May 20 – The major stock indices were essentially flat this morning, as traders continue to digest the latest economic data, tariff headlines, and as they wait to hear from several members of the Federal Open Market Committee who will be making public appearances today. The VIX is trading near 18 this morning, reflecting a relatively low level of market anxiety currently, while the dollar index trades near 100.5. Yields on 10-year Treasuries are trading near 4.49%, while yields on 2-year Treasuries are trading near 3.99%. Crude oil prices are modestly higher this morning, while the grain and oilseed markets were firmer again overnight.
Wall Street will be monitoring comments from four different members of the Federal Reserve when they speak at various events today, to get a better understanding of their view of President Trump’s tariff war, the anticipated impact on the U.S. economy, and possible implications for U.S. monetary policy going forward. However, the chances that they’ll get any great revelation from the comments of these various FOMC members is relatively low. We’ve already heard from Vice Chair Jefferson in recent comments, who stated that there are “risks to both sides of the mandate,” and “we’re positioned to respond as needed.” Other FOMC members have stated that we shouldn’t “jump to conclusions” and that we should have “patience” as this played out.
In other words, the FOMC doesn’t know any more than the rest of us. They are in a holding mode, waiting for the hard data to give them direction. This isn’t any different than what we’ve seen from the Fed over the past couple of decades – it’s going to let the data lead it. They’re going to be afraid of cutting interest rates as long as the economy has a resiliency to it, with lingering tariff-related inflation risks, and they’re going to be reluctant to raise interest rates to fight those inflation risks as long as the trade war presents risks to the job market. A market moving headline would likely be if one of these members would speak with clear direction, but that’s not likely any time soon. Our overall expectation is that the Fed will do nothing with its benchmark interest rate until later this year.
China reports that its industrial output grew 6.1% year-on-year in April, down from 7.7% growth in March, but above the 5.5% growth that was anticipated. Those are the government numbers that will spur discussion and scrutiny, considering the reported layoffs in the manufacturing sector following implementation of President Trump’s reciprocal tariffs of 145%. In fact, the government data indicates that overall urban unemployment across the country came in at 5.1% in April, down from 5.2% in March. It also reports that retail sales grew at a 5.1% year-on-year pace in April. That was down from 5.9% in March, and down from expectations of 5.1%, but it’s still a respectable growth pace. Yet, a deeper dive into the numbers shows that the government’s trade-in program, with extended subsidies, served as the primary driving force in stabilizing domestic consumption in April. Yet, the wealth effect of the average consumer barely improved. Investments in the property sector declined by 10.3% on the year, compared to a 9.9% decline in the previous report. Unsold properties declined by 0.66% on the month, but they’re still up 4.81% on the year, and they’re nearly 60% higher than they were when the cycle started in 2020.
China continues to reduce its ownership of U.S. debt. Treasury Department data shows that China owned $765.4 billion in U.S. debt certificates in March, down $18.9 billion from February, and down by more than 30% from $1.1 trillion in 2021. The total now ranks it number three among foreign holders of U.S. debt certificates behind Japan ($1.13 trillion) and the United Kingdom ($779.3 billion). Foreign holders of U.S. debt rose to a record high $9.05 trillion in March, which accounts for roughly a quarter of all debt. The top holder of U.S. debt is the U.S. government, followed by the Federal Reserve.
Heavy rains fell in key crop areas of Argentina over the weekend, interrupting the harvest of this year’s corn and soybean crops. The Buenos Aires Grain Exchange reports that a significant portion of the soybean crop remained unharvested in the region where the most intense rains fell, with more than 10” reported in a few locations. The most impacted area is in northern Buenos Aires, where roughly 530,000 hectares remained unharvested, and which are expected to show varying levels of damage. Parts of western Buenos Aires also received heavy rains of 4 – 5” of rainfall. No significant losses were anticipated from areas to the west of Buenos Aires. Here in the States, USDA reports that 78% of the U.S. corn and 66% of the U.S. soybean crops were planted as of Sunday, up 5 and 13 points respectively from the five-year average. Planting delays are confined to southern and eastern portions of the Midwest where forecasters believe there will be windows of opportunity to get the planting done. Even so, these areas will need to be watched over the next couple of weeks for the possibility of lost corn acres. The amount of acres involved probably won’t matter though, unless we see a weather threat develop in the Midwest this summer.
