October 26 – Stock futures took back some of their overnight losses following this morning’s data release that relieved fears of a more hawkish Federal Reserve, with the dollar following Treasury yields lower. The VIX dropped to trade near 21 following the data dump, while the dollar index pulled back on overnight gains to trade near 106.6. Yields on 10-year Treasuries dropped to trade near 4.91%, after trading near 4.99% overnight, while yields on 2-year Treasuries traded near 5.06%. Crude oil prices are down nearly 2% this morning, although they came off their lows on today’s data release. The grain and oilseed markets were mixed overnight, but prices firmed on good export sales numbers this morning.
Durable goods orders rose 4.7% month-on-month in September, up from a downwardly revised -0.1% in August, and well above analyst expectations of 1.0%. However, durable goods orders minus transportation “only” increased 0.5% month-on-month, matching the previous month’s growth, while still above the 0.2% expected by analysts. Core capital goods orders that are seen as a measure of business confidence rose 0.6% month-on-month in September, down from 1.1% growth in August, but above analyst expectations of 0.0% growth. Transportation orders put a strong upward bias to this data. Taking that out, we still saw better growth in order than expected, reflecting resiliency in the economy in September.
Gross domestic product grew at an annualized rate of 4.9% in the third quarter, as reported in the first reading of the data released this morning. We’ll get additional revisions of the data over the next couple of months. Today’s number more than doubles the 2.1% growth seen in the second quarter, and it exceeds analyst expectations of 4.2% growth. Personal consumption expenditures rose at an annualized rate of 4.0%, up from 0.8% growth in the second quarter, but slightly below analyst expectations of 4.1% growth. This data again supports the Federal Reserve’s narrative of “higher for longer” regarding interest rate policy needed to bring inflation down to the 2% mandate.
First-time claims for unemployment benefits rose to 210K in the week ending October 21, up from 200K the previous week and above the 208K claims expected by analysts. That pushed the four-week moving average up slightly to 207.5K claims, up from 206.25K the previous week. Continuing claims for the week ending October 14 rose a more substantial 63K to 1.790 million, marking the second consecutive week of a substantial increase in continuing claims. That moved the four-week moving average to 1.724 million, up 31,250 from the previous week. The weekly claims number remains quite low, although it ticked higher this week. But the more notable increase in the continuing claims number is what Wall Street clung to as indication that the jobs market is softening, reducing the need for the Federal Reserve to further raise rates when it meets in six days. Fed Funds futures are now trading zero percent odds of a rate hike next week, although they maintain one-in-three odds of a hike by January.
Ukraine temporarily suspended movement of ships through its humanitarian corridor today while it seeks to find and remove four objects dropped from Russian planes near the corridor. It’s believed that Russia dropped four objects into the waters that were likely acoustic and/or magnetic sea mines. Exporters complain that they are responsible to pay ship owners up to $75,000 per day for delays, raising the costs of exports that chew into the value of the grain being shipped. The actions come following Ukrainian reports that it was on pace to ship about one million metric tons of grain per month via the corridor, with plans to further increase that capacity in the future. More than 40 cargo vessels had entered the corridor since it began operating in August, carrying 1.5 mmt of products, with a goal of reaching 2.5 mmt of movement per month.
Grain and oilseed prices firmed overnight – especially wheat – on the reports that Ukraine temporarily suspended movement in the humanitarian corridor, although price movement did not reflect panic in the market, with Russia still dumping plenty of cheap wheat on the world market following back-to-back bumper crops. Additional support came from this morning’s release of USDA’s weekly export sales report. Exporters sold 507,500 metric tons of soymeal in the week ending October 19, with more than 40% of that going to the Philippines. They also sold 53.2 million bushels of this year’s corn crop (30 million of that to Mexico), along with 50.6 million bushels of soybeans (42.9 million going to China), and 13.4 million bushels of wheat (China taking 1.3 mln HRW & 1.1 mln HRS).
