November 5 – It’s Election Day in the United States, which will be the primary focus on Wall Street today, amid hopes that we’ll have some certainty by tomorrow, one way or the other. That would then allow the market to focus on the Federal Open Market Committee on Wednesday and Thursday. Stock futures traded choppy with a firmer bias early this morning. The VIX is trading near 22, while the dollar index traded near 103.7. Yields on 10-year Treasuries are trading near 4.32% this morning, while yields on 2-year Treasuries are trading near 4.18%. Crude oil prices were modestly higher as a new Tropical Storm targets the Gulf this weekend. The grain and oilseed markets were also modestly higher with tailwinds from higher crude oil prices and the weaker dollar.
I’ve seen many presidential elections in my lifetime, and the emotional intensity that I observe seems to go up with each one. My first opportunity to vote for a president was in 1980, and it was deemed the most important election in our nation’s history, as has each election that has followed. And I believe that has been true. Each successive election takes on increased importance as our nation evolves as a country. Our nation has rarely been more divided, outside of perhaps the Civil War in the 1860s or the Civil Rights movement a century later. And yet, our democracy lives on. Emotions are high, in part, because we have the freedom to express our views in America, but we must never forget that freedom came at a high price that we must never take for granted.
The most frequent question that I’ve been asked by reporters from the Wall Street Journal to local news outlets centered around the anticipated impact of the election on trade with China. Both candidates have served four-year terms. Harris wasn’t in the top seat, but she indicates that she was in tune with and supportive of decisions implemented by the top seat. The trade policy relative to China was very similar in nature between the two administrations. The differences were rather small. Both have tried to outdo one another in speaking tough on China, which tells us something about how poorly China polls among the electorate. That’s something that China should and likely has taken notice of – that the American public does not view it favorably, and that politicians wanting to be elected / re-elected need to take a stand consistent with that if they want to win. As such, we will likely continue to see America deleverage from the purchase of goods and services from China going forward, whoever is in office, but I believe that would likely be at a more aggressive pace with Trump in office, and that’s the way that China sees it as well.
That’s the assumption regarding Chinese purchases of U.S. commodities as well, but I disagree with that. China is already deleveraging from purchasing commodities from the United States – has been for years – and I see that trend continuing regardless. It will already be shifting to new-crop purchases from the Southern Hemisphere by the time the new president takes office, so that shouldn’t change much. It’s policy over recent years has been to buy only what it needs from the United States – no more and no less – while purchasing as much as it can from other sources. That will continue regardless of who is in office or on the tariff policy. As South America continues to expand soybean and corn production, China will continue to expand the portion that it purchases there. That was the case during the Trump trade war. China found ways to buy what it needed from us – no more and no less. It simply needed a lot fewer soybeans then, because African Swine Fever had decimated its hog herd. The only thing of note that I could see accelerating that deleveraging process would be if China would make a move on Taiwan, and I do not know President Xi Jinping’s plans for the timing of that, relative to who is in office in the States.
Home sales in China saw year-on-year growth in October for the first time since February. Sales of new and pre-owned homes rose 3.9% year-on-year and 6.7% month-on-month in October. Sales of existing homes surged by 8.9%, but the existing inventory of homes still remains at historically high levels, so we’ll need to see this momentum sustained going forward. Property ownership makes up roughly 60% of the average household assets in China, so the health of the property sector has a big impact on consumer sentiment. As such, a stabilized property sector is essential to turning around consumer sentiment in China.
Tropical Storm Rafael is expected to reach hurricane strength as it moves toward the Gulf of Mexico this week, keeping the energy markets on edge. Current estimates suggest that we could lose 1.7 million barrels per day of production as platform crews are evacuated ahead of the storm. Grain and oilseed prices again found modest buying interest ahead of the election, and ahead of Friday’s USDA WASDE crop report, which is expected to see modest declines in the size of this year’s U.S. corn and soybean crops due to the dry finish to the season. StoneX’s customer survey pegs the corn and soybean crops at 183.7 and 52.6 bushels per acre respectively.
