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Perspective: Mid-Day Commentary for April 26

Arlan Suderman
Arlan Suderman

Chief Commodities Economist

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Perspective: Mid-Day Commentary
 
Arlan Suderman
Chief Commodities Economist
Arlan.Suderman@stonex.com

April 26 - The inflation data of the past two days has been put into context by Wall Street traders. Yes, it's still well above the 2% mandate, as it has been for the past three years. No, we're not making progress toward going that last mile to get to the mandate. But, Wall Street focused on the fact that the hotter-than-expected numbers were in the year-on-year data, and not the month-on-month data. To them, that suggests that yesterday's hotter quarterly PCE inflation data was probably focused on the first part of the quarter, meaning that we're not currently "getting worse." Wall Street sees that as a reason to celebrate.

Stocks gapped higher to start trading today, supported by the above, and they continue to build on those gains as we approach the weekend, with the Federal Reserve scheduled to meet on Tuesday and Wednesday of next week to review its monetary policy, releasing a statement on Wednesday afternoon. The VIX is trading near 15 at midday, while the dollar index is trading near 106.1. Yields on 10-year Treasuries are trading near 4.67%, while yields on 2-year Treasuries are trading near 4.99%, after once again probing above the pivotal 5% level. Crude oil prices are modestly higher at fresh one-week highs on the risk-on sentiment triggered by the above sentiment, while the grain and oilseed complex is mixed to higher as well.

The soybean complex continues to struggle, as it is simply priced well above the world cash market right now. It doesn't have a story to trade otherwise, with the Brazil harvest mostly complete and the Argentine harvest gaining momentum. We're going to struggle on the world export market, with the exception of those customers where we have a freight advantage. Wheat continued to press higher today, although we're seeing selling emerge to pull prices off their highs ahead of the weekend. The market is a bit nervous that we could see forecasts change over the weekend that bring rains to dry areas of Russia and the US Plains. Corn is caught between the two, but garnering some of its own support from shrinking production estimates in Argentina and Brazil. Yet, gains are limited by the large amount of farmer corn here and in Brazil that still needs to be sold, as well as the large carryout expected here in the States. A quite wet pattern over the coming week or so should help fix most remaining moisture issues in the western Midwest.

The Fed's 2% inflation mandate remains elusive, as you see from the graphic below. The headline consumer price index has been above it for 37 months, and the core CPI has been above it for 36 months. The Fed must decide how committed it is to that mandate. It says it is very committed to it, but is it? My point is not to make the argument on whether the mandate is correct or not, but rather to say that Fed members must decide, because indecision can have just as many market implications as the decision itself. The Fed has the tools needed to get to the mandate, but there are prices to be paid if those tools are implemented. I'm not sure if all Fed members are ready to pay that price.

 

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