November 4 – It’s a big week for Wall Street. The presidential election takes place on Tuesday, although much of America has already voted, while the Federal Open Market Committee meets on Wednesday and Thursday. Both of these events will have a significant impact on Wall Street going forward. Both will shape the direction of our economy. They are not an end in themselves, but a beginning of the next chapter for our country. Now add to the above the expectation that China will unveil the details of its massive stimulus plan this week at its National People’s Congress, which could also have a big impact on China’s economy, global trade, currency exchange rates, and on the global economy. As such, stock futures traded mixed to lower overnight, while the VIX firmed to trade near 23. The dollar index dropped notably lower this morning to trade near 103.7 as traders long on the dollar took profits ahead of election day. Yields on 10-year Treasuries are trading near 4.27% this morning, while yields on 2-year Treasuries are trading near 4.14%. Crude oil prices are nearly 3% higher this morning after OPEC+ agreed to delay the output hike scheduled for December. The grain and oilseed markets traded mixed to higher overnight.
Roughly 75 million people have voted already in this year’s presidential election, equating to about half of the total voters participating in the 2020 election. The fact that so many people have voted early this year is reflective of the importance that Americans put on this election for shaping the future of our country. The two candidates both have a track record that represents two very different directions for our economy, which will also have an impact on the global economy as well. Wall Street is basically stalled out just below record high levels for stocks while waiting for the results. Most Americans hope that the results will be clear, so that we can move past the election in quick order.
Fed fund futures traded 98% odds of a 25-basis point rate at this week’s Fed meeting in early trading this morning, with 81% odds of another 25-basis point rate cut at the December meeting. However, Fed fund futures are trading expectations that we’ll just see 100 basis points of cuts by the June meeting, which is 75 to 100 basis points of fewer cuts than initially expected in September. Friday’s jobs report was dismal, indicating that the economy created just a net 12,000 jobs in September, which was the lowest print since the pandemic in 2020. In fact, the number was only positive due to government hiring. Remove growth in government employment, and the private sector actually lost 28,000 jobs. The easy answer is to say that the dismal results were a product of two major hurricanes hitting the Southeast this fall, although there were other troubling signs in the data as well. It should be noted that the two prior months – prior to hurricane impact – were revised down by 112,000, including slashing the August numbers roughly in half. The above would argue for a more aggressive rate cut schedule, but other data released in recent days was more reflective of a resilient economy that’s on its way back, including a surge in consumer confidence / spending. As such, I expect that this week’s Fed meeting will include some lively debate about the best direction going forward, but we won’t fully know the extent of that debate for several weeks when the minutes are released.
China’s marriage rate is tumbling amid rising discouragement regarding the future among its young people. Just 4.75 million couples registered for marriage in the first three quarters of this year. That compares to 13.46 million couples getting married in all of 2013. Projecting this year’s numbers out for the rest of the year would suggest that the marriage rate has dropped in half in China. That’s a big problem for the future of China’s economy, as only married couples are allowed to legally have a baby. China’s birth rate is already below its death rate, with the population declining by 2.08 million last year. This suggests that we’ll see an even larger drop in the population going forward, and that the existing population will age at a faster rate, creating increasing challenges for China’s economy. This single factor is something keeping policymakers up at night, because it has massive implications for the sustainability of China’s economy if it stays within its existing borders. In other news, we saw existing home sales up by more than 15% week-on-week, although existing home inventories only declined by 2.3% and they remained flat year-on-year.
Corn and soybean prices pushed higher overnight as buyers emerge to support demand at a time when the farmer remains a reluctant seller. Expectations that China will release significant details of its stimulus programs this week provided background support as well. December corn continues to consolidate within a tightening corkscrew formation on the charts ahead of Friday’s USDA report in which we may see USDA bump its export target again. Meanwhile, January soybeans bounced off chart support just above the August lows, but it is yet to be seen whether they can sustain a rally amid good rains falling in Brazil. Our StoneX Brazil customer survey bumped its production estimate to 166 million metric tons on Friday, although that remains one of the lower estimates in the industry. Wheat prices slipped overnight on weaker Matif prices and as weekend rains benefited the Southern Plains.
