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Dollar slips as Trump takes rein, most Asia markets up

The dollar retreated against most of its peers Monday, with warnings of wild volatility ahead as Donald Trump began his presidency promising to put America first and hitting out at global trade deals. While trading floors are ravaged by uncertainty over the tycoon's plans, shares in most Asian markets rose following a positive lead from Wall Street, though Japan's Nikkei tanked as the greenback slipped against the yen. Trump's inauguration speech Friday continued his campaign rhetoric, saying "every decision on trade, on taxes, on immigration, on foreign affairs will be made to benefit American workers and American families".

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Trumponomics May be Wrong Medicine for U.S.

Tax cuts, deregulation and more federal spending advocated by the incoming Trump administration are a classic remedy for economic stagnation and long unemployment lines. But that medicine may be too strong for an economy that has grown for eight years, with wages now rising and the jobless rate near what many economists consider “full” employment. A Reuters analysis of regional jobs data and historic trends suggests that stimulus could boost demand for workers in areas where labor is already tight. That in turn, could stoke inflation, force the Federal Reserve to raise rates faster than expected, and make recession a greater threat. (Graphic: tmsnrt.rs/2jnYC9V) What the country needs now, labor economists and Fed officials say, is small-bore surgery – policies focused on depressed regions in its rural areas and industrial heartland, which fell out of sync with the global economy and emerged as Donald Trump’s power base, helping him win the presidency. “When you think of what Trump is inheriting, it is an economy in which much of the recent crisis has been solved,” said Jed Kolko, chief economist for the job site indeed.com. “The challenges that remain are the ones that are harder to fix,” he said, citing as examples the decline of the nation’s coal belt or the rise in drug abuse in “middle America’s” depressed communities. Trump takes office on Friday promising to strengthen the middle class and put millions of sidelined workers back to work by spending big on the nation’s aging infrastructure, playing tough on trade, and cutting taxes to spur investment. There is an argument to be made about using a burst of spending to give the economy a jolt after a long spell of tepid growth that has rarely exceeded 2 percent. TOO MUCH GROWTH? Yet Fed officials are increasingly worried that since the U.S. economy is already performing close to its potential, such a growth spurt could lead to labor shortages, unsustainable wage hikes and too much rather than too little inflation. In the weeks since the Nov. 8 election, the focus of central bankers has shifted from how to parse out gradual rate increases that could sustain unemployment around its current levels, to the risks of growth that comes on too fast. The periods where unemployment has gone too low, without a Fed response, “have ended in some kind of recession,” Atlanta Federal Reserve bank president Dennis Lockhart said in Naples, Florida, last week. Uncertainty as to how far the jobless rate can drop could make the central bank wait for too long or slam on the brakes too hard, Lockhart said. The current jobless rate of 4.7 percent is roughly in line with what Fed Chair Janet Yellen cited as full employment in remarks this week in which she also mentioned the risk of recession if the Fed had to raise rates too fast.. Trump has dismissed the official jobless figure, saying it overlooks millions of Americans who have stopped looking for work and who he feels could be brought back to the job market with hundreds of billions of dollars in public projects and private investment. Some economists seem to agree, citing estimates of the number of sidelined workers as evidence the labor market has more slack than the headline numbers might suggest, and that the Fed thus has more policy leeway. Out of about 61 million men in the prime working years between 25 and 54, 88 percent were working or looking for work in 2015 compared with 94 percent in 1978. That means there would be over two million more men in the labor pool today if their participation held at an average rate for that entire period. However, a Reuters analysis of state-level employment data suggests there may be industry- or region-specific reasons why that army cannot be readily mobilized. Past economic cycles also suggest even keeping the jobless rate where it is will be a challenge. STARK DIFFERENCES Jobs data show deep regional differences, reflecting shifts in industries and populations that a one-size-fits-all strategy is ill-equipped to address. For example, labor market participation of prime working age men in Iowa has fallen just 2.2 percentage points since 1978; by contrast it tumbled 12 percentage points in Kentucky as a result of the coal industry’s decline. Some parts of the country are already struggling with labor shortages, while others remain depressed. In parts of Florida, entrepreneurs have cited trouble hiring workers because of the rising housing costs. “Teachers, nurses, cannot find places to live,” while hotel and restaurant operators are bringing foreign workers on special visas, said Kristi Bartlett, vice president of economic development at the Greater Naples Chamber of Commerce. According to various studies, including one commissioned by the U.S. Treasury Department last year, major infrastructure needs are clustered around big coastal urban areas; an overhaul that targeted the most beneficial projects could make regional disparities even bigger. Recent history suggests a big spending push or tax cuts this late in the business cycle might in fact bring forward the end of the current expansion. Since the Fed in 1977 was given a “maximum employment” mandate, the jobless rate has fallen below 5 percent for an extended period twice. In the 1990s, when the tech boom and rising productivity helped produce inflation-free economic growth, the unemployment rate stayed low for more than four years. During the property-driven expansion early this century, unemployment held below 5 percent for 24 months before a wave of mortgage defaults triggered a financial crisis and a recession that put millions out of work. The jobless rate has now been below 5 percent for a year and potential tax cuts and deficit spending may confront the Fed with a similar challenge as it faced in the late 1980s, said Roberto Perli, analyst at Cornerstone Macro and a former Fed economist. Back then, the Ronald Reagan administration added tax cuts to already strong demand and a high budget deficit; the Fed countered with a faster than expected round of rate increases. A recession followed in 1990. “With the labor market already tight and little resource slack, the Fed would very likely view demand-side fiscal policies as inflationary and would tighten policy faster than markets expect,” Perli wrote. Reuters

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This Week in Grain- 1/20 AM Commentary

Good morning friends Corn (H17)  366’0   unch Soybeans (H17) 1061’0  -9’2 Chi Wheat (H17) 423’0   -‘4 KC Wheat  (H17)  439’6   -2’4 Cotton (H17) 73.02    +.23 It  is inauguration day for President-elect Donald Trump, the day everyone has been awaiting or dreading since November 8th, depending on your politics.   Other than the official swearing in, the most important part of the day will be Trump’s first speech and President and what he outlines as priorities during his first months in office. The most important thing to listen for that financial markets will be listening for,  will be his plan for corporate and personal taxes, some sort of infrastructure plan (demand for raw materials), new energy policies and the something tangable about what comes after Obamacare.  While the first official day of business will be Monday, I imagine the President and his twitter account will be busy all weekend. Overnight CBOT markets are lower as I write this ahead of the USDA exports this morning. Cotton markets are slightly higher, pushing back toward the upper end of this recent downtrend.  Cotton could be telling us something, being short and hedged certainly keeps me up at night but I remain steadfast that its the thing to do. The record long position remains, I look forward to updated COT data this evening. Soybeans are lower as the south american weather forecasts turn wet again for the already soaked regions of Argentina. Brazil model runs look pretty good, except NE Brazil appears to be turning dry again.  The soy complex has had a pretty solid week, I expect profit taking to be supported at short term MA’s. Corn markets have been bid up in recent days on really solid ethanol data, but I would be looking to lock in shorter term sales above 370.  Brazil and Arg corn supplies appear to be on the up but the battle for acres has brought Dec 17 to a 10 cent discount to Dec 18 corn.  This is a 7 month high that has me scratching my head a bit.  It seems like a good place to sell that spread if you are inclined, potential gains would not be much but it is something if you are looking to fade this up move. Wheat prices are on the defensive as the US is back to being undercut as the cheapest seller on the block by Australia. Minneapolis has retained its strong inverses over deferred contracts, but I think this has more to do with poor logistics and better demand and a battle for acres as well.  Bottom line on wheat would appear to be plenty of stem to meet demand obligations as well as cap the short-covering from the managed community.  How much they’ve covered and many contracts they remain short should help set the tone into next week’s trade. I think we have a move higher at some point, but its probably got to come on the back of a weather problem, not just here but elsewhere. It’s been an exciting week in the Ag space especially early, but it seems like the market has calmed down a bit about the Argentine flooding since early week hysteria.  As noted yesterday, despite all of the pessimism, Argentine production was barely changed from the January estimate in 2016 despite flooding which occurred much later than this year.  The market needs some time to assess true damage, but must not forget Brazil remains in great shape and can help offset and production losses.  The break for Chinese new year is approaching,  I do not expect to hear much from them through mid February regarding bean purchases, but be on the lookout for any talk about devaluation as Trump enters the fray. A sharp Chinese devaluation of the Yuan might provide another leg higher for soybeans. Trade ideas: -New trade idea- SELL Dec 17 – Buy July corn- Sell Dec Corn (see Turner’s Take) – Buy March short dated Bean puts to protect crop insurance prices – Sell March corn near 370 – Sell March KC wheat, look to re-own July – Hedge Dec 17 cotton at these levels and more near 73 cents. Spec Recommendation: – Sell April Hogs – Sell June Hogs – Sell October Hogs -Buy Feb hogs/Sell April on a spread Please call or email if you have any questions. Contact Daniels Trading To open an account or request more information, contact us at (800) 800-3840 or info@danielstrading.com and mention John Payne. Risk DisclosureThis material is conveyed as a solicitation for entering into a derivatives transaction. 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