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Perspective: Mid-Day Commentary for August 28

By: Mike Castle, Market Intelligence - Fertilizer Analyst

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Guest Commentary by Mike Castle

Senior Commodities Economist

August 28 – Stocks have fallen into the red at midday, with the Nasdaq (-0.7%) leading the way down, followed by the S&P 500 (-0.3%), then the Dow Jones (-0.1%). The VIX has risen slightly through the session but remains low from a historical context, currently hovering just below the 14.7 level. The dollar has officially erased last week’s sharp losses as it surges higher following largely hawkish comments from new Fed Chair Kevin Warsh that we’ll outline in more depth below. Treasuries are seeing a substantial flattening of the yield curve after his comments, with 2-year yields screaming higher, currently nearing their July highs as they trade back above 4.35%, while 10-year yields near 4.73%, but 30-year yields see only a modest increase to trade just below 5.21%. Crude oil has bounced from the morning lows to trade only narrowly in the red at the time of writing, with nearby WTI trading at $83.30 and nearby Brent trading at $88.00.

The grains and oilseeds continue to surge higher, led again by the wheat complex at midday as the squeeze in supply from the Black Sea and concerns of further escalation hold in focus. Highlighting the front-end issues, authorities in Russia’s Rostov region declared a state of emergency today due to port closures and shipping disruptions leading to “a significant accumulation of agricultural products at farms.” For context, Rostov sits on the Sea of Azov, which has been effectively closed for nearly two months now. The obvious focus remains on the front-end logistical squeeze, but more is being said about the potential for significant reductions in winter wheat planting this fall in both Russia and Ukraine due to the financial impact on farmers being seen. Lingering inflationary pressures and fresh fundamental concerns are clearly driving significant levels of outside money into the broader commodity sector, providing a boost across the ags. While the wheat complex remains the top focus, don’t lose sight of the importance of the feed grains and edible oils from this region either.  

As expected, new Fed Chair Kevin Warsh delivered notably hawkish comments from Jackson Hole this morning, subsequently driving renewed volatility in market rate expectations. CME’s FedWatch now shows odds shifting to favor a 25-basis point rate hike at the Fed’s September meeting, sitting at roughly 60% at the time of writing. This is a sharp reversal in course from where we sat just 24 hours ago, with the market showing odds of holding steady roughly double that of a hike. For what it’s worth, this is not new. Just a month ago, Kevin Warsh’s comments following the Fed’s July meeting were also notably hawkish, shifting market rate expectations in response, but ultimately failing to hold and shifting much more dovish in the month that followed. Obviously, we remain in a period of great uncertainty in 2026 and have at times seen opposing pressures in the Fed’s dual mandate, leading to the Fed opting to hold rates steady thus far. Ultimately, the data we see between now and the Fed’s September meeting will be what dictates their next decision, but the overall path forward appears to lean toward higher rates to come. Warsh again reiterated the Fed’s commitment to their 2.0% inflation mandate as he did in July, noting this week’s headline PCE print of 3.7% being unacceptable. June and July both provided a break from the resurgence in inflation readings seen previously in 2026, but we’ll need to see if that progress continues into August.

In terms of philosophical shifts, Warsh argued that routine forward guidance from the Fed has “overstayed its welcome,” continuing the push for the market to put less focus on the Fed and put more focus on hard economic data. Sticking with those themes, he highlighted the strength in capex, corporate profits, healthy consumption, and stable employment, noting that he would be “hard pressed to describe broad financial conditions as restrictive.” Combined with his assessment of current labor market conditions and emphasis on how low the current 4.1% unemployment rate looks historically, these may be among the most hawkish parts of the speech because it undermines the argument that current rates are already doing excessive damage or that additional tightening would cause undo deterioration to the labor market. Effectively, the door to higher rates from the Fed moving forward is left open, with a clearly hawkish bias being illustrated, but the burden of proof currently sits on inflation improving enough to justify not tightening further.

One of the other more recent shifts at the Fed has been the resurgence in Treasury bill purchases, with the total holdings reaching a record $542B this week, as highlighted in the graphic below. The last time we saw this level of increase in the Fed’s Treasury holdings was during the initial onset of the COVID pandemic, during which time the Fed added $326B. After winding some of this down in the years following, the Fed has since added a total of $346B of Treasury holdings, surpassing the size of the last round. The recent expansion has been almost entirely concentrated in Treasury bills with maturities of one year or less, adding a significant source of demand at the front end of the curve and likely contributing to softer short-term Treasury yields. Keep this in context with the Department of Treasury’s announcement of ramping-up longer-term Treasury purchases. While both institutions continue to frame their actions as technical rather than stimulative, the combination of rapidly expanding Fed purchases at the front end and larger Treasury buybacks at the long end creates an increasingly clear official-sector effort to improve demand and liquidity across the yield curve—potentially easing market borrowing costs without requiring another politically and economically costly Fed rate hike.

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Perspective: Mid-Day Commentary for August 28

August 28 – Stocks have fallen into the red at midday, with the Nasdaq (-0.7%) leading the way down, followed by the S&P 500 (-0.3%), then the Dow Jones (-0.1%). The VIX has risen slightly through the session but remains low from a historical context, currently hovering just below the 14.7 level. The dollar has officially erased last week’s sharp losses as it surges higher following largely hawkish comments from new Fed Chair Kevin Warsh that we’ll outline in more depth below. Treasuries are seeing a substantial flattening of the yield curve after his comments, with 2-year yields screaming higher, currently nearing their July highs as they trade back above 4.35%, while 10-year yields near 4.73%, but 30-year yields see only a modest increase to trade just below 5.21%. Crude oil has bounced from the morning lows to trade only narrowly in the red at the time of writing, with nearby WTI trading at $83.30 and nearby Brent trading at $88.00.

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Perspective: Morning Commentary for August 28

August 28 – New Fed Chair Kevin Warsh takes center stage today from the Fed’s annual Jackson Hole Symposium, due to provide his address in the next hour. The market will surely be parsing over his words with a fine-tooth comb, but it’s worth keeping in mind that his stated goal is for the Fed to provide less forward guidance and play a less prominent role, allowing the trade to “play the ball, not the referee.” With that said, my own expectation is to hear largely hawkish language as we did following the July Fed meeting as Warsh doubled down on the Fed’s stated commitment to its elusive 2.0% inflation mandate, which may drive volatility in rate expectations in the short-term, but keep in mind that expectations softened notably in the month that followed his hawkish comments. Not much has fundamentally changed since the Fed’s July meeting: inflation remains above target and the economy continues to expand, but a weak July payrolls report has introduced more concern around the labor side of the dual mandate. Yesterday’s jobless claims did give some renewed signs of resilience in the labor market to potentially aid in providing a permission signal to move rates higher, but I still expect the Fed to emphasize the need for patience. There is obviously plenty more impactful data on both inflation and the labor market sitting between now and the Fed’s September meeting, so much of the focus may also be attempting to discern longer-term changes to Fed strategy and positioning moving forward instead of just their immediate next step.

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