October 29 – Stock futures came under modest pressure overnight as Treasury yields continued to push higher as traders look ahead to next week’s election and next week’s Federal Reserve meeting, while monitoring a plethora of employment data coming out this week. The VIX firmed to trade above 20 this morning, while the dollar index rose to fresh 13-week highs near 104.6. Yields on 10-year Treasuries hit fresh 16-week highs near 4.33%, while yields on 2-year Treasuries traded near 4.17%. Crude oil prices bounced modestly in early trade following yesterday’s collapse, while the grain and oilseed markets reversed early weakness to trade modestly higher.
U.S. fiscal debt tops $35.8 trillion and it continues to rise, since the nation’s debt ceiling continues to be suspended until January 1st. The annual cost of servicing that debt is already above $1 trillion per year, according to the U.S. Treasury Department, exceeding what we spend on national defense and war efforts each year, and that says a lot considering the various global conflicts in which the U.S. is currently invested. Treasury yields surged again overnight, with yields on 10-year Treasuries hitting their highest level since July 9th following weak two-year and five-year note auctions on Monday. The supply of debt certificates continues to increase as Congressional spending goes unchecked, while the number of investors willing to buy those debt certificates is in decline. Some foreign investors are pulling their money home, because they have better options now as their economies recover post-pandemic. Some domestic retail investors are shifting their money back into equities as stocks hit fresh highs amid expectations of economic growth. Those expectations could be impacted by this week’s jobs data, as well as next week’s elections and Fed meeting, but for now buyers are taking their money elsewhere. An oversupply of debt certificates amid a lack of buyers translates into lower values for those debt certificates, and higher yields.
Meanwhile, the U.S. 2-Year Breakeven Inflation Rate surged to roughly 2.4%, up nearly a full percentage point in recent weeks and its highest level since this spring, reflecting expectations for reinflation pressures. The 5-Year Breakeven Inflation Rate is topping 2.3%, after dropping below 1.9% earlier this fall. This anticipation of reinflation pressures has reduced the willingness of managed money to be short the commodities in recent weeks. They will still do so for an asset that has a strong bearish story, but otherwise their historical tendency is to want to be long the broader commodity complex during times of inflation, which tends to see the market manage supply and demand for the various commodities at higher levels than they otherwise would. These inflation expectations can change quickly, so we could be in for an interesting ride in the weeks ahead.
China’s birth rate is lower than its death rate, resulting in a declining population that is also aging. That is a major concern for Chinese authorities as they try to turn their economy around. China’s population declined by 2.08 million people in 2023, and that decline continues. Birth rates remain low despite China reversing its one-child policy in 2015. Having just one child that you can fully invest in has become a dominant feature of the Chinese culture. Furthermore, the marriage rate among young people is tumbling amid China’s uncertain economic future, and it’s illegal to have a baby out of wedlock in China, leading to expectations of an even lower birth rate. China’s government announced 13 measures on Monday meant to enhance childbirth support services. Most of the announced policies are meant to create a birth-friendly society in the workplace, healthcare system and in education services. We also recently told you of China’s plans to raise the retirement age to keep people working longer as an aging population stresses China’s retirement system, while leaving fewer workers to support the economy.
The first U.S. winter wheat condition index score for the 2025 crop came in at 313 yesterday afternoon, which is the second lowest on record going back to 1986. The crop had a score of 281 at this point two years ago for the only other condition score that was lower to start the new growing season for winter wheat. Yet, it should be noted that the crop two years ago that had the poorest start on record nearly reached trend yield levels as weather improved by spring. This week’s ratings are supportive for prices, but we’ll also likely see significant improvement if rains currently in the forecast for much of the belt validate over the next couple of weeks. Meanwhile, Brazil committed to 40+ soybean cargoes for the third week in a row last week. Again, half of those cargoes were Brazilian new crop, while the other half were for nearby shipment of U.S. soybeans. Improved growing conditions in Brazil boosted production expectations there, leading to weaker basis for the new crop triggering those purchases. Meanwhile, China continues to buy U.S. soybeans to fill its needs ahead of the Brazilian harvest. That gap is a bit larger this year due to the delayed planting of the Brazilian crop, which will translate into a later harvest as well. As such, I’ve boosted my export target by 50 million bushels, but that still leaves it 60 million bushels below USDA’s current target due to expectations that a big Brazilian crop will suppress U.S. shipments in the last half of the marketing year.
