October 24 – Stock futures were mixed overnight following yesterday’s big selloff, as Treasury yields pull back a bit from yesterday’s gains. The VIX is trading near 19 again this morning, while the dollar index trades near 104.2. Yields on 10-year Treasuries are trading near 4.22%, while yields on 2-year Treasuries are trading near 4.06%. Crude oil prices are 1% higher, while the grain and oilseed markets are mixed to higher as well.
First-time claims for unemployment benefits dropped to 227K in the week ending October 19, down from 242K the previous week, and well below analyst expectations of 247 claims. Even so, the four-week moving average firmed to 238.5K, up from 236.5K the previous week. Continuous claims for the week ending October 12 rose another 28K to 1.897 million, with the four-week moving average rising by 17.5K to 1.861 million. These numbers are concerning, although the weekly numbers have been elevated somewhat by damage to businesses done by Hurricane Helene. We actually saw a significant decrease in claims in Florida in the latest week reported (-3,257), which also may be related to reporting disruptions due to Hurricane Milton.
The Chicago Fed national activity index is constructed from 85 existing economic indicators to reflect an economy growing at trend levels when it reads “zero,” with a standard deviation of one. The index fell to -0.28 for September, which means that the economy was growing at a below-trend pace during the month. That was down from a downwardly revised -0.01 in August. The three-month moving average for the index is now at -0.19. Breaking down the data further shows that the production-related indicators came in at -0.21 for September, down from +0.04 in August, which reflects some of the ongoing problems in manufacturing. The sales, orders, and inventories index was unchanged in September at -0.03. The employment-related indicators were also at -0.03 in September, down slightly from 0.00 in August. The personal consumption and housing category was -0.01, which was a small improvement from -0.03 in August. These numbers again represent a stagnant, yet resilient, economy.
Starbucks coffee sales dropped 14% in its Chinese stores in the last quarter, reflecting a shift of the consumer to local coffee brands, combined with declining consumer spending overall amid economic concerns. The Starbucks numbers provide further evidence of ongoing consumer confidence problems, albeit from the previous quarter. China’s big stimulus programs were largely announced at the end of that quarter. Those stimulus programs have had an immediate impact on consumer demand, but fears remain within China that they will not have enough of a positive impact on the property sector to maintain positive momentum with consumers, and that export demand will continue to struggle due to the West deleveraging from China.
The landmark BRICS Summit concluded in Russia today with mixed results. A joint declaration released during the summit stated that BRICS nations are “deeply concerned” about the disruptive impact of “illegal sanctions” on the global economy. That’s obviously wording that was heavily influenced by the host country of Russia. The statement stressed the need to reform the international financial architecture to make it “more inclusive and just.” China’s President Xi Jinping presented a broad vision for BRICS countries to remain committed to peace, innovation, green development, justice, and closer people-to-people exchanges. Sanctions on Russia following its invasion of Ukraine have hurt it significantly, and I believe that China fears similar sanctions if it makes a move on Taiwan. Therefore, both countries have a significant incentive to try to push through a new trade payment system based on the yuan rather than the dollar. In fact, Russia used the summit to propose building a BRICS grain exchange, since BRICS members are among the world’s largest producers and consumers of grains and oilseeds. Russia is currently taking steps to squeeze out private exporters so that only state-controlled exporters are allowed to ship grain. It’s another way to control the movement of grain and the price that buyers must pay. Russian President Vladimir Putin met one-on-one with Xi at the summit to discuss the settlement infrastructure of the new proposed payment system for trade.
Export sales for the week ending October 17 were released by USDA this morning, reflecting massive corn and soybean sales. Exporters sold 141.8 million bushels of the current year corn crop, along with 22.9 million bushels of next year’s crop. The current-year sales were second only to 292.8 million bushels reported in January 2021 when China announced a huge purchase as Joe Biden was being inaugurated president. This time, the bulk of the sales were to Mexico, accounting for virtually all of the new crop sales and 66.1 million bushels of the current-year sales. China was again the featured buyer of U.S. soybeans during the week at 47.4 million bushels. Based on today’s report, year to date sales exceed the five-year seasonal pace needed to hit USDA’s target by 117 million bushels, while soybeans still fall short of the five-year seasonal pace by 108 million bushels.
