December 10 – Stock futures again had a mixed tone as Wall Street marks time ahead of key inflation data scheduled for release on Wednesday and Thursday, as well as ahead of next week’s Federal Reserve meeting. The VIX continues to trade near 14 this morning – reflecting relative calm on Wall Street – while the dollar index firms to trade near 106.4. Yields on 10-year Treasuries are trading near 4.23%, while yields on 2-year Treasuries are trading near 4.14%, as both firm ahead of the above inflation data, which is expected to show an uptick in prices – especially at the wholesale level. Crude oil prices consolidated lower overnight in quiet trade, while the grain and oilseed markets largely did so as well ahead of today’s monthly USDA WASDE crop report.
Non-farm productivity rose at an annualized rate of 2.2% in the third quarter, matching the preliminary numbers that were released last month, and matching market expectations. However, unit labor cost increases were revised to an annual growth rate of 0.8% in the third quarter, down from the 1.9% originally reported. That suggests that we saw much less wage inflation in the third quarter than previously believed, which would argue for a rate cut from the Fed next week. However, the below data that came out simultaneously will likely lead to caution by the Fed.
The small business optimism index soared to 101.7 in November, up from 93.7 in October, and exceeding market expectations of 94.5. The index is produced by a survey conducted by the National Federation of Independent Businesses. The November survey saw the index push above the 50-year average of 98 for the first time since June 2021. The survey breaks down small business sentiment in 10 different components, with nine of those showing an increase in November, and one remaining unchanged. The survey’s uncertainty index plummeted 12 points from October’s record high of 110 to a November reading of 98. NFIB Chief Economist Bill Dunkelberg stated, “The election results signal a major shift in economic policy, leading to a surge in optimism among small business owners. Main Street also became more certain about future business conditions following the election, breaking a nearly three-year streak of record high uncertainty. Owners are particularly hopeful for tax and regulation policies that favor strong economic growth as well as relief from inflationary pressures. In addition, small business owners are eager to expand their operations.
Party leaders used day #1 of China’s central government economic conference to send a message – to both the people of China and to President-Elect Donald Trump. Leaders wanted to set the tone that they will do whatever is necessary to boost the domestic economy, and they will do whatever is necessary to counter Trump’s threatened tariffs. Party leaders did not provide any specifics – they rarely do – but their official statement read that they would adopt a “more proactive” fiscal policy with a “moderately loose” monetary policy approach to the coming year. That’s actually the strongest language used by policymakers in China since the financial crisis in 2009, which spurred speculation that we will see much more significant stimulus ahead. More stimulus means a willingness to go into much deeper debt to turn China’s economy around, and to fight the tariff war with the United States. Of course, we’re currently in the posturing side of the negotiations on both sides – from both China and from Trump.
USDA will release its December WASDE crop report at Noon Eastern time today. The agency typically makes no changes to U.S. production estimates in this report, reducing the number of potential surprises that we could see. As such, changes are largely focused on the demand side of the balance sheet – for both the domestic and global balance sheets. I do expect USDA to increase its U.S. corn export target by 25 – perhaps 50 – million bushels, pulling that off the bottom line of ending stocks. It might also adjust feed usage and ethanol use, but I doubt that it would do so ahead of next month’s quarterly stocks report. Strong export demand continues to support ethanol use of corn, which should eventually see upward revisions for that use category. One could also make an argument for raising the soybean export target, but USDA will likely want to see how much U.S. export demand drops off with next month’s start of the Brazilian harvest before doing so. One could also make an argument that USDA might cut its soybean crush target due to expectations that green diesel producers will be shutting down perhaps 60% of their production in the first quarter of 2025 due to a lack of guidance on subsidies, but again I believe that the agency will wait to see what happens, rather than to speculate on when that guidance may come out. On the wheat side, the focus will be on USDA’s estimate for Russian exports in light of new export quotas recently released by the Russian government. USDA still has Russia’s 2024-25 wheat exports pegged at 48 million metric tons, while something closer to 42 mmt is likely, with some private estimates as low as 40 mmt. That may be offset though by increases in exportable wheat from Argentina, while we may see adjustments to Australia on the quality side. The bottom line is that most adjustments should be those that result in downward revisions to stocks rather than increases.
