November 28 – Stock futures were subdued once again this morning as traders wait for clues on future monetary policy from speeches by no less than four members of the Federal Reserve today. The VIX is trading below 13 again this morning, while the dollar index is trading near 103.0, reflecting new three-month lows. Yields on 10-year Treasuries are trading near 4.41%, which is just above two-month lows, while yields on 2-year Treasuries are trading near 4.86%. Crude oil prices are roughly 1% higher as they consolidate following their recent collapse, while traders wait for the results of OPEC’s meeting later this week. The grain and oilseed markets were higher.
Cyber Monday sales reached a record $12.4 billion yesterday, according to early estimates, as consumers responded to deep discounts aimed at enticing shoppers to splurge on holiday purchases. Online shopping in the United States was up 9.6% for Cyber Monday, versus the previous year, despite, or perhaps related to, subdued forecasts from retailers Walmart and Macey’s as they braced for a more subdued holiday shopping period leading up to Christmas. Cyber Monday follows the Thanksgiving Black Friday shopping period when consumers tend to jumpstart their holiday shopping. Shoppers leaned heavily on Buy Now, Pay Later (BNPL) services to avoid extra fees and interest costs that come with credit card usage, using BNPL for a record $940 million of the above purchases, up more than 42% from the previous year. The U.S. economy was largely service based going into the pandemic, and it still is to a great extent. However, consumers rediscovered the “joy” of shopping online during the pandemic, using their stimulus checks to have goods shipped to their door. That “good feeling” continues today, even though the stimulus checks do not. Consumers are addicted to the thrill of consumerism delivered to their door, and they are rapidly building up consumer debt to sustain the habit, which is part of what continues to make our consumer-driven economy resilient, albeit at a price to be paid later.
The People’s Bank of China – the equivalent of our Federal Reserve – sees a future economy that is less dependent on infrastructure and real estate. Instead, PBOC Governor Pan Gongsheng sees a shift toward a more sustainable path that includes renewable energy and other new growth drivers, suggesting a shift in central bank monetary policy going forward. He went on to say that the PBOC is committed to an accommodative monetary policy, alongside expectations for a gradual bottoming out of inflation at the consumer level, particularly with respect to food prices. Meanwhile, President Xi Jinping spoke of strengthening the rule of law in foreign affairs to protect China’s interest, as he returned from the APEC meeting in San Francisco where he received two standing ovations from U.S. corporate leaders. China’s state media reported how China faces increasing external risks and challenges in its global expansion as it places people and resources in many countries around the world at a time when western governments are increasingly enforcing restrictive policies against Chinese expansion. Xi is now focused on protecting these overseas citizens and interests. This emphasis on legal awareness and compliance marks a critical aspect of China’s “going global” strategy.
Moisture stress will quickly rebuild this week over an estimated 40% of Brazil’s soybean belt – primarily in the Center-West and northeast regions of the belt. But forecasters currently see strong support for showers to return to the northern soybean belt in the 6- to 15-day period, with a better bias for showers in December than what they saw in November. That doesn’t necessarily mean that Center-West Brazil will see “normal” rainfall, as normal rainfall in December would be 9”. But there are indications that the region could see “sufficient” rainfall to reduce yield risks. There is still risk for the area, and we have seen crops die in some locations. But we still lack evidence that this will be a short enough crop to necessitate an increase in U.S. soybean exports above current expectations, especially with notable rains expected for Argentina where they should see a dramatic rebound in production this year. MB Agro, a private Brazilian consulting firm, pegged this year’s soybean crop at 155 million metric tons today, reinforcing the idea that this year’s crop will be adversely impacted by dry weather, but we still lack evidence that it will be the type of disaster that justifies rationing demand with higher prices.
Russia says that it would limit exports if grain stocks fell below 10 million metric tons, but that appears to be a lot of hype without much substance at this point. The size of Russian grain stocks continues to be the subject of considerable debate between USDA and market participants, but the evidence would suggest that Russia is not close to risking supplies dropping below 10 mmt, with supplies likely considerably larger than USDA reports.
