Perspective: Morning Commentary for August 24

Perspective: Morning Commentary
Arlan Suderman
Chief Commodities Economist

August 24 – The Nasdaq is stronger this morning following a strong earnings report from Nvidia late yesterday, while Dow futures were weaker, with this morning’s data changing very little in those trends. The VIX is trading below 16 this morning, while the dollar index rebounded to trade near 103.9. Yields on 10-year Treasuries are also rebounding to trade near 4.23%, while yields on 2-year Treasuries are trading near 5.03%. Crude oil prices are down roughly 1% this morning, while the grain and oilseed market is mixed to weaker.

First-time jobless claims fell to 230K in the week ending August 19, as a surge in claims from Hawaii due to the Lahaina fire were largely offset by a sharp decline in claims from Ohio. Last week’s total was down from 240K claims the previous week, and down from analyst expectations of 241K claims. The four-week moving average rose modestly to 236.75K claims, up from 234.5K the previous week. Continuing claims for the week ending August 12 dropped by 9K to 1.702 million, while the four-week moving average fell by 5,750 to 1.697 million. These numbers continue to reflect a tight jobs market, supporting upward wage pressure that contributes to inflation.

Durable goods orders fell by 5.2% month-on-month in July, exceeding analyst expectations of a 4.0% decline, while the June number was reduced to 4.4% growth, down from the 4.7% growth originally reported. That’s the headline number. However, durable goods orders minus transportation rose by 0.5% month-on-month in July, up from analyst expectations of 0.2%. The June number was revised down to 0.2% growth, down from the 0.6% growth originally reported. Core capital goods orders grew 0.1% month-on-month in July, up from analyst expectations of orders remaining flat. The June numbers were revised to reflect a 0.4% decline, down from the original report of 0.2% growth. The bottom line is that durable goods orders showed good growth in July when a decline in transportation orders were removed, although they do reflect some stagnation for the business sector, which is consistent with yesterday’s data from an August survey of purchasing managers.

The Chicago Fed national activity index is a gauge of economic activity composed of 85 existing monthly indicators, created to have a value of zero when the economy is growing at a trend rate, with a standard deviation of one. The index came in at 0.12 for July, indicating that the economy was growing at slightly better than trend levels in July, after registering a -0.33 in June. The three-month moving average is now at -0.13.

This week’s BRICS meeting continues to make headlines, with six new countries added to its membership. The new additions include Saudi Arabia, Argentina, Iran, Egypt, Ethiopia, and the United Arab Emirates. We’re still expecting to see new details to be released this week on how BRICS members plan to reduce use of the U.S. dollar in trade. Today’s edition of China Direct, published by our Shanghai office, notes that the BRICS’s New Development Bank aims to expand the portion of project financing through local currency to 30%, up from roughly 21.5% at the end of the first quarter of this year. The addition of Saudi Arabia probably best reflects the deterioration of U.S. relations in the Middle East over the past couple of years.

Chinese crushers processed 2.18 million metric tons of soybeans last week, up 1% from the previous week and up 30% year-on-year. Yet, imports continue to far exceed weekly crush, with the surplus believed to be going into reserve facilities. Calendar year crush to date totals 59.05 mmt, up nearly 9% year-on-year, while soybean imports in the same period are up 15% year-on-year. The question is, will these extra soybeans that have been imported above crush levels be released again via auctions later this year to reduce China’s need for U.S. soybeans? That will likely hinge on how the start of the South American growing season unfolds over the next 60 days.

Today is the fourth and final day of the Pro Farmer Midwest Crop Tour. Day #3 found many problem fields mingled in with good fields, with the most problems in western Iowa – no surprise there. It’s interesting to note that Pro Farmer said that sampled fields in Illinois do not represent the overall quality of the Illinois crop, which will likely come in higher than the tour results suggest when final numbers are released on Friday. The soybean balance sheet has the least margin for error. This week’s observations tell me that the national soybean yield could go either way of USDA’s current yield, but the weather pattern gives it a bias to the downside, depending on how it verifies. The national corn yield could erode a bit as well, but that will likely be overshadowed by even poorer demand.


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