November 14 – Wall Street’s reaction to this morning’s data was opposite of that seen on Wednesday, with inflation at the wholesale level being a bit hotter, and jobless claims in decline. That led to stock futures initially pulling back, and the dollar following Treasury yields higher. The VIX continues to trade near 14 this morning, while the dollar index hits fresh one-year highs above 107.0, although it has since pulled back to trade near 106.7. Yields on 10-year Treasuries are trading near 4.43%, after hitting fresh four-month highs earlier in the session. The 4.5% level appears to be an area of significant chart resistance currently. Yields on 2-year Treasuries are trading near 4.26%, with the spread steepening between the two. Crude oil prices are 1% higher, after again finding bargain buyers near the $67 level. The grain and oilseed complex traded mostly weaker overnight amid the strong dollar, with wheat prices on the cusp of testing the August lows, with soybeans not far behind.
The headline producer price index rose 0.2% on the month in October, matching expectations, but up from an upwardly revised 0.1% in September. The headline PPI rose 2.2% year-on-year in October, up from an upwardly revised 1.9% in September, but below expectations of 2.3%. The core PPI that excludes the volatile food and energy sectors rose 0.3% month-on-month in October, matching expectations, while up from a downwardly revised 0.1% in September. The core PPI was up 2.2% on the year, up from 2.0% previously, reflecting higher inflation pressures again. In fact, the CPI minus food, energy and trade services rose at 3.5% year-on-year in October.
First time claims for unemployment benefits fell to 217K in the week ending November 9, down from 221K the previous week, and down from analyst expectations of 225K. The four-week moving average fell to 221K, down from 227.25K the previous week. Continuing claims for the week ending November 2 dropped 11K to 1.873 million. The four-week moving average rose by 1K to 1.874 million. Florida and Georgia were among the states with the largest week-on-week declines in benefit applications last week.
China’s greatest challenge may be that of turning around its property sector. The average household will have 40 to 60% of its assets tied up in property, so consumer confidence is closely tied to the health of the property sector. As such, many of China’s stimulus measure have been directed toward stimulating movement in the property markets, with a large surplus of homes available to the market for a shrinking population. Limits on speculative buying were lifted, while interest rates were cut. These measures have already produced double-digit month-on-month gains in sales, although the massive inventory of homes has only declined by a few percentage points. Reports emerging this week suggest that authorities are considering a 2% tax cut rate on house transactions, which could further stimulate movement within the market.
New energy vehicle sales jumped 50% year-on-year in China in October as consumers took advantage of new stimulus policies. Total NEV sales hit 1.43 million for October, up 50% year-on-year, while production rose 48% to 1.463 million. This provides more evidence that government subsidies and its trade-in campaign were effective at increasing demand for the cars. New model releases and price cuts added to the sales incentives. Overall auto production and sales hit 2.996 million and 3.053 million in October, up 3.6% and 7.0% year-on-year respectively. That outpaced the 1.9% and 2.7% pace for each seen through the first 10 months of the year. The bottom line is that China’s stimulus programs are having an impact. The question that remains though, will they sustain this momentum long enough to turn the overall economy around? That question is yet to be answered, and people within China worry that a potential trade war with the United States could set the economy back again.
The European Union Deforestation Rule requires that a cargo of soybeans being imported to Europe would necessitate geo-maps of every field from which the soybeans on that cargo originated to document that they had not been deforested or environmentally damaged since 2020. The same is true for any other commodity that it would import as well. It would dramatically increase the cost of the commodity being imported – be very inflationary. The EUDR was scheduled to take effect on January 1st. The outcry has been so significant, that it has been delayed for one year. Now Bloomberg reports that the European People’s Party – Europe’s biggest political group – is backing an amendment to soften the regulation. The one-year postponement provides the window of opportunity to renegotiate the guidelines. Yet, the original guidelines will go into effect on January 1, 2026 if those negotiations are not successful, raising the cost of everything from cocoa to beef, while sending more of that business to the United States and elsewhere where documentation would be easier, versus say Brazil. That would be good for the U.S., but it would still be inflationary overall, raising the costs of commodities around the world as supply chains shift.
