May 8 – Stock futures pushed higher overnight on reports that the Trump Administration is very close to a trade agreement with Britain. President Trump stated that a trade deal will be announced at 10 a.m. ET today on some goods, marking the first trade deal completed since the reciprocal tariffs were put in place on April 2. The expectation is that a “framework” of a deal will be announced, rather than a fully detailed deal, which would likely take more time to iron out, but it would show progress that Wall Street has been seeking, nonetheless. The VIX slipped below 23 this morning, while the dollar index traded near 99.9. Yields on 10-year Treasuries are trading near 4.29%, while yields on 2-year Treasuries are trading near 3.82%. Crude oil prices are 1.5% higher this morning, while the grain and oilseed markets are mixed to firmer.
First-time claims for unemployment benefits fell to 228K in the week ending May 3, down from 241K last week, and down from analyst expectations of 232K claims. The four-week moving average ticked slightly higher to 227K claims, up from 226K the previous week. Continuing claims for the week ending April 26 fell by 29K to 1.879 million, while the four-week average rose by 8,750 to 1.874 million. Initial claims for benefits filed by former Federal civilian employees in the week ending April 26 totaled 468, down 2 from the prior week. Continuing claims from former Federal civilian employees in the week ending April 19 totaled 6,716, up 82 from the previous week. Overall, these numbers remain somewhat elevated, but relatively stable. Other data released today revealed that non-farm productivity fell 0.8% on an annualized basis in the first quarter, which was worse than the 0.5% decline anticipated by analysts, and it was down from the 1.7% growth seen in the fourth quarter of last year. Unit labor costs increased as a result, rising 5.7% on an annualized basis in the first quarter, up from expectations of 5.2% growth, and up from 2.0% growth in the fourth quarter of last year. This reflects a rise in wage inflation in the first quarter.
This week’s Federal Reserve meeting came and went without much fanfare. It received a lot of attention, as they always do, but in the end, there were few changes of note or surprises. The Fed kept its benchmark interest rate target at 4.25 – 4.50%, with the overnight rate hovering around 4.35%. No new forecasts were issued this month to provide additional insight into the thinking of policymakers, so the focus was on the wording of the policy statement and on Fed Chair Jerome Powell’s press conference. There were few meaningful changes to the policy statement, but it was noteworthy that it stated that the “unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid. Inflation remains somewhat elevated.” Note that the unemployment rate at 4.2% is just below 4.3% last summer when Powell noted that we cannot allow it to go higher. But the current rate is very low from a historical perspective. Powell stated in the press conference that, “We are well positioned to wait for greater clarity before considering any adjustments to policy stance,” as we expected. Don’t expect a rate change until / unless the tariffs push inflation higher, or the jobs data significantly deteriorates.
China continues to prop up its stock market in an attempt to stabilize consumer confidence while encouraging more foreign investment. It’s doing so via purchases by its sovereign wealth fund that is fully backed by the People’s Bank of China, as well as by directing its insurance companies to invest capital in the markets. China’s sovereign wealth fund increased ownership of stocks by more than 20% in the first quarter alone this year, and it continues to buy. Container bookings for shipment of goods from China to the United States improved in the week between April 28 and May 4, as Walmart and other buyers resumed shipments. Container bookings during the week were still down 27% from normal, but that’s an improvement from being down nearly 43% prior to that week. Meanwhile, President Xi Jinping is in Moscow to shore up his relationship with Russian President Vladimir Putin.
USDA reported solid weekly export sales data for this time of year for corn, soybeans and wheat this morning, while pork and beef sales continue to reflect the loss of business with China. Japan was the featured buyer of U.S. corn during the week, while Mexico was the top buyer of soybeans. It shows that cheap prices find demand, although the question remains over whether prices have become cheap enough yet to buy sufficient demand to match the anticipated supply. The market is assuming that the EPA will come through with a strong biofuel program to support soybean crush, although soybean crush cannot increase enough in the year ahead to replace lost business with soybeans to China IF that occurs. It should be noted that July corn fell below a triple-bottom on the charts on Wednesday, reflecting the vulnerability of that crop to falling lower trying to uncover more demand. Wheat prices are struggling to find firm footing as well, following recent rains that are boosting U.S. production estimates, combined with showers improving production prospects for Russia as well. As such, it currently appears that demand is improving at these price levels, but traders are worried that supply may be rising at a faster pace.
