March 27 – Stock futures were mixed overnight in the wake of more tariff headlines from the Trump Administration. Yet, some took courage from the fact that the newly announced tariffs did not have as negative of an impact on stocks as some previous headlines have had, suggesting that perhaps we’re moving into an era where the market has priced in the negative news. Nonetheless, the VIX firmed to trade near 19 overnight, while the dollar index slipped lower to trade near 104.4. Yields on 10-year Treasuries are trading near 4.36%, after hitting fresh one-month highs near 4.4% earlier this morning, while yields on 2-year Treasuries are trading near 3.98%. Crude oil prices chopped around on both sides of unchanged overnight, while the grain and oilseed markets were generally mixed. Many of these markets have found an area of value where traders are comfortable ahead of next week, when they expect to be inundated with various fundamental and tariff-related headlines.
First-time claims for unemployment benefits slipped to 224K in the week ending March 22, down from 225K the previous week, and down from analyst expectations of 225K claims. The four-week moving average fell to 224K claims as well, down from 228.75K the previous week. Continuing claims for the week ending March 15 fell to 1.856 million, down 25K from the previous week. The four-week moving average rose by 2,250 to 1.870 million. The weekly claims number remains at a historically low level, while the continuing claims numbers remain modestly elevated, but stable. Initial claims for benefits filed by former Federal civilian employees totaled 821 in the week ending March 15, down 245 from the previous week. Continuing claims by former Federal civilian employees totaled 9,135 in the week ending March 8, up 487 from the previous week. The insured unemployment rate in the District of Columbia is currently 2.0%.
President Trump unveiled a 25% tariff on imported vehicles late on Wednesday, further straining relations with our trading partners. The new tariffs are scheduled to take effect on April 3, or one week from today. The United States imported $474 billion in automotive products last year, with the biggest suppliers being Mexico, Japan, South Korea, Canada, and Germany. This will further complicate talks with Canada and Mexico, who were both hoping to get out from under general 25% tariffs next week that were first put into effect on February 1st, but that have been paused until next week. President Trump stated that auto imports account for the largest portion of our trade imbalance with our trading partners. It gets more complicated though with Canada and Mexico, in that the production of a vehicle has various components and parts crossing the border several times before the completed car arrives. Trump stated that he might put even larger tariffs on Canada and Mexico if they team up to retaliate these tariffs. He made similar threats if Europe attempts to team up with Canada. As for Europe, U.S. purchases account for more than a fifth of its export market, accounting for roughly 7% of its gross domestic product and 6% of its employment.
President Trump pledged to regain control of the Panama Canal when he took office. Efforts to do so thus far appear to be focused on negotiations and private equity involvement. Two key ports at either end of the canal are in the process of changing hands after BlackRock purchased them from Hong Kong based Li Ka-shing as part of a larger deal including 43 ports. However, Beijing has reportedly ordered state-owned firms to halt new collaboration with businesses linked to Li Ka-shing and his family after the deal that put the port ownership back into western hands, indicating that it raised national security concerns for China. It should be noted that only a small portion of vital trade with China passes through the port other than trade with the United States. Most vital trade China does with Europe and Brazil goes through the Suez Canal or around the southern end of Africa. However, the Panama Canal is essential for the United States to move military assets from the Atlantic to the Pacific if a military conflict were to erupt in the South China Sea Region. That’s why President Trump has raised concerns about so much Chinese ownership of property along the Canal, as well as its purpose for building two bridges over the canal.
President Trump called on oil and biofuel producers to work out a deal for the next phase of U.S. biofuel policy. The two entities used to be strong opponents, but some big oil companies are now significant owners of biofuel interests. As such, the two sides have already had a couple of meetings to reach common ground. Thus far talks have focused on holding the ethanol blending mandate near 15 billion gallons as gasoline demand declines, but they appear to be moving toward raising the mandate for renewable diesel and biodiesel up from its current 3.35 billion gallons to somewhere between 4.75 billion and 5.5 billion gallons. They’re still split on small refinery exemptions, and on what to do with the 45Z tax credit program. Yet, it appears that we are finally seeing some movement toward a cohesive policy that may start supporting biomass diesel production at a higher rate once again.
