Surprisingly Strong Jobs Growth in January; Big Upward Revision for December

Biden orders retaliation for attack on U.S. base in Jordan | Tax bill | Border security measure

Modified format today as I am speaking this morning at a CIRB meeting in Arizona.

— U.S. jobs growth of 353,000 far outstrips estimates. In January, the U.S. added 353,000 jobs, surpassing economists' expectations of 176,500 jobs last month, according to FactSet, and resulting in an unchanged unemployment rate of 3.7%. It’s the 24th consecutive month that the nation’s jobless rate has been under 4%. Most industries added jobs last month, with health care and social assistance posting the largest gains of 100,400, according to BLS.

     Economists previously cautioned that the January report is among the trickiest to forecast because it is typically a big month for job losses (with seasonal workers being let go after the holidays and other businesses doing some new year’s belt-tightening). Additionally, the BLS applies new seasonal adjustment factors at the start of the year to help smooth out the data and better understand the trends. That is why some analysts said the January report could deliver an upside surprise. They were correct.

     December’s job gains were revised higher by 117,000 positions to total 333,000 for the month. November was revised up as well, but only by 9,000 jobs, to a 182,000 net job gain. The changes portray a strong labor market in the fall than previously believed. The revisions puts average jobs growth at 255,000 monthly in 2023.

     Average hourly pay also rose sharply, climbing 19 cents to $34.55 and pushing up the yearly increase to 4.5% from 4.1%. Since spring of last year, pay increases have outpaced still-high inflation, giving consumers more purchasing power.

     These figures come as the Federal Reserve is contemplating interest rate cuts as a strategy to manage inflation while avoiding a recession. Fed Chairman Jerome Powell has indicated potential rate cuts later this year. The blockbuster job and wage gains could make the Federal Reserve warier about cutting interest rates anytime soon. Despite the Fed's rate increases, the economy has maintained strong growth, and inflation remains close to the central bank's 2% target.

     The data did adjust market thinking on the Fed's decisions ahead, with a cut in March down to just 17.5% probabilities, based on Fed funds futures, versus 38% on Thursday.

— President Biden has ordered retaliation for the attack on a U.S. base in Jordan that resulted in the deaths of U.S. troops. This response involves significant strikes against Iranian-controlled facilities in Iraq and Syria. The operation is set to commence in the coming days and will unfold gradually, combining military actions with other measures aimed at indicating that the U.S. is not seeking further escalation. In response, Tehran has ordered its Iranian commanders to vacate bases in Iraq and Syria to prevent potential high-profile killings that might necessitate a retaliatory response, as Iran seeks to avoid a direct war with the U.S.

— Equities today: Asian and European stock markets were mixed to firmer in overnight trading. U.S. stock index futures are mixed. In Asia, Japan +0.4%. Hong Kong -0.2%. China -1.5%. India +0.6%. In Europe, at midday, London +0.2%. Paris +0.7%. Frankfurt +0.8%.

     Traders are focusing on this morning’s monthly U.S. jobs report from the Labor Department. The Sevens Report says, “if job growth remains very strong (so solidly above 200k) and the other details are ‘Too Hot,’ don’t be surprised if yields rise and stocks decline as some investors start to doubt a May rate cut.”  As noted above, the jobs numbers were above expectations, with a big upward revision for December jobs.

     Equities yesterday: U.S. stock indices on Thursday registered gains in all three markets, with the Dow up 369.54 points, 0.97%, at 38,519.84. The Nasdaq rose 197.63 points, 1.30%, at 15,361.64. The S&P 500 was up 60.54 points, 1.25%, at 4,906.19.

— Outside markets: The U.S. dollar index is slightly lower. Nymex crude oil prices are slightly firmer and trading around $74.00 a barrel. The yield on the benchmark U.S. Treasury 10-year note is garnering 3.88%.

— ExxonMobil and Chevron achieved their second-highest annual profits in ten years, thanks to the significant increase in oil production in the United States. This performance occurred despite a decrease in oil prices, which had a moderating effect on their earnings compared to the record-breaking profits they recorded in 2022.

— Amazon easily topped Wall Street estimates for earnings and revenue as cost-cutting boosted profits. Meta likewise surpassed expectations on all major metrics and announced its first-ever dividend payment. Apple was also in the spotlight as concerns about the company’s presence in China outweighed the end of four straight quarterly sales declines (Apple’s China sales fall 13% in December quarter). The stock fell 2.9% to $181.45/share in extended trading, though Apple's Services revenue hit an all-time high. "I remain very optimistic about China over the long term," CEO Tim Cook countered on an earnings call when asked about the market.

— BP has initiated a shutdown at its Whiting, Indiana refinery, with a capacity of 435,000 barrels per day, following a power outage caused by a transformer failure. Essential personnel have been retained while others were evacuated. The restart duration remains uncertain. This refinery is the largest in North America and the Midwest, sparking concerns about potential shortages of gasoline and diesel supplies. BP is employing measures such as nitrogen purging and safety flare systems to manage the situation.

— Agriculture markets today: Corn, soybeans and wheat faced light selling pressure early in the overnight session but have firmed this morning with wheat leading the move higher. As of 7:30 a.m. ET, corn futures were trading fractionally higher, soybeans were 3 to 4 cents higher, SRW wheat was mostly 7 cents higher, HRW wheat was 9 to 12 cents higher and HRS wheat was around 9 cents higher. Front-month crude oil futures were trading near unchanged, and the U.S. dollar index is modestly weaker.

     Cash cattle trade sharply higher. Cash cattle trade turned active Thursday as packers raised bids $2 to $4 from last week, depending on location. After weeks of holiday- and weather-related slowdowns, packers are planning for bigger kills – and they were short-bought on needs. Severe weather caused a dramatic decline in carcass weights, leaving packers needing to actively increase cattle purchases.

     Hog futures pull back. Thursday’s losses alleviated the short-term overbought condition for April lean hog futures, though summer-month contracts would still need to correct a little more. With futures ending midrange, yesterday’s lows stand as key near-term support. If that support is violated, a sharper corrective pullback would be likely. 

— Overnight demand news: Taiwan purchased 89,650 MT of U.S. milling wheat.

— Agriculture markets yesterday:

• Corn: March corn fell 1 cent to $4.47 1/4 and finished near the session high.
• Soy complex: March soybeans dropped 19 cents to $12.03 1/4, settling nearer session lows. March meal futures sunk $6.6 to $361.7, nearer session lows. March bean oil closed 42 points lower at 45.60 cents.   
• Wheat: March SRW wheat rose 6 1/4 cents to $6.01 1/2. March HRW wheat closed down 1 1/4 cents at $6.20 3/4. Prices closed nearer the session highs.  
• Cotton: March cotton futures surged 132 points to 86.49 cents, marking the highest close since Oct. 13.  
• Cattle: April live cattle rose $2.475 to $183.175, near the session high and hit a nearly three-month high. March feeder cattle closed up $4.725 at $244.875, nearer the session high and hit a 3.5-month high.  
• Hogs: Hog futures set back from midweek highs. Nearby February slid 55 cents to $75.80, while most-active April fell $1.075 to $83.75.  
   

— Attaché projects bigger Argentine corn, wheat crops than USDA. The U.S. ag attaché in Argentina projects the country’s corn crop at 57 MMT, 2 MMT more than USDA’s forecast last month, due mostly to larger planted area. The attaché forecasts the Argentine wheat crop at 15.4 MMT, 400,000 MMT higher than USDA, as yields were stronger than expected.

— India has no plans to end rice export restrictions. India’s rice situation is comfortable, but the country has no plans to revisit rice export restrictions until prices fall, the food secretary said. He reiterated the government is committed to bringing rice prices down.

— Pakistan bans state purchases of wheat. Pakistan’s federal government has banned state-level imports of wheat, broadcaster ARY news reported. The decision was made as flour prices are stable and the country has plentiful wheat reserves.

— Cargo diversions in the Red Sea persist due to ongoing attacks on commercial shipping vessels, which also affect agricultural commodity shipments. According to Reuters, 12 vessels were diverted this week, carrying approximately 700,000 metric tons of grain. Since December, a total of 4.5 to 4.6 million metric tons of grain cargo has avoided the Red Sea due to security concerns. Additionally, more wheat shipments from France and the Black Sea to Asia have diverted away from the Red Sea. It's noted that bulk carriers from the Black Sea are still traversing the region, as diverting cargoes for them is costlier compared to ships coming from Europe or the United States.

— China clashed with the IMF over its forecast for decelerating growth. The IMF has expressed a high level of uncertainty regarding China's economic outlook for the year. This uncertainty is mainly attributed to factors such as a significant property market downturn and sluggish external demand. The IMF's annual review indicates that China's economic growth will slow down in 2024 and continue to ease in the following years. However, Chinese authorities hold a more optimistic view of the recent economic developments in China compared to the IMF's characterization of a "subdued recovery." IMF staff should “study carefully” the nation’s growth trend, said Zhang Zhengxin, the IMF’s executive director for China, urging the organization to carry out a more appropriate assessment of the nation’s prospects to help “stabilize” confidence.

— Krugman downplays impact of Trump's 10% tariff proposal on U.S. economy. Nobel Prize-winning economist Paul Krugman downplayed the potential impact of a proposed 10% tariff on U.S. imports suggested by Donald Trump on the economy. Krugman explained that moderate tariff rates, such as 10%, do not have significant growth effects in international trade economics. He pointed out that to see substantial effects, tariffs would need to be much higher. While Trump's proposal may not severely harm the U.S. economy, it also wouldn't eliminate the country's trade deficit, which is one of his objectives. Krugman emphasized that the real damage from such tariffs would be on the geopolitical front, signaling a shift away from the U.S.' leadership role in the global economy. He noted that the U.S. economy is currently in good shape, with strong GDP growth, low inflation, and promising productivity numbers, suggesting that it might be entering a period similar to the 1990s, marked by sustained productivity improvement.

— Global food prices experienced another decrease in January, primarily due to a drop in corn and wheat prices. The Food Price Index tracked by the UN Food and Agricultural Organization (FAO) declined slightly to 118, driven by lower cereal and meat prices. This marked a 1% decrease compared to December and a 10.4% drop from the previous year. Cereal prices fell by 2.2%, despite an increase in rice prices driven by export demand from Thailand and Pakistan and additional purchases by Indonesia. Meat prices also saw a decline for the seventh consecutive month, falling by 1.4%. In contrast, vegetable oil prices rose by 0.1% but remained 12.8% lower than they were at the beginning of 2023.

— Drive to produce feedstock for SAF will help lower chicken prices. Americans can expect a decrease in meat prices, thanks to the emerging renewable fuel industry, according to a Bloomberg article (link). The process of producing plant-based jet fuel and diesel from soybeans for Sustainable Aviation Fuel (SAF), aimed at reducing U.S. emissions, generates a surplus of co-product soymeal, commonly used in animal feed. As meatpackers can now feed their animals more affordably, they are likely to increase meat production, leading to lower prices for consumers at the grocery store.

— CEO of major Canadian supermarket chain rebuts government criticisms on food pricing transparency and competition. The CEO of one of Canada's major supermarket chains, Metro Inc., Eric La Fleche, defended his company's transparency and collaboration regarding food pricing decisions. This comes in response to criticisms from Industry Minister Francois-Philippe Champagne, who accused the grocery industry of lacking transparency and competition. Food prices saw a 5% increase in December, as reported by Statistics Canada. Minister Champagne has called for further investigations into the grocery market and seeks to empower the competition commissioner with legislative tools to address market-dominant firms' practices. La Fleche argued that the industry is already highly competitive, citing the presence of companies like Costco and Walmart in Canada. Metro reported first-quarter earnings slightly better than expected but gave a cautious outlook for fiscal 2024 due to cost challenges related to modernizing distribution facilities.

— Massachusetts agtech startup Inari said it raised $103 million of new equity at a $1.65 billion valuation. The company is developing corn, soybean, wheat and other seeds that require less water, land and fertilizer.

— Fate of tax package rests with Senate, for now. The bill easily cleared the House. But it faces rougher waters in the Senate where some Republicans don’t want to hand Biden a victory ahead of Nov. 5 elections. Despite those headwinds, a growing number of our sources signal the big House vote in favor of the package at least ups the odds it could eventually become law.

     Whether your business can claim 100% bonus depreciation for 2023 depends on the passage of a tax bill. Previously, companies could deduct the full cost of qualifying assets with shorter lifespans, but this deduction dropped to 80% in 2023 and is set to decrease to 60% in 2024, 40% in 2025, and 20% in 2026, with no deduction available for 2027 and later years. The proposed tax package would extend 100% bonus depreciation through 2025, retroactively covering 2023, reduce it to 20% in 2026, and end it in 2027.

     The proposal also includes a slightly higher Section 179 expensing cap for 2024, raising it from $1,220,000 to $1,290,000 and adjusting it annually for inflation.

     Bottom line: One of the hurdles is if Senate Republicans get some amendments passed, the measure would have to return to the House. Another is that some Senate Republicans think the issue is better addressed in a new Congress, perhaps with Republicans in control, including the White House.

— The Senate is set to hold a procedural vote, scheduled no later than next Wednesday, on a bipartisan border security and foreign aid package, according to Majority Leader Chuck Schumer (D-N.Y.). He mentioned that the legislative text will be made available, at the latest, by Sunday. The Senate is out but will be back Monday, a day earlier than initially planned. Schumer intends to file cloture on the motion to proceed on Monday, paving the way for the procedural vote on Wednesday.

     GOP leaders are working to gain the support of at least half of their party members, although this will be a hurdle. The number of Democrats who will vote against the final legislation remains uncertain as some progressive Democrats have expressed reservations about the border restrictions, while others are seeking to impose conditions on U.S. aid for Israel. House Speaker Mike Johnson (R-La) and former President Donald Trump remain adamantly opposed to the bipartisan measure. That could increase the number of GOP senators voting against it.

— IMF supports Argentine reforms but warns of persistent risks to loan program. The International Monetary Fund (IMF) expressed support for the reforms initiated by Argentine President Javier Milei, describing them as "bold" and more ambitious than those of previous governments. The IMF's report highlights Milei's strong commitment to eliminating fiscal deficits and addressing long-standing obstacles to economic growth. However, the report also warns that risks to the $44 billion loan program remain high due to inherited policies and a complex political and social environment, including a fragmented Congress, declining real wages, and high poverty rates.

     IMF Managing Director Kristalina Georgieva clarified that discussions about a new program with Argentina are not currently underway. Instead, Argentina is working to bring the existing program back on track. The IMF recently adjusted its economic forecast for Argentina, expecting a 2.8% contraction in 2024, in contrast to previous expectations of a 2.8% expansion. The loan program has been extended to December 31, with a recent disbursement bringing the total amount disbursed within the program to $40.6 billion.

— New poll shows Trump narrowly ahead of Biden. A recent CNN poll indicates that former President Donald Trump currently holds a slight lead over President Joe Biden in a closely contested national race. Specifically, 49% of registered voters would support Trump in a hypothetical election against Biden, while 45% favor Biden, and 5% would choose another candidate. Of note: Neither Biden nor Trump has secured their party's nomination yet, but this outcome seems to be the most probable. The poll also reveals that Trump's main rival within the GOP, former South Carolina Governor Nikki Haley, enjoys a significant advantage over Trump in a hypothetical matchup against Biden. Regardless of the leading candidates, the data suggests that a win by either would result in dissatisfaction among a majority of the nation's populace.

— NY-03 special election puts immigration and anti-MAGA messaging to the test, according to Cook Political Report with Amy Walter. In the upcoming special election on Feb. 13 to replace former New York Rep. George Santos, Walter writes that significant political issues like the southern border crisis, abortion rights, and the polarizing MAGA movement will face their initial electoral challenge. Democratic-aligned groups have invested more than $3.5 million to label GOP nominee Mazi Pilip as a "MAGA Republican" supporting an anti-abortion platform, while Republicans are criticizing Democrat Tom Suozzi for his immigration policies and alleged support for illegal immigrants.

— Google's Pixel 8 Pro smartphone can now scan foreheads for temperature readings. Google's smartphone, the Pixel 8 Pro, has introduced a feature in a January software update that allows it to scan a person's forehead for a temperature reading. This thermometer app has received the Food & Drug Administration's De Novo classification, marking it as a novel medical device. The app utilizes an infrared sensor in the phone to provide temperature readings that are comparable in accuracy to other temporal artery thermometers. It offers guidance on how to properly sweep the phone across a person's forehead and provides audio commands and vibrations to assist with self-scanning. However, it's important to note that this scanning method may be less accurate than some other temperature measurement methods.

— Cotton AWP moves higher. The Adjusted World Price (AWP) for cotton increased to 68.04 cents per pound, effective today (Feb. 2), up from 67.64 cents per pound the prior week. This marks the highest AWP since the week of Nov. 3, 2023, when it was 68.11 cents per pound. Meanwhile, USDA announced that Special Import Quota #16 would be established Feb. 8 for the import of 28,475 bales of upland cotton, applying to supplies purchased not later than May 7 and entered into the U.S. not later than Aug. 5.

— NWS weather: Unsettled weather for the West Friday as heavy snow continues for the Sierra and spreads into the Great Basin and Rockies... ...Widespread thunderstorms shift from the Southern Plains Friday to the Lower Mississippi Valley/Gulf Coast on Saturday, with a threat for severe weather and flash flooding... ...Mild, well above average temperatures persist across central portions of the country through this weekend.

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