Perspective: Morning Commentary for July 18

Perspective: Morning Commentary

Arlan Suderman

Chief Commodities Economist

July 18 – Nasdaq futures found firmer footing this morning following yesterday’s collapse, after Taiwan Semiconductor Manufacturing released an upbeat forecast that restored some stability to the tech sector amid fresh worries of a rising technology trade war between China and the United States that might further restrict sales to China. The VIX continues to trade near two-month highs this morning above 14, while the dollar index found some stability above yesterday’s two-month lows. Yields on 10-year Treasuries are trading near 4.18%, while yields on 2-year Treasuries are trading near 4.44%. Crude oil prices are quietly mixed after trading just below $84 earlier in the session, while the grain and oilseed markets are mixed in early trade as well.

Former President Donald Trump is scheduled to formally accept the nomination of the Republican Party to be the next president of the United States tonight, but political uncertainty is currently increasing in the States. A growing movement among the leaders of the Democratic Party are calling for President Biden to step aside, and to release the primary votes that would make him their party’s nominee on the ballot. Democrats see the polls showing Trump with the lead over Biden, and so they are scrambling to replace Biden with someone who might have a better chance at defeating Trump. It’s Biden’s decision to make, but pressure is growing for him to step aside. What that means is, Trump will accept the nomination this evening, but he doesn’t know who he’ll be running against, even though the election is just around the corner. That leaves some uncertainty for the markets as well, as a new candidate may have different policies without time to vet them. That’s one reason that I anticipate a close race, leaving uncertainty over policy in place right up until the election – and perhaps beyond. That uncertainty is sure to be a factor for China’s Xi Jinping as well, as he contemplates his next policy moves.

First time claims for unemployment benefits rose to 243K in the week ending July 13, up 20K from 223K the previous week, and beating analyst expectations of 230K claims. That brought the four-week moving average up to 234.75K claims, up from 233.75K the previous week. Continuing claims for the week ending July 6 totaled 1.867 million, which was also up 20K from the previous week, and the highest for continuing claims since November 2021. The four-week moving average for continuing claims increased by 11,500 to 1.850 million. These numbers continue to show a softening of the jobs market. Yet, today’s Philadelphia Fed manufacturing index came in at 13.9, showing solid month-on-month growth, up from 1.3 the previous month, and well above analyst expectations of 3.0. The survey revealed the region’s highest employment index in 21 months amid plans for further expansion.

Chinese officials released a statement following the conclusion of the Third Plenum policy meeting after the markets closed in China today. China’s markets typically trade higher at the conclusion of major policy events, and they did so modestly again today as well. The official communique didn’t specify details of China’s reforms going forward, but rather it appears to contain a long to-do list that lacks the essential details of how to get there. China’s state media, Xinhua, published an article portraying President Xi Jinping as the true heir to Deng Xiaoping, the former Chinese leader, who was widely regarded as the greatest reformer, as he initiated China’s reform and open policy, which resulted in huge economic success for China in past decades. The article said, “They shouldered the same mission: to modernize China, but they were faced with different circumstances.” The article also listed many achievements and measures initiated by President Xi Jinping as a supporter of the private sector and foreign investors. However, critics of Xi, mainly from the West, perceived that his policy still appeared to prioritize state-controlled enterprises, which led to low efficiency and a waste of resources in the economy. These are weaknesses that most centralized economies would have compared to an economy dominated by private and foreign businesses. The people of China will need to see meaningful changes that can revise growing pessimism that’s currently in the private sector. Private sector fixed-asset investment rose only 0.1% in the first six months of this year, sharply lower than the overall investment rise of 3.9 %.

The wet areas dry out and the dry areas get rain. That’s largely been the story in recent weeks for the Midwest Corn Belt, with temperatures generally cooperating as well. Yes, there are significant problems in the northwestern Midwest caused by the June record rains and resulting flooding. Yes, significant losses have been experienced due to hailstorms in Nebraska and localized wind damage from storms scattered through various areas of the Midwest. But Minnesota and Colorado are the only two of the primary corn producing states currently showing NDVI satellite-derived plant health readings below average. That, and the weekly subjective crop ratings from USDA, would seem to suggest that thus far the good is offsetting the bad with this year’s corn and soybean crops. That said, I do expect us to lose 2 – 3 million acres from USDA Harvested Acres estimate due to the above problems.

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Perspective: Morning Commentary for July 18

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