Perspective: Morning Commentary for October 7

By: Arlan Suderman, Chief Commodities Economist

Thu, 07 Oct 2021, 13:34

Perspective: Morning Commentary

Arlan Suderman

Chief Commodities Economist

October 7 – Stocks bounced overnight on reports that U.S. Senate Democrats and Republicans were working together on a solution to raise the debt ceiling ahead of the October 18 deadline, while a correction lower in crude oil prices eased inflation worries for now. The VIX dipped to trade near 20 this morning, which represents a one-week low for Wall Street’s “fear index.” The dollar index slipped lower to trade near 94.2 as it continues to consolidate just below one-year highs. Yields on 10-year Treasuries continue to consolidate near 1.56% this morning, which is more than 20 basis points higher than where it was consolidating a few weeks ago. Crude oil prices continue to correct over-bought status, trading nearly 1% lower this morning, while the Ags were mostly higher.

First-time claims for unemployment benefits fell to 326K in the week ending October 2^nd, down from 364K the previous week and below analyst expectations of 348K. Nonetheless, the four-week moving average rose modestly to 344K, up from 340.5K the previous week. Continuing claims of those who indicate that they have not been able to find a job fell another 97K to a post-pandemic low 2.714 million, which is the lowest level for this number since the week ending March 14, 2020, when it stood at 1.770 million. This morning’s Challenger Job-Cut Report included notices for 17,895 corporate layoffs in September, up slightly from 15,723 the previous month, but still at a relatively low level. The above numbers bode well for tomorrow’s monthly jobs report, which is expected to show that the economy created 475K non-farm jobs in September, with the unemployment rate ticking lower to 5.1%.

Inflation worries were moved from the top of the worry list on Wall Street this morning, but they linger, nonetheless. Tomorrow’s monthly jobs report is expected to show average hourly earnings up 4.6% year-on-year, reflecting wage inflation, which ends up getting passed along to the consumer through prices for goods and services. The Thomson Reuters CRB index posted fresh seven-year highs this week. The U.N.’s world food price index approaches its record highs set a decade ago. Crude oil prices are trading near seven-year highs. The U.S. Energy Department stated this week that it is considering releasing crude oil from the Strategic Petroleum Reserve to cool rising gas prices that are currently near seven-year highs. Those high prices add to inflation pressures ahead of the mid-term elections. This was last done by the Obama Administration in 2011. SPR stocks are currently at 18-year lows.

Global ports are congested with container ships, representing ongoing supply chain disruptions. Some of that congestion is due to Covid, but much of it is due to elevated levels of demand created by central banks and governments over-stimulating their economies for too long a time, not wanting to be blamed for a recession on their watch. The U.S. Congress continues to consider the largest stimulus package on record, while the Federal Reserve is one of the last of the major economy central banks to consider reversing its easy-money policy.

The velocity of money remains quite low near 1.2, down from 10.7 in 2007. It went into decline starting with the Great Recession of 2008, and then plummeted during the pandemic, suggesting that fiscal and monetary stimulus is losing its effectiveness. It created demand due to its massive nature, but we only would have needed a fraction of the amount of stimulus to get the same result a few years back. We’re still in full stimulus mode in the United States, but the economy is losing momentum, partially due to this loss of effectiveness. Now the Fed finds itself in the uncomfortable position of doing what it hates to do – reduce stimulus at a time when the economy is losing momentum. Yet, continuing on the same path could create even greater problems down the road with high inflation problems in a stagnant or declining economy.

It’s harvest time across the Midwest. Private production estimates tend to show corn yields slipping, while soybean yields rise. Yet, those soybean yields are not rising to burdensome levels yet by most estimates, while demand for edible oils is rising as new renewable fuel processing plants begin to open. That’s provided some stability for the oilseed complex following last week’s bearish USDA stocks report. I still have concerns for Chinese soybean demand. Many crushing plants remain closed due to a shortage of power in China, but the bigger problem near term continues to be poor feeding margins for hogs, which historically account for roughly half the soymeal demand. This presents bad timing for the U.S. market, which has a relatively narrow window to garner Chinese business before cheaper new-crop supplies become available from Brazil after the first of the year. Fundamentally, the trade is now focused on USDA’s supply side numbers that will be updated next Tuesday.

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Perspective: Morning Commentary for August 7

August 7 – The U.S. economy unexpectedly lost 23k jobs in July, dramatically below market expectations of an 80k increase and marking the worst Non-Farm Payrolls print since February. Furthermore, May and June were both revised sharply downward, with combined revisions showing 103k fewer jobs than previously reported. Outside of the healthcare sector, which added 22k jobs in July, the losses were very broad-based. Government payrolls saw the largest decline, shedding 53k jobs in July, the largest seen since October 2025, while June was revised down to show a loss of 10k jobs as well. The private sector at least saw growth, adding 30k jobs in July, now matching the month prior after it was revised down from the 49k initially reported, and substantially missing forecasts of 78k jobs being added. This is a sharp reversal in course from the largely better than expected U.S. labor data seen earlier this week.

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Perspective: Mid-Day Commentary for August 6

August 6 – Stocks remain quietly mixed at midday as both the S&P 500 and Dow Jones remain just below their fresh all-time highs put in yesterday. This is allowing the VIX to cool to a four-week low below the 15.4 mark, reflecting the collective sigh of relief in the market amid largely better than expected U.S. economic data today. The dollar remains quietly in the green in its relatively tight range this week, trading at 99.9 at the time of writing. Treasuries remain elevated but have cooled from their recent peaks, with 30-year yields trading at 5.189%, 10-year yields trading at 4.647%, and 2-year yields trading at 4.229% at midday. Crude oil also remains quietly in the green, with nearby WTI up 2.3% on the day trading near $76.80 and nearby Brent up 2.4% on the day trading near $81.40. The ags remain mixed, with the wheat complex now squarely in the red while corn and soybeans cling to small gains, and the livestock complex largely pushes lower.

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