November 29 – Stock futures were upbeat overnight, as traders consider the possibility of interest rate cuts by the Federal Reserve next year, despite strong economic data released this morning. We should get a more in-depth assessment of the economy this afternoon when the Federal Reserve releases its Beige Book – its review of the economy for policymakers to utilize ahead of the next meeting of the Federal Open Market Committee in two weeks. Wall Street is pricing in expectations of a soft landing with stable to lower interest rates in 2024, and perception is reality in the markets. The VIX is trading at nearly four-year lows below 13 this morning, while the dollar index is trading near 103.0, after falling to a fresh three-month low below 102.5 earlier in the session. Yields on 10-year Treasuries are trading at fresh 10-week lows near 4.29%, while yields on 2-year Treasuries are trading at 19-week lows near 4.66%. Crude oil prices are 1% higher as traders wait for OPEC to meet regarding early 2024 quotas, while the grain and oilseed markets were mixed to higher overnight. Soybean traders continue to trade Brazil weather, while wheat tries yet again to put in another bottom at multi-year lows.
Gross domestic product grew at an annualized rate of 5.2% in the third quarter of this year, according to today’s second reading of third quarter GDP, up from analyst expectations of 4.9%, which was originally reported last month. Today’s reading compares to 2.1% GDP growth in the second quarter. Today’s upward revision for the third quarter largely reflects upward revisions to nonresidential fixed investment and state and local government spending that were partially offset by a downward revision to consumer spending, while also seeing downward revisions to imports. Personal income was revised upward by $18.8 billion to $218.3 billion in the third quarter, reflecting increases in compensation, nonfarm proprietors income and personal interest income. Disposable personal income was revised upward by $48.2 billion to $144 billion, while real disposable personal income rose 0.1%. Personal savings totaled $815.4 billion in the third quarter, which is an upward revision of $51 billion, with the personal savings rate surprisingly being revised 0.2% higher to 4.0%.
Argentina’s central bank started offering LEDIVs for banks last week as part of its “Precios Justos” program. The program works like this. You give it 360 pesos today, and the central bank will guarantee that it will be worth USD$1 180 days from now. The LEDIVs pay no interest, but they guarantee that your 360 pesos will not lose value over the next 180 days. In essence, the program puts a lid on the inflationary effects of a devalued currency for the next six months, but it risks inflation exploding when the currency readjusts to reality six months from now. This is locally considered to be an “inflation bomb” that the current and out-going administration is setting up for President-Elect Milei’s administration to deal with in his first year in office. Milei will need to figure out a way to deactivate this inflation bomb in the months ahead.
Moisture stress is expected to expand to nearly 50% of Brazil’s soybean belt in the days ahead, combined with above normal summer heat to add to crop stress. Rains are still favored to return to Center-West Brazil in the 6- to 15-day period, although the overnight models reduced amounts somewhat. Long-term rain deficits are still expected to persist beyond this week, although the anticipated increase in rainfall is expected to reduce yield loss risks for the region. Meanwhile, rains are returning to Argentina, with the expectation that they will reach most remaining dry areas by the end of the week. This morning’s 16- to 30-day outlook from Commodity Weather Group shows below normal rainfall for areas of southern Brazil that have been persistently wet for much of the growing season thus far, while rains continue to improve in drier northern areas of the soybean belt in Center-West Brazil.
Chinese buyers purchased roughly 16 cargoes of soybeans last week, which is well below the typical 20 to 30 cargoes purchased per week this time of year. Brazil was again the dominant source of those cargoes during the week. Recent purchases completed China’s November shipment requirement of 8.8 million metric tons, which was similar to October shipments, with half of this month’s shipments originating in Brazil, despite an abundant supply of newly harvested soybeans in the United States. Chinese buyers continue to purchase and take shipment of more soybeans than they are crushing, with a larger share of those soybeans than normal for this time of year coming from Brazil. Domestic pork consumption is expected to be below normal this winter in China, which will continue to challenge hog feeding margins, encourage additional herd liquidation, reducing demand for soymeal, and therefore the need to import soybeans.
