultimately help the United States to contain China. It won’t be stated as such, but I believe that to be President Trump’s underlying objective, along with stopping the flow of fentanyl into the United States – the drug that claims more than 75K Americans per year, many not even aware that they’re ingesting it. Yet, Trump is very strategic in his mentions of China as he tries to walk the line between applying maximum pressure while still maintaining a relationship of respect with President Xi Jinping that can allow for dialogue. China pushed for 13 face-to-face meetings with U.S. negotiators before finally signing the Phase One trade agreement in Trump 1.0. President Trump wants to see faster action this time.
Ukraine appears ready to work with President Trump once again, following Friday’s White House blow up. President Trump read a statement from Ukraine President Zelenskyy stating that he is now eager to work with the United States to sign the rare earth minerals treaty and to garner peace for his nation. This increases the likelihood that we will see a peace agreement in the Black Sea Region. The rare earth minerals agreement reduces the leverage that China currently holds on the United States, while putting U.S. civilian resources into many areas of Ukraine. The latter will make it more challenging for Russian President Putin if he were to decide to break the peace agreement, but he’s also less likely to do so if Ukraine is not a member of NATO.
China raised its defense spending by 7.2% in actions taken yesterday, reflecting a roughly 15% rise over the past two years. China clearly sees the United States as a threat, although the United States has no incentive to attack it directly. China can’t really afford to go deeper into debt with so many economic challenges. It’s already pushing its debt to historic levels trying to stimulate its economy as President Trump’s sanctions and tariffs maximize pressure on the Chinese economy. It reminds me of when President Regan created similar challenges for the U.S.S.R. in the 1980s. The U.S.S.R. kept ramping up its military budget as a response to Regan’s policies until it imploded on itself, leading to its breakup. I’m not forecasting a breakup of China, but I am saying that Trump is creating some very real challenges for China in its efforts to achieve its goals of global superiority.
President Trump gave a shoutout to the American farmer last night. Grain and oilseed prices plummeted in recent days over fears that Trump’s tariffs with Canada, Mexico and China would create export challenges for U.S. commodities. Trump said that American farmers need to be prepared to sell large volumes of what they produce here at home, but he stopped short of tying that domestic demand to increased support for the biofuel program. Yet, the mention of the American farmer indicated that the farmer has his ear, increasing hope in the markets for now.
