There’s a tone of caution as the new week begins, as many investors remain focused on overseas trade and political issues. The data calendar is pretty packed this week with GDP, inflation.
Markets have a mixed tone both in U.S. and overseas
Figure 1: SOMETHING TO CHEW ON: Corn futures (candlestick) head into the summer growing season on a real tear, up sharply over the last two weeks as many farmers eye their flooded fields and switch to soybeans (purple line) instead. The anticipated additional soybean acres, along with lack of demand from China, have soybean futures looking flat over the same time period. Data Source: CME. Chart source: the thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.
Consumers, Start Your Engines: A lot of data are packed in a small package this shortened week, starting with consumer confidence for May later this morning. That could be an interesting one to watch, because it captures sentiment from after the China trade talks went south and stocks started to flag. Last time out, for April, confidence surged along with the market as stocks neared record highs. The 129.2 headline reading in April was up several points from March, with consumers especially optimistic about the near-term outlook. We’ll see if that sagged at all in May, as the consensus view reported by Briefing.com stands at 130. The other consumer metrics to potentially keep an eye on this week are personal spending and income on Friday along with University of Michigan Consumer Sentiment the same day. Basically, investors are likely to exit the week (and the month) with a much better idea of how consumers feel about the economy, especially after a mixed outcome from the recent retail earnings season.
Businesses Downshift Spending: Looking back at data from the end of last week, it was a bit concerning to see capital investment from businesses continue to look soft in core capital goods orders for April. That reading, which doesn’t include defense or aircraft spending, was down 0.9% from the previous month, and capital goods spending growth just had its worst 12-month period of the Trump administration with a rise of just a little over 1% (that compares to double-digit yearly growth readings a couple of years ago). Total durable orders fell 2.1% in April, but that partly reflected Boeing’s (BA) issues with its 737 MAX.
Many economists have already noted softness in business spending this year, which could indicate lack of economic confidence among decision makers at some of the country’s biggest companies. Recent pullbacks in guidance for the remainder of the year, which we saw during the earnings season, add to a sense that businesses aren’t going into the second half of 2019 feeling all that optimistic about where growth might go from here. This also could end up weighing on merger and acquisition (M&A) activity if it continues, because arguably businesses won’t necessarily want to expand in an uncertain environment with Brexit and China trade issues still dominating discussion. We’ll have to wait and see.
Soggy Silos and Inflation: Corn prices exploded recently due in part to flooding in the Midwest, and that could play into inflation readings in coming months. Remember, corn isn’t just about the corn on the cob you and your family might have munched over the holiday weekend. It’s mainly used as an animal feed, and when it gets more expensive it sometimes leads to higher meat prices. That could be something to track. Besides the flooding, which according to some reports left many silos of stored grain unusable due to wetness at the bottom of the silos where the grain was housed, the China trade situation also plays into the corn market (as it seems to with just about everything). There’s talk that farmers might plant more soybeans this year, not just due to flooding but also because the government is reimbursing soybean farmers for lost exports of the commodity to China. Soybean exports are down dramatically the last year or two. When more soybeans get planted, that typically eats into corn acreage.
Anyway, the place to look for any possible food price impact will be in coming inflation data. The Fed’s favored reading, the Personal Consumption Expenditures (PCE) prices report for April, is due this Friday.
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