Perspective: Morning Commentary for October 8

By: Arlan Suderman, Chief Commodities Economist

Fri, 08 Oct 2021, 13:36

Perspective: Morning Commentary

Arlan Suderman

Chief Commodities Economist

October 8 – It’s jobs day on Wall Street today, with traders focused on the latest monthly jobs report. Stocks traded modestly higher overnight ahead of this morning’s report following recent data that raised hopes for a positive report. However, the Department of Labor disappointed for the second month in a row with the headline number. The VIX continues to trade near 19 following the report, while the dollar index turned lower on ideas that we will see a continuation of easy-money monetary policy following this report. Yields on 10-year Treasuries traded in both directions as traders digested the numbers in this morning’s report, and they are currently trading near 1.59%, after trading at a fresh four-month high above 1.60% earlier in the session. Crude oil prices are trading nearly 2% higher in early trade, while the Ags were mostly higher overnight as well.

The economy created 194K nonfarm payroll jobs in September, falling far short of the 475K expected by analysts. However, the August number was adjusted to 366K, up from the 235K originally reported. Nonetheless, today’s headline number represents a notable downtrend over the past several months. Ironically, the unemployment rate fell to 4.8%, down from 5.2% the previous month and below analyst expectations of 5.1%. This is where you have to get down into the weeds of the data to start sorting things out. The labor participation rate ticked lower to 61.6%, down from 61.7% the previous month. That indicates that a significant number of people quit looking for a job in September, resulting in a reduction in the unemployment rate. The government doesn’t consider you unemployed if you’re not looking for work. Yet, leisure and hospitality added 74K jobs in September, as supplemental federal unemployment benefits ended the first week of the month, while retail trade added another 56K. That sector gained, while overall, re-entrants to the labor force fell by 198K in September, resulting in the lower labor participation rate.

The labor participation rate is still 1.7 percentage points below pre-pandemic levels, while the employment to population ratio at 58.7% is 2.4 percentage points below pre-pandemic levels. Part of that latter number is due to a larger number of older Americans who decided to reap the benefits of a rising stock market and rising property market to retire earlier than they previously planned, thereby reducing the size of the labor force. It’s interesting to note that 13.2% of employed persons continue to telework due to Covid-19, while 5 million people reported that they were unable to work because their employer closed or lost business due to the pandemic, with 15.5% of those reporting they received at least some pay from their employer while not working. Other numbers of note in this morning’s data included average hourly earnings rising another 0.6% month-on-month, up from 0.4% the previous month and above analyst expectations of 0.4%. Hourly earnings are up 4.6% year-on-year, up from 4.0% the previous month, although matching expectations. Private payrolls increased by 317K in September, while government jobs fell by 123K.

The debate has already begun on Wall Street as to whether today’s jobs report will result in a change in stance by the Federal Reserve. The report has something for both the hawks and the doves on the Federal Open Market Committee. There’s an overall sense that the timeline discussed by voters inside the Fed meeting room probably will not change as a result of this report. The Fed will likely continue to move toward tapering, with the focus shifting to when interest rates will rise. Tapering is difficult for the Fed when the economy is losing momentum, but it’s painted itself in a corner with its awkward attempts to be transparent. The market is trying to pull the Fed toward earlier rate hikes than currently verbalized by the Federal Reserve. Fed fund futures trading currently puts odds on the first rate hike being next September. The Fed’s next meeting will be November 2 & 3, with more inflation data out by then.

Grain and oilseed prices, along with energy prices, rallied as the dollar trended lower following the release of today’s jobs numbers. We may get some pre-weekend hedging of corn and soybeans ahead of the close, with an active weekend of harvest activity expected in most areas outside the Northern Plains this weekend. There continue to be inquiries by Chinese buyers in the soybean market, which should be expected this time of year. Unfortunately, actual shipments are still not measuring up to seasonal levels needed to reach USDA’s target for soybeans in the current marketing year. The edible oils market has been strong as demand increases for renewable fuels made from the feedstocks, providing support for soybeans amid rising supplies. The primary focus of the grain and oilseed market currently is Tuesday’s USDA crop report, which is expected to show modest declines in the size of the corn crop, along with modest increases in the soybean crop size. Fertilizer prices continue to surge, supporting corn.

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