May 29 – Stock futures immediately rallied overnight as news hit that a federal trade court had ruled against President Trump’s broad across-the-board reciprocal tariffs under the International Emergency Economic Powers Act. The stock market immediately reflected optimism that perhaps a big part of the president’s tariff war would be coming to an end, but the commodity markets were a bit more measured in their response. Crude oil rallied modestly on the optimism, but the grain and oilseed markets seemed immune to the court decision, suggesting that it really hasn’t been trading the tariff war in recent weeks, but it is more focused on other seasonal supply and demand fundamentals. The VIX is trading near 19 at this hour, while the dollar index rallied to trade near 100.5, before slowly slipping off its session highs once again to trade near 99.6. Yields on 10-year Treasuries are trading near 4.47%, while yields on 2-year Treasuries are trading near 3.98%. Yields of both rallied modestly following the above court decision, but then they pulled back seemingly focusing on other factors. Crude oil prices are quietly mixed after initially rallying last night, while the grain and oilseed markets were also quietly mixed.
Chinese President Xi Jinping must have been smiling today. His agreement with the United States to pause the tariff war for 90 days bought him time for court cases in the United States challenging President Trump to advance. It’s too soon for him to declare victory, but the above-mentioned court decision is a step in that direction. The decision is being appealed, and it is expected to ultimately end up in the Supreme Court. At least five other court challenges are lined up behind this one. The Court of International Trade ruled that only Congress has the authority to regulate commerce that is not overridden by the president’s emergency powers to safeguard the U.S. economy. The three-judge panel stated that, “The court does not pass upon the wisdom or likely effectiveness of the President’s use of tariffs as leverage.” But it ruled that, “That use (the broadly applied tariffs) is impermissible not because it is unwise or ineffective, but because (federal law) does not allow it.” They ordered the Trump Administration to issue new orders reflecting the permanent injunction within 10 days.
The Trump Administration will likely challenge that the plaintiff businesses in this case lacked legal standing, since only Congress can challenge a national emergency declared by the president under IEEPA. The court’s ruling does not apply to some industry specific tariffs issued by President Trump, such as those on steel, aluminum, autos, etc., which were based on a different statute. As such, it only impacts the broad reciprocal tariffs announced on April 2. The White House stated that U.S. trade deficits with other countries constituted "a national emergency that has decimated American communities, left our workers behind, and weakened our defense industrial base – facts that the court did not dispute. It is not for unelected judges to decide how to properly address a national emergency." President Trump has lost some court challenges, while winning others, so the reciprocal tariffs appear to be on hold until we get a Supreme Court hearing – again buying time for our trading partners, including China.
First-time claims for unemployment benefits rose to 240K in the week ending May 24, up from 226K the previous week, and above analyst expectations of 230K. However, the four-week moving average remained relatively unchanged at 230.75K claims, down slightly from 231K the previous week. Continuing claims for the week ending May 17 rose another 26K to 1.919 million, which is its highest level since November 13, 2021. The four-week moving average for continuing claims rose 2,750 to 1.890 million. First-time claims for unemployment benefits filed for by former Federal civilian employees in the week ending May 17 totaled 610, up 15 from the previous week. Continuing claims by the same in the week ending May 10 totaled 6,378, down 96 from the previous week.
The second reading of the first quarter gross domestic product showed that the economy contracted by 0.2% on an annual basis in the first quarter, which is slightly better than the 0.3% contraction first reported last month, and slightly better than the 0.3% contraction expected by analysts. Personal consumption expenditures rose 1.2% on an annual basis in the first quarter, down from the 1.8% first reported last month, and down from the 1.8% that was expected by analysts. The contraction again was largely due to inventory builds ahead of President Trump’s reciprocal tariffs that were announced on April 2 as buyers stocked up ahead of those tariffs, which have now been ruled illegal for the time being, as indicated above.
Corn and soybean prices came under modest pressure overnight, as weather remains favorable overall thus far for the 2025 crop, with localized exceptions. Wheat prices firmed on bargain buying and declining crop ratings. As for the court ruling, it does little to mend the relationship between China and the United States, leaving the current focus on the developing 2025 growing season, which thus far is relatively favorable.
