Perspective: Morning Commentary for October 31

Perspective: Morning Commentary

Arlan Suderman

Chief Commodities Economist

October 31 – Tech traders were spooked by earnings outlooks from Meta Platforms and Microsoft overnight, raising fears that the payback for artificial intelligence investment might take longer than anticipated, leading to global stock weakness despite other strong economic data. The VIX rallied to a three-week high above 21 overnight, while the dollar index consolidated near 103.9. Yields on 10-year Treasuries are trading near 4.30%, while yields on 2-year Treasuries are trading near 4.19%. Crude oil prices are nearly 1% higher this morning, while the grain and oilseed sector was mixed to firmer.

First time claims for unemployment benefits fell to 216K in the week ending October 26, down from 228K the previous week, and below analyst expectations of 235K claims. This dropped the four-week moving average to 236.5K claims, down from 238.75K the previous week. Florida topped the list of new claims during the week with an increase of 4,501 claims, likely due to Hurricane Milton, while North Carolina saw one of the larger declines in claims at -2,767 for the week. Georgia also saw a decline of 1,852 claims last week. Continuing Claims for the week ending October 19 dropped 26K to 1.862 million, after the previous week’s total was also revised down by 9K. Yet, the four-week moving average still jumped 10,750 to 1.869 million, which remains the highest level for this moving average since November 27, 2021, when it was 1.928 million. On a related note, today’s Challenger job cut report indicated that firms gave notice of possible layoffs to 55,597 employees in October, which is down from 77,821 the previous month, and a relatively low number from a historical perspective.

The employment cost index rose 0.8% quarter over quarter in the third quarter of this year, which is slightly better than the 0.9% increase seen in the second quarter, and below analyst expectations of a 1.0% increase. That allowed the year-on-year growth in employment costs to slip to 3.9%, down from expectations that it would remain high at 4.1%. This was a bit better news than expected, although we’ll need to see how a string of recent big union wage agreements impact this going forward. Wage inflation is one of the key factors we’re monitoring in the overall battle against inflation.

Personal income rose 0.3% month-on-month in September, up from 0.2% the previous month, but below the 0.4% growth expected by analysts. Meanwhile, personal consumption expenditures grew by 0.5% month-on-month in September, up from an upwardly revised 0.3% the previous month, and up from analyst expectations of 0.4%. This is consistent with other data seen this week showing a surge in consumer spending in the last quarter as the Fed cut interest rates. The PCE price index rose 0.2% month-on-month in September, up from 0.1% the previous month, but matching expectations. Nonetheless, it’s a modest increase in inflation. But the PCE price index fell to 2.1% year-on-year in September, down from an upwardly revised 2.3% in August, but matching analyst expectations. The Federal Reserve pays most attention to the core PCE price index that excludes the more volatile food and energy sectors. It rose 0.3% month-on-month in September as expected, but that was up from an upwardly revised 0.2% the previous month. The core PCE price index rose 2.7% year-on-year in September, matching the previous month, but slightly above analyst expectations that it would fall to 2.6% inflation.

China’s manufacturing PMI rose to 50.1 in October, up from 49.8 in September. That’s significant because a number above 50 indicates month-on-month expansion. It wasn’t by much, but manufacturing activity in China was slightly larger than the previous month, breaking a streak of five months of contraction. However, the increase was largely due to an 8.3% rise in bulk commodity prices during the month, while the subindex for export orders dropped to 47.3, down from 47.5 the previous month, reflecting a continued loss of export business. China’s official non-manufacturing index that tracks the service and construction sectors rebounded slightly to 50.2 in October, up from 50.0 the previous month, but that was a disappointment since China’s “Golden Week” holiday at the first of the month was hoped to lead to a surge in demand for travel, transportation and shopping during the week-long holiday.

DCE soybean meal futures remained relatively flat today, despite widespread discussions about potential supply shortages due to severe port delays in some north China regions due to stricter inspections from local customs officials. We’ll continue to monitor the reports emerging from China, but thus far it is difficult to confirm a coordinated effort by China to broadly restrict soybean imports, as rumored in the industry. Weekly export sales for U.S. soybeans and corn were strong for the week ending October 24, with net sales of 83.5 and 92.2 million bushels respectively. China was the featured buyer of soybeans during the week at a net 26.3 million bushels, while “unknown” and Mexico were featured buyers of corn at 30.4 and 23.5 million bushels respectively.

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Perspective: Morning Commentary for October 31

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