Perspective: Mid-Day Commentary for January 25

By: Arlan Suderman, Chief Commodities Economist

Tue, 25 Jan 2022, 15:45

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

January 25 - The Dow Jones Industrials resumed their sell-off this morning, rebounding a bit as of the time of this mid-morning writing but still posting early session lows more than 750 points down at one point. Short-term, the trade is awaiting the Fed meeting conclusion tomorrow and monitoring the situation in Ukraine, but long-term, it has now been a three-week correction (chart below) from early-January record highs as the trade anticipates lots of Fed activity in 2022 and beyond. Treasuries ticked higher this morning, with the 10-year bond yielding 1.74%, though that's still off last week's 1.8% top as the market prepares for rising rates.

Russia announced a series of military drills spanning from the Pacific Ocean to the Ukraine border, in response to moves from the U.S. and NATO; they involved joint drills with the Chinese Navy in the Arabian Sea as well. Russian officials continue to downplay the increase in military activity and blame the U.S. for riling things up. The U.S., E.U., and NATO as a whole are attempting to present a unified front against Russian action and work towards a diplomatic solution. British Prime Minister Boris Johnson warned today that a Russian attack could turn Ukraine into a "wasteland". British officials accused Putin over the weekend of attempting to install a pro-Russian leader in Ukraine, a sentiment echoed by the U.S., and Putin hasn't reponded well to any western "meddling" as of late.

The Federal Housing Finance Agency reported a 1.1% month-over-month rise in U.S. home prices in November, equal to the month prior and just a shade above the average trade expectation at a +1.0%; home prices have consistently risen since mid-2020 (post-pandemic) and are now up 17.5% from last November. Consumer confidence fell this month to 113.8, as reported by the Conference Board; that was down from 115.2 in December but still above the average trade estimate at 111.2. Regardless, it was the first month-over-month decline in four months, with Americans' views on the present economic situtation still solid (a 148.2 reading) but less rosy on future expectations (90.8 points, down from 95.4 last month). Finally, the Richmond Fed's manufacturing survey this month fell to just an 8, half of last month's reading and below trade expectations posting a 14 median; the survey found MoM declines in volumes of new orders and capcacity utilization, and increases in order backlogs.

WTI crude oil values moved back to the high side this morning, remaining safely within $4-5 per barrel of last week's seven-year highs; right now is a tough time to keep oil prices down given the "geopolitical tensions", the ever-present catchphrase of the crude bulls. The trade is actually expecting a second straight small build in U.S. crude oil inventories in tomorrow's weekly DOE report, following a string of weekly draws since mid-November, and with Cushing inventories at thier lowest levels for this point in the year since 2012. Most of the rest of the commodities are taking a hit from the stronger U.S. dollar today, though that also excludes the grain markets at this point, which are taking advantage of strong support from wheat. Global wheat values are on the rise this week as the marketplace monitors Russia vs Ukraine...

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