February 11 – Stock futures had a weaker tone overnight, as tariffs retake the headlines, and as traders brace for tomorrow’s inflation data. Traders will also have a keen ear toward Capitol Hill, where Federal Reserve Chair Jerome Powell will be testifying today before the Senate Banking Committee, followed by a trip to the House Financial Services Committee tomorrow. The VIX continues to trade near 16, while the dollar index is trading near 108.2. Yields on 10-year Treasuries are trading near 4.54%, while yields on 2-year Treasuries are trading near 4.29%. Crude oil prices are more than 1% higher at this hour, as it returns to a focus on supply concerns amid increased sanctions on Iran and Russia. The grain and oilseed markets were generally mixed to firmer in the overnight session, although they were trading a bit weaker ahead of this morning’s pause.
Tariffs, tariffs, and more tariffs. President Trump loves them. He uses them as a negotiating tool, and he uses them as a revenue generator. Sometimes it’s difficult to tell which purpose he has when he raises a tariff, and that’s probably the way he likes it. He likes to keep people guessing. The 25% tariffs on Canada and Mexico were all about securing their borders with the United States to stop the flow of illegal immigration and drugs. Trump occasionally threw in a comment about unfair trade, but then re-emphasized that it was about the border. Both Canada and Mexico acquiesced, and Trump paused the tariff implementation for 30 days, stating that he wanted to make sure that they followed through on their commitments. Then he placed the 25% tariffs on all steel and aluminum imports yesterday, which will hit Canada particularly hard. When asked about the pause on the 25% tariffs, he stated that neither Canada nor Mexico had done enough yet, but he followed that with comments again about trade imbalances. He keeps moving the goalposts, keeping Canada and Mexico scrambling, but also keeping the markets guessing. We also expect to hear, either today or tomorrow, of plans to implement reciprocal tariffs on countries that put tariffs on our exports, and we have yet to hear follow-through comments on his threats for tariffs on Europe, as well as his universal tariff plan. The markets are building a bit of resiliency amid all the tariff talk, although it remains somewhat nervous. In the end, traders will monitor the economic signals to see how the tariffs are impacting revenues and growth.
Geopolitical tensions are also shifting. President Trump wants Israel to abandon its ceasefire agreement with Hamas if all hostages are not released by this weekend. He also said that he would like to reach an agreement with Iran. He stated that there are two options with Iran going forward – war or a signed agreement – and he prefers to have an agreement. He’s also been working toward a peace agreement in the Ukraine war, although he has currently paused those efforts in order to pull NATO into the talks, since any agreement would have significant implications for Europe. Meanwhile, relations seem to have cooled a bit with China. I still expect there to eventually be a trade agreement with China, but the United States and China have very different foundational values, and many of the long-term issues will not go away. It’s interesting to note that Chinese President Xi Jinping accepted an invitation from Russian President Vladimir Putin to attend Moscow’s Victory Day in May to mark the 80th anniversary of the end of World War II. That trip seems to solidify the view that China and Russia remain committed to one another after some fears had emerged in China that President Trump might be able to forge a stronger relationship with Putin in the Ukraine peace talks that might isolate China. Xi reportedly told Putin in a virtual meeting last month that the two of them should deepen their strategic coordination and firmly support each other in the face of “external uncertainties.” The two do not fully trust each other, but “the enemy of your enemy is your friend.”
China reports that 6.1 million couples completed marriage registration in 2024, down 20.5% from the 7.68 million couples who were married in 2023. That’s significant, because having a child outside of wedlock is illegal in China. There were 9.54 million births recorded in China in 2024, which was down 43% from the peak of 17.86 million births in 2016. China’s population is aging, and its death rate has exceeded its birth rate over the past several years, resulting in a declining population. That presents challenges for its economy. China boasted 297 million adults over the age of 60 in 2023, which represented 21.1% of its overall population. That age group is expected to reach a half billion by 2050, creating an even greater challenge for its economy built on a shrinking population and workforce.
The grain and oilseed markets are focused on today’s monthly USDA WASDE crop report. Look for USDA to cut Russian wheat exports, while raising U.S. corn exports, and possibly also ethanol corn use. Modest adjustments may also be made to South American production estimates, but this report is expected to be rather tame overall. Yet, traders know that USDA’s has a tendency to sometimes throw a curve ball, so they’ll be wary of such until they see the numbers.
