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Perspective: Morning Commentary for November 6

Arlan Suderman
Arlan Suderman

Chief Commodities Economist

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November 6 – Volatility remains high on Wall Street this morning, as we add the monthly jobs report to the post-election market correction. The Nasdaq dropped sharply on Thursday amid a fear that the Democrats taking over Congress would create major challenges for tech companies – especially those involved with AI. It’s trying to bounce this morning, but the headlines over AI risks continue to flow. Today’s jobs report should help to redirect some of that focus momentarily, but the possibility of more volatility clearly remains with us. As such, the VIX – Wall Street’s “fear index” – is trading near 27 at this hour. My observation over the decades is that commodity assets struggle to sustain rallies when the VIX is above 30, unless that asset has a strong story of its own. The dollar index is trading near 102.3. Yields on 10-year Treasuries are trading near 4.86%, while yields on 2-year Treasuries are trading near 4.53%. WTI crude oil is trading near $91, while Brent trades near $98 per barrel. The grain and oilseed sector traded mixed overnight, with wheat posting double-digit losses, while corn and soybeans were either side of unchanged in early trade.

The U.S. economy created 165K jobs in October, nearly tripling the average trade guess going into the report of 62K. Furthermore, the September number was revised to 60K jobs created, up from the original 29K reported, while August was revised up by 53K to 186K job creations. That’s an upward revision of 84K over the past two months combined, on top of today’s strong number. The unemployment rate fell to 4.1% in October, down from 4.2% the previous month, and below the 4.2% expected by analysts. To put that into perspective, The U.S. unemployment rate has only been this low or lower 16.5% of the time over the past 70 years. That said, we did see the number of people employed part time for economic reasons rise by 339K to 4.8 million in October. These are people working part time because their hours have been reduced, or they were otherwise unable to find full-time work. The job participation rate also rose to 61.9%, up from 61.8% the previous month, and the highest since May.

Manufacturing added 19K jobs in October, professional and business services added 70K jobs, and health care added 42K. Transportation and warehousing added 25K jobs during the month. Average hourly earnings also ticked up to 0.4% gains on the month, up from expectations of 0.3% gains. The September data was also revised to show 0.3% monthly gains in hourly earnings, up from the 0.1% gain originally reported. Average hourly earnings were up 3.1% year-on-year in October, up from 3.0% the previous month and above analyst expectations of 2.9%. This data shows a bit of a jump in wage inflation in October. The average workweek remained unchanged at 34.4 hours.

The above jobs data combined with this week’s election results simply add more uncertainty to consider for policymakers at the Federal Reserve. A strong jobs market gives policymakers the latitude to hike interest rates. But at the same time there’s a strong belief among those policymakers that much of the sticky inflation problem is a product of high energy prices tied to the war with Iran. The sweeping blue wave that took control of Congress is expected by many to weaken President Trump’s ability to wage that war, which leads some analysts to believe that a peace agreement will need to be reached that would bring down energy prices, leading to lower inflation. Furthermore, that blue wave has also made it clear that it is anti-AI and data centers. Democratic leaders have already made it clear that they intend to introduce a number of bills in Congress to tighten controls on both. AI and data center construction have been some of the leading factors providing strength to the current economy. Should the Fed hike interest rates when the economy may face headwinds by these Congressional actions?

Both Iran and Democratic Congressional leaders anticipate that the blue wave that swept Congress out of the hands of Republicans will leave President Trump sufficiently weakened that he won’t be able to accomplish much of anything going forward, let alone wage a war against Iran. That will make Iran even tougher to deal with in negotiations. Congress has the power of the purse, and the president has the power of the veto pen. President Trump knew this was a risk when he took office two years ago as he studied the historical tendencies for midterm elections, which is why he packed four years’ worth of agenda work into two years. Democrats will work to make life miserable for him over the next two years, while he will do all he can to block their agenda. That will likely lead to a government shut down periodically as they each leverage positions to get their way. President Trump is polarizing. Those in politics either love him or despise him. Yet it is clear that independents can swing either way, and their vote is essential. The focus now shifts to the 2028 elections. Republicans seeking office – including the nomination for president – will now likely try to separate themselves from Trump sufficiently to appeal to independents, while trying to walk the line to maintain enough connection to Trump to hold support from his supporters. President Trump may very well try to “finish” the job in Iran before the Democrats take over, but that won’t be easy, as I said in March.       

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Perspective: Morning Commentary for November 6

November 6 – Volatility remains high on Wall Street this morning, as we add the monthly jobs report to the post-election market correction. The Nasdaq dropped sharply on Thursday amid a fear that the Democrats taking over Congress would create major challenges for tech companies – especially those involved with AI. It’s trying to bounce this morning, but the headlines over AI risks continue to flow. Today’s jobs report should help to redirect some of that focus momentarily, but the possibility of more volatility clearly remains with us. As such, the VIX – Wall Street’s “fear index” – is trading near 27 at this hour. My observation over the decades is that commodity assets struggle to sustain rallies when the VIX is above 30, unless that asset has a strong story of its own. The dollar index is trading near 102.3. Yields on 10-year Treasuries are trading near 4.86%, while yields on 2-year Treasuries are trading near 4.53%. WTI crude oil is trading near $91, while Brent trades near $98 per barrel. The grain and oilseed sector traded mixed overnight, with wheat posting double-digit losses, while corn and soybeans were either side of unchanged in early trade.

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