Perspective: Morning Commentary for May 9

May 9 – Gains in stocks have stagnated a bit this week, as illustrated by the modest weakness seen overnight, amid a void of fresh economic news. We did get a bit of news this morning with the weekly jobless claim data, which held a surprise or two. The VIX is trading near 13 this morning, while the dollar index is trading near 105.5. Yields on 10-year Treasuries are trading near 4.50%, while yields on 2-year Treasuries are trading near 4.83%. Thus far the recent drop in Treasury yields following the latest Federal Reserve meeting have merely dropped them back toward the bottom of this year’s up-trending channel on the charts. Crude oil prices are modestly higher this morning, while the grain and oilseed markets are mixed ahead of tomorrow’s big USDA WASDE crop report, which is one of the biggest of the year, and which will set the tone for the summer.

First-time claims for unemployment benefits unexpectedly jumped to 231K in the week ending May 4, up from 209K the previous week, and well above the 212K expected by analysts. This increased the four-week moving average to 215K, up from 210.25K the previous week. The four-week moving average is still quite low, but today’s unexpected pop in the weekly numbers will have traders anxious to see next week’s data to see if this reflects a new trend. Continuing claims for the week ending April 27 increased 17K to 1.785 million. However, the four-week moving average dropped another 6,250 to 1.781 million, which is a relatively low number.

This morning’s unexpected rise in weekly jobless claims raised hopes again that the Federal Reserve would be able to cut its benchmark interest rate this year. Bad news is good news once again. The dollar followed Treasury yields lower, while stock futures rallied, although the market reaction was relatively short-lived. It just shows how starved for data the market is this week, in the absence of any significant economic reports. About the only other economic data of note this week will be tomorrow morning’s consumer sentiment report, which analysts expect to show numbers steady with last month. I wouldn’t be surprised if we see a bit more strength in it considering last week’s dovishly construed Fed statement, a positive market reaction and a pull back in gasoline prices, although we may see more apprehension developing over the jobs market.

China took an additional step towards its goal of being food independent as tensions mount with the West. It had already previously been pushing forward approval and use of genetically modified corn and soybean seed development as it tried to catch up with the rest of the world in seed technology. However, it has now taken a step out ahead of much of the rest of the world – approving gene editing in wheat. China is the world’s largest producer of wheat, as well as the world’s largest consumer of wheat. The concept of GMO wheat has largely been rejected by the world market, although Argentina cracked the door open in 2020 when it approved development of the technology, marketing it publicly for the first time in 2023. GMO technology has largely been frowned upon by the people of China, but the Chinese Communist Party is more concerned about the possibility of food shortages that could turn its people against it if current tensions with the West continue to escalate to the point of negatively impacting commodity trade.

Chinese exports rose 1.5% year-on-year in April, beating analyst expectations of 1.0%, and providing a glimpse of good news for that nation’s economy. Imports rose 8.4% year-on-year, beating expectations of 5.4% growth. Exports for the first four months of 2024 are also up 1.5% year-on-year, although neighboring Vietnam saw nearly a 15% year-on-year increase as some western countries resource their products from there. Chinese exports to the United States fell 2.8% year-on-year as we continue to deleverage from China, while exports to the European Union dropped by 3.6% for similar reasons. Chinese exports to Asian customers jumped by 8.2% year-on-year in April, reflecting how global trade relationships are shifting. Ironically, Chinese exports to Russia dropped 13.6% in April, following a 15.7% decline in March. Such a decline with a new major trading partner is not a good sign for China’s economy. Chinese President Xi Jinping took a rare trip to Europe this week to try to shore up economic trade deals.

This spring’s short-covering rally in the grain and oilseeds turned into outright speculative buying as the chart signals began to turn. But traders hit the pause button mid-week when the wire services released the pre-report trade expectations for Friday’s big USDA WASDE crop report. This will be the first report of the year to include WASDE’s first look at crop balance sheets for the 2024-25 marketing year. The numbers reflected trade expectations that corn, soybean, and wheat stocks will all grow in the coming year. Wheat prices found their footing again overnight on wire service stories reporting frost damage to crops in Russia, to go along with the dryness story that’s been circulating. Showers in the 6- to 10-day are expected trim stressed areas back to one-third of the belt.