Perspective: Morning Commentary for July 2

Perspective: Morning Commentary

Arlan Suderman

Chief Commodities Economist

July 2 – Stock futures came under modest pressure this morning following the release of ADP’s private sector jobs report for June, while the VIX firmed to trade back above 17. The dollar index is trading near 96.9 this morning, firming off of yesterday’s new three-year low. Yields on 10-year Treasuries dropped on the jobs data, but they are now firming again, trading near 4.30%, while yields on 2-year Treasuries are trading near 3.78%. Crude oil prices are 1% higher this morning, while the grain and oilseed sector is mixed, with soybeans firming while corn and wheat prices post modest losses.

The ADP employment report showed that the private sector lost 33K jobs in June, versus the average analyst expectation that it added 103K jobs. The May number was also revised lower to 29K jobs created, down from the 37K job creations originally reported. This raises questions about tomorrow’s government monthly jobs report. That report will come out a day early due to the Independence Day holiday on Friday. The average trade guess for tomorrow’s report is that it will show 115K jobs created in June, down from 139K in May, with the unemployment number ticking higher to 4.3%. The correlation between the ADP and government reports is not good, but today’s number from ADP certainly raises concerns for tomorrow’s report. Today’s private-sector report showed that financial services cut 14K jobs, while professional and business services dropped 56K, and education and health services lost 52K jobs. The latter has accounted for much of the job growth that we’ve seen over the past year.

However, today’s Challenger Job-Cut Report gave a different twist to the story. The law requires corporations to give notice of potential layoffs coming up. These layoff may or may not happen. Sometimes conditions improve, and the layoffs do not occur. Some of the desired cuts are reached via natural attrition, reducing the actual layoffs. Nonetheless, the report is seen as another indicator of the health of the job market. Today’s report showed that employers gave notice of possible layoffs totaling 47,999 in June, down from 93,816 in May. This would suggest that some stability is returning to the job market, although that’s not the message of the ADP report. As such, investors will look to tomorrow’s government jobs report to provide more clarity.

President Trump’s tax bill is back in the hands of the House of Representatives. The House can approve it as amended by the Senate, amend it again and send it back to the Senate, or send it to conference committee to work out the differences. Members of the House apparently lacked confidence that the Senate would get the bill through this quickly, as many of them had already left Washington for the Independence Day holiday. They’re scurrying to get back for a vote today, but flight delays due to Tuesday’s storms are making that difficult. Some Republicans in the House are not happy with changes made by the Senate, leaving them with a hard decision. Most are committed not to allow the 2017 tax cuts to expire on their watch, but do they risk the bill falling apart in their tussle with the Senate, or swallow hard to accept the changes and send it to the president for his signature? House Republicans can’t afford to lose more than 3 votes. The House leadership appears committed to trying to get the bill on President Trump’s desk by Independence Day on Friday. Saying that and accomplishing that are two different things.

The bill has re-ignited the feud between President Trump and Elon Musk, who is actively campaigning once again regarding the bill’s failure to slash spending to fix our nation’s fiscal problems. Republicans voting for the bill risk seeing Musk’s vast wealth used against them in the next election. Musk is suddenly the hero of the Democratic party due to his opposition to the bill, although they are still seething over his spending cuts advocated when he was in charge of the Department of Government Efficiency. Musk left his post at DOGE after becoming frustrated with the reality of government. He’s threatening to campaign against those who vote for a bill that doesn’t cut spending enough, but his focus should be on the American voter. The truth is, Congress will never be fiscally responsible as long as voters reward members for being fiscally irresponsible. Members of Congress will become responsible when voters reward them for making the hard choices of being fiscally responsible. That’s simply not the case, because the average American still wants what he/she wants when they want it without consideration of the longer-term cost for piling up debt. That’s why most Americans have large credit card bills. They’re not going to vote for a person who cuts programs that they benefit from, and that ultimately is the problem.

We’re seeing some quality issues due to excessive rain in the winter wheat crop, but the yields are high, and there is enough good wheat to offset the bad. Corn acres are high, and crop conditions still argue for above-trend yields, suggesting rising stocks. Soybean conditions are good as well, but acres are quite low, leaving us vulnerable if a weather problem develops by August. Exports are questionable, but biofuel demand appears good.

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Perspective: Morning Commentary for July 2

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