September 11 – The markets have a somber tone this morning as we remember that fateful day 23 years ago when terrorists brought their war to America. We pause to remember all of those who gave their lives on that day, and in the years to come to protect the freedoms that we cherish. May we never forget that freedom has a price, and may we never take it for granted. Stock futures maintained a negative tone overnight as traders braced for today’s inflation numbers, while also digesting the results of last night’s presidential debate between Vice-President Kamala Harris and former President Donald Trump. It wasn’t America’s finest moment as the two bickered and argued, but democracy isn’t always pretty. It brings out the best and the worst of us, but in the end, it is still the people’s choice. That is a freedom not to be taken lightly in today’s world. The markets were weaker overnight, but they still represent the greatness of capitalism and democracy, and the ability of the individual to pursue their dreams and aspirations.
A cautious tone continues to limit additional advances in stocks ahead of next week’s Federal Reserve meeting. Traders have already priced in expectations of a 25-basis point rate cut to be followed by many more rate cuts in the months to come – at least in the view of traders. There’s still that view that we could see the Fed surprise us with a 50-basis point rate cut, as some members of the Federal Open Market Committee have hinted that it might be prudent to frontload the rate cut cycle. I don’t agree with that thinking, but I do recognize that as a possibility. The risk in doing so is that it would possibly communicate to the markets a fear that perhaps the Fed thinks that the economy is in worse shape than it really is at this point, leading to a market sell-off, and to consumers thinking that perhaps they should wait even longer to make big ticket purchases. Regardless, we’re a week away from the Fed settling that debate. The VIX is trading near 19 this morning, while the dollar index is trading near 101.8. Yields on 10-year Treasuries traded to a fresh 15-month low before rallying to 3.68%, while yields on 2-year Treasuries posted a fresh 17-month low before rising to also trade near 3.68%. The broader commodity sector feels light tailwinds this morning, with crude oil bouncing 2% following yesterday’s collapse on demand concerns as Hurricane Francine moves through the Gulf of Mexico toward a landfall on the Louisiana Coast later today, while the grain and oilseed market firms ahead of tomorrow’s big USDA WASDE crop report.
The headline consumer price index rose 0.2% month-on-month in August, matching the previous month, and matching analyst expectations. The headline CPI rose 2.5% year-on-year in August, falling from 2.9% the previous month, and below analyst expectations of 2.6%, while getting ever so close to the Fed’s 2% mandate. The core CPI that excludes the more volatile food and energy sectors rose 0.3% month-on-month in August, up from 0.2% the previous month, and above analyst expectations of 0.2%. However, the core CPI rose 3.2% year-on-year in August, matching both the previous month and analyst expectations. The big declines were seen in energy prices last month, with the sector dropping 0.8% month-on-month in August, led by a decline of 1.9% for both fuel oil and for natural gas during the month. Used car and truck prices also fell another 1.0% during the month, while new car prices were mostly flat. Those sectors largely offset lingering inflation in other areas, with apparel costs seeing monthly increases of 0.3%, while shelter costs rose an alarming 0.5% and transportation costs rose by 0.9% on the month. It’s those latter inflation numbers that remain sticky that led to stock futures adding to their losses on the data release as the dollar index followed Treasury yields higher on ideas that the Fed will be reluctant to give us a 50-basis point rate cut while these areas of the service sector continue to battle lingering inflation.
Chinese officials watched last night’s presidential debate with interest. Today’s markets moved lower in China on the resignation that both candidates presented a hardline on trade with China, albeit with different strategies. The fact that both candidates spoke with a hardline is reflective of the fact that such a stance polls well with U.S. voters, and that is a problem for China. The American voter sees China’s current strategy as a threat, both economically and militarily, and therefore policymakers who must be regularly elected to their positions have to acknowledge that in their positions and in their policies. That continues to push America, along with Canada and Europe toward deleveraging from China, which presents a significant threat to China’s economy. China recently initiated an anti-dumping investigation against Canadian rapeseed imports after Canada placed 100% tariffs on Chinese electric vehicles and 50% tariffs on steel and aluminum, following the path of Europe and the United States. Yesterday, China said that the investigation will take a year, and that could be extended by another six months if necessary, seemingly giving Canada the opportunity to back down. But today, Canada threatened to further broaden the scope of its tariffs, which will likely make Chinese buyers reluctant buyers of Canadian rapeseed, resulting in a flood of Canadian canola oil south into the United States to green diesel fuel producers, displacing soyoil.
