November 11 – It’s a day of remembrance in the United States as we celebrate Veteran’s Day. It’s a day meant to cause us to step back to appreciate the ultimate price paid by so many for the freedoms that we have. It’s a day to appreciate those freedoms, and to realize that they came at a high price, and that we should not take that for granted. It’s a day to recognize that freedom is something that should be cherished, and that although we just came through a contentious election cycle, we still have the freedom to cast our vote, and to have that vote count, to have a peaceful transition of power every four to eight years, and to live side-by-side with our fellow Americans who may or may not have voted the way that we did. It’s a time to look forward, grounded in our past.
Stock futures are poised to extend last week’s gains into new record territory this week, following through on the post-election momentum on expectations of a favorable environment for Wall Street going forward. The VIX is trading near 15 this morning, while the dollar index is notably higher near 105.6, reflecting a fresh 18-week high as the euro falls to 6-1/2-month lows on fears that anticipated new Trump tariffs will hurt the European economy. The dollar also gained against the yuan, with the yuan trading at its weakest level versus the dollar since August on overall disappointment in last week’s policy details on stimulus from the People’s Congress meeting. The U.S. bond market is closed today for the Veteran’s Day holiday. Crude oil prices are down by more than 2% this morning as Gulf of Mexico weather risks ease, and on rising Middle East peace hopes, while the grain and oilseed markets were also mostly lower as the dollar pushed higher.
Federal Reserve Chair Jerome Powell stated that the election essentially had no impact on monetary policy at this point, as there remain too many unknowns. But a look back at the 2016 election shows that Powell very much tried to get ahead of the curve by having the Fed’s staff do a thorough analysis of what to expect from a Trump economic policy, and then to adjust the Fed’s policy expectations accordingly. Policymakers quickly began their analysis after the 2016 election, presenting their results to members of the Federal Open Market Committee at their December meeting in 2016. The transcripts of that meeting suggest that the Fed determined that a “somewhat tighter policy is likely to be needed” as Trump enacted his economic plan. President-Elect Trump’s economic policy is very similar this time around as well, including tax cuts, deregulation and tariffs, with a stricter immigration policy. The latter is a concern to policymakers since the labor market is relatively tight, and all the above is concerning to them in light of the lingering embers of inflation that monetary policy has not yet been able to extinguish. Inflation was a big concern in 2016 if Trump was successful in implementing his policies, but that inflation never developed, at least not until the massive stimulus programs of the pandemic were implemented. At the very least, the market is now expecting the Fed to scale back its rate cut plans, with the market now trading expectations of just two more rate cuts between now and June. Look for the Fed to give us greater insight into its thinking at the December meeting.
China’s producer price index for October fell 2.9% year-on-year in October, reflecting 25 consecutive months of deflationary pressures at the producer level. That compares to 2.8% declines in September, and to market expectations of 2.5% deflation. Momentum is moving in the wrong direction in China. The consumer price index, which is a key measure of consumer buying strength, rose by just 0.3% year-on-year in October, down from market expectations that it would hold steady at 0.4%. Core inflation, that excludes the more volatile food and energy sectors, rose just 0.2% year-on-year in October. Traders had hoped to hear of strong stimulus measures totaling $1.4 trillion when the People’s Congress met last week. They got the $1.4 trillion package expected, but the details revealed that the money would focus mainly on relieving local government hidden debts, while offering little in the way of a clear path toward turning China’s economy around. We did see another week of stronger home sales data, but the inventory of unsold homes remains near the high end of the historical range.
The strong dollar created headwinds for the commodity sector today, with the grain and oilseed complex being no exception. Soybean prices were able to post modest gains as farmers remain reluctant sellers amid ongoing Chinese buying interest. Yet, January soybeans have yet to close above the 100-day moving average. China still has very little coverage on for December and January shipment. IF it was waiting for the election to occur, we should now see a response. Will it now aggressively buy to fill those needs, or will it draw from its vast reserves to carry it over until new-crop Brazilian supplies are available? The Brazil crop is currently looking quite good. Chinese buyers should show their hand over the next couple of weeks, which should have a significant impact on the soybean market sentiment going forward. Meanwhile, wheat prices broke below chart support, dragging corn prices into negative territory as well. It will now be the job of the basis market to pull grain out of the farmer’s hands.
