September 30 – Stock futures came under modest pressure overnight as Wall Street prepares to close the books on the month of September, as well as on the fiscal quarter. This week’s focus will be on the jobs market, coinciding with what the Federal Reserve has indicated is its primary focus as well. We’re scheduled to get the JOLTS report on Tuesday, followed by the ADP Employment report on Wednesday, the weekly jobless claim numbers on Thursday, and finally the government’s monthly jobs report on Friday. Meanwhile, traders will also be monitoring developments in the Middle East to see if we see a ground invasion by Israel into Lebanon that could contribute to a broadening of the war there. The VIX firmed to a 12-day high above 17 this morning, while the dollar index traded near 100.4. Yields on 10-year Treasuries are trading near 3.78%, while yields on 2-year Treasuries are trading near 3.62%. Crude oil prices traded both sides of unchanged overnight. The grain and oilseed sector traded mixed overnight, with soybeans pulling back from Friday’s big gains, while wheat prices firmed on weather-related supply concerns, and on positioning for today’s set of USDA reports.
Talks remain at a standstill with the International Longshoremen’s Association Union, which indicates that they are prepared to go on strike tomorrow at all East and Gulf Coast ports. The strike is expected to shut down ports from Texas to Maine, backing up the movement of consumer goods and containerized commodities, as I’ve previously detailed. Even a short strike would be expected to have a big impact on the U.S. economy, costing it as much as $5 billion per day. The anticipated strike would be the first of its kind in almost five decades if it happens as expected tomorrow, coming just ahead of the holiday shopping season. Businesses have been trying to prepare for the possibility of a strike for months, but there’s only so much stocking up that can occur. Small and medium sized retailers are expected to feel the brunt of the strike, as big-box retailers have a greater ability to stock up. These larger retailers will also be a priority for moving freight once the strike ends, leaving smaller retailers waiting. Bulk commodity movement is not expected to be impacted by the strike, and the union has stated that it will continue to move military cargo and handle cruise ships as well.
China’s CSI 300 stock index surged by more than 8% in today’s trade, putting it 27% above its mid-September low. The euphoria is tied to the latest round of stimulus measures outlined by Chinese authorities, with more expected in the weeks ahead. The markets are pricing in expectations that government officials will be successful in turning China’s bleak economy around, even though specifics are lacking in many cases. Hong Kong-listed Country Garden services saw a spectacular 60% elevation from its September 16th low on hopes that the stimulus will turn the property sector around. However, the real test will come when authorities actually roll out the details of these stimulus packages, risking that investors may be disappointed. It was a masterful plan that worked perfectly to this point, as the Chinese Communist Party sought to turn consumer sentiment ahead of this week’s National Holiday, celebrating 75 years of CCP rule in China. Officials believed a key to turning sentiment rested with the stock market. As such, the recent Federal Reserve rate cut gave them the room they needed to announce the big stimulus packages right ahead of the holiday. State-backed funds then pumped massive amounts of money into the stock market, with private foreign money then rolling in to sustain the momentum as chart signals turned upward. The first big test will be to see if all of the above successfully stimulate spending during the holiday.
USDA is scheduled to release its quarterly grain stocks and small grains summary reports at Noon Eastern Time today. The stocks reports are known for their market-moving surprises. Trade expectations are for USDA to confirm roughly a 100-million bushel increase in soybean stocks over the past year, a 200-million bushel increase in wheat stocks, and nearly a half-billion-bushel increase in corn stocks. The focus will then shift to this afternoon’s USDA weekly crop progress report for greater indication of possible damage from high winds late last week in the eastern Midwest from the remnants of Hurricane Helene, along with heavy rains. Initial reports indicate that there was far less wind damage to crops than feared in the eastern Midwest, although damage was more significant in the Southeastern part of the country. The forecast is largely seasonally warm and dry for the Midwest going forward over the next two weeks, which should allow for rapid harvest progress. The question then will be, at what point could we see storage problems start to force bushels onto the market, pressuring basis and futures. Elsewhere, weekend forecast models continue to call for rains to begin spreading into Center-West Brazil by late next week. The 11- to 15-day outlook calls for much of Mato Grosso to get 1 – 2” of rainfall during the period. Confidence is low, but that would likely encourage widespread planting to begin, sustaining hopes for a big soybean crop. That would still elevate risks for the winter (safrinha) corn crop, although one still cannot just assume that it would be short. That would hinge on weather conditions six months from now.
