November 22 – Stock futures tried to hold onto modest gains this morning amid mixed economic data that left questions remaining regarding future monetary policy and the U.S. economy. Yet, the VIX slipped below 13 to fresh nine-week lows, reflecting a lack of panic on Wall Street as we head into the Thanksgiving holiday tomorrow. The markets will be closed tomorrow for the holiday, before trading a short session on Friday. The dollar index is trading near 103.8 in early trade. Yields on 10-year Treasuries rose from fresh nine-week lows to trade near 4.39% following the release of this morning’s data, while yields on 2-year Treasuries are trading near 4.88%. Crude oil prices fell sharply, down 4%, on reports that Sunday’s OPEC+ meeting has been delayed, putting potential output cuts at risk. The grain and oilseed markets are mixed in early trade.
First-time jobless claims fell to 209K in the week ending November 18, down from 233K the previous week, and below analyst expectations of 225K. That dropped the four-week moving average slightly to 220K claims. Continuing claims for the week ending November 11 fell 22K to 1.840 million, while the four-week moving average rose by 14,250 to 1.837 million. Today’s numbers suggest a tightening job market, which is a reversal the recent trend. Durable goods orders fell 5.4% in October, exceeding expectations of a 3.2% decline, while the September number was revised to 4.0% gains, down from 4.7% originally reported. However, durable goods orders minus transportation were flat in October, down from expectations of 0.1% growth and down from 0.2% growth the previous month. Core capital goods orders, which is a measure of business sentiment, fell 0.1% in October, down from expectations of 0.2% growth, but better than the revised 0.2% contraction in September.
Sentiment is changing at the Federal Reserve, according to the minutes of the latest meeting that were released Tuesday afternoon. The minutes show that members of the Federal Open Market Committee are shifting from talk of raising rates again, to that of sustaining rates at current levels until they are convinced that we will hit the 2% inflation mandate. The only thing now that would make them consider another rate hike would be data showing that current rates were insufficient to do the job. The Fed likely will not officially say that rate hikes are done until all members are convinced that the need to do so has passed. We’ll get our next sense of that in several weeks when Fed members put their rate expectations on the infamous dot plot graphic at their next policy meeting on December 13, which will likely be the primary focus of Wall Street traders and analysts.
Wanda, another of China’s commercial property developers, is seeking to delay payment on a dollar debt of $600 million due in January, based on a note filed by the cash-strapped developer on the Hong Kong Stock Exchange on Tuesday. The company also has two other loans due in 2025 and 2026 totaling $800 million. China’s property sector has witnessed more than $100 billion worth of bond defaults in three years. The default rate for high-yield property bonds has reached 42.2 % this year, following a record high ratio of 46.8% last year, a Goldman Sachs’s report said. There is little sign of a revising trend in sluggish property sales in November, with some industry observers expecting even weaker property sales in November. This will do little help to those cash-short property developers, leaving China’s economy at greater risk if the downturn can't be revised soon.
China and Saudi Arabia signed a currency swap deal worth 50 billion yuan ($6.98 billion) that will be valid the next three years to facilitate trade between the two countries. Saudi Arabia joins the United Arab Emirate, Qatar, and Egypt in such agreements designed to facilitate trade while also increasing the use of the yuan over the U.S. dollar. China believes that one of the reasons that the United States rose to become the dominant economy and military in the world was that its dollar had become the world currency of trade following World War II. As such, it is playing the long game to displace the dollar with the yuan to remove that factor for the United States while putting it into position to become the world’s dominant power.
Scattered storms continue to provide uneven relief to farms in Center-West Brazil, narrowing the area of crop stress to 15 – 20% of the soybean belt, although a return of stress is expected to expand that again to 40% of the belt over the next 10+ days. This has prices range-bound, while traders remain nervous going through the holiday trading period. Wheat prices received a bump from fresh Chinese purchases of U.S. soft red wheat, along with technical short-covering.
Chinese state-owned buyers were largely absent from the soybean market last week – the week of the meeting between President Xi Jinping of China and President Joe Biden of the United States, after China purchased more than 2.6 million metric tons of U.S. soybeans the previous week. Other commercial buyers booked 10 cargoes of soybeans last week, primarily from Brazil for both nearby and new-crop soybean shipment between February and March. This was far below the typical 20 – 30 cargoes that they normally buy each week at this time of year. China has almost fully covered November shipment demand, committing to 9.3 mmt soybeans, with nearly 4.5 mmt from Brazil, which was 3 mmt above the volume in the same period of last year. China booked about 10.7 mmt of soybeans between December and February, including 3.9 mmt for November, 2.9 mmt for December, and 3.9 mmt for February, half of which were Brazilian soybeans. This is the time of year when U.S. soybean shipments typically dominate Chinese imports, but cargo delays caused by the Panama Canal issue are still a big concern for Chinese buyers. Slow passage through Panama Canal will likely postpone some November shipments until December.
