September 4 – Stock futures remained under pressure overnight, as traders assess yesterday’s selloff of Nvidia stocks that saw it lose 9.5% of its value on Tuesday. The artificial intelligence boom powered Nvidia, and much of the stock market, to its recent highs, but Nvidia’s decline raises questions about investor AI optimism. We’ll also see a flood of labor market data over the next several days, which is now also front and center for the market after Federal Reserve Chair Jerome Powell stated at the recent Jackson Hole Economic Symposium that the central bank has put a priority on maintaining employment at current levels or better. That has the market hyper-sensitive to this week’s employment data that is expected to heavily influence whether we see a 25-basis point cut from the Fed on September 18th, or a 50-basis point cut.
Weakness in stock futures continues ahead of this morning’s opening bell, based on the above. The VIX is trading near 23 this morning, reflecting the highest fear levels on the Street since August 9th, while the dollar index is trading near 101.6. Yields on 10-year Treasuries are trading near 3.83%, while yields on 2-year Treasuries are trading near 3.85%, after posting their lowest levels since May of 2023 this morning. Crude oil prices broke below $70 per barrel overnight on demand concerns, although they came off their lows following comments from OPEC+ officials that the cartel is considering extending current production cuts in order to stabilize the markets. The grain and oilseed markets were mixed in overnight trade, with corn and soybeans giving back a bit of yesterday’s solid gains, while wheat prices try to add to those gains.
Global recession worries returned as Nvidia stocks posted the largest single-day loss for a company in U.S. history on Tuesday. Nvidia lost $279 billion in value in the selloff, with that weakness spreading across the market to other assets as well. Recession fears weighed on crude oil prices as well amid expectations that OPEC+ would start ratcheting production higher next month after several years of limiting output. Those fears were eased somewhat by reports from Reuters that OPEC+ is considering delaying those output increases to defend the $70 price point for oil. However, that doesn’t erase the demand concerns amid a string of negative economic reports out of China. The escalated recession fears sent investors to the relative safety of government securities, sending Treasury yields lower as demand for the debt certificates increased. Friday’s jobs report could go a long way toward erasing these fears if it is strong, but it could magnify them if it is weak, putting even more focus on the report.
The Caixin purchasing managers index for services suggested that momentum is slowing for China’s service sector, which had been the strength of its economy. The service sector PMI slipped to 51.6 for August, down from 52.1 in July. A number above 50 still indicates month-on-month growth, but that growth is slowing. The survey revealed that the input cost subindex rose to its highest level since June 2023, while selling prices fell for the first time in seven months as service providers were forced to trim prices to stay competitive as consumers increasingly become bargain shoppers amid an erosion in consumer confidence.
China’s anti-dumping investigation against imported Canadian rapeseed is expected to present more challenges than when it merely tightened inspection requirements for rapeseed amid political tensions in 2019. That still allowed some rapeseed to enter the country, whereas this is seen as a harsher move to cut off imports. The 2019 action reduced imports by 47%, whereas the current investigation is expected to squeeze inflows even more. China could look to the European Union, Ukraine, or Australia for supplies, but those regions all expect smaller harvests. Chinese consumers could look to Russia, which is expected to see a bigger crop of nearly 5 million metric tons, up from 4.2 mmt the previous year, but that’s still much too small to fill China’s needs, and Russia has very little capacity to increase exports. That leaves China seeking canola from elsewhere or seeking alternative edible oils and meals. Meanwhile, the lost export business is expected to send Canadian canola oil south into the United States to green diesel producers, reducing demand for U.S. soyoil.
The Black Sea drought that curtailed summer crop production continues into winter wheat planting time, raising concerns about the 2025-26 crop. Yet, Black Sea cash wheat prices remain low as exporters seek to sustain demand. The grain and oilseed complex posted an impressive bounce off multi-year lows in recent days, leading many to suggest that the lows are in place for the current cycle. That’s possible, but it would also be unusual for the market to put in lows before it knows the size of the summer crops. That will likely hinge on September production estimates, starting with the StoneX customer survey to be released this afternoon. Otherwise, the harsh selloff in stocks contributed to speculative funds unwinding massive short positions in the grain and oilseeds.
