By: Arlan Suderman, Chief Commodities Economist
July 20 - Stocks are clinging onto gains this morning, while the VIX falls to trade below 24 for the first time since early June. The U.S. dollar is up, trading near 107, while yields on 10-year treasuries trade near unchanged around 3.02%. Crude oil is down, with nearby WTI back down slightly below $100, while the ags are mostly lower as well.
U.S. existing home sales came in lower than expected at an annualized rate of 5.12 million in June, below analyst estimates of 5.35 million and 5.41 million seen in May. This marks the fifth consecutive month-on-month drop, the longest stretch of drops seen in the U.S. since 2013 as mortgage rates climb to their highest levels since 2008. Despite the falling demand, the median selling price rose again, up 13.4% year-on-year to reach another new record high of $416,000.
Russian President Putin warned yesterday, following his summit in Iran, that the Nord Stream 1 pipeline may be operating at a further-reduced rate when it comes back online tomorrow. The pipeline's flows had already been dropped to only 40% of its 160 million cubic meters per day capacity prior to the 10-day maintenance, as Russia continues to try to squeeze their Western foes under the pretext of technical issues. Putin claimed yesterday that if a part that is supposedly caught up in sanctions is not returned, the pipeline will only be able to pump 30 million cubic meters per day, under 20% of its capacity. Interestingly, this comes at a time that Russia's Gazprom reported daily flows to China via their Power of Siberia pipeline reached a new all-time record earlier in the week as the two powers continue to grow closer.
Inflation in the U.K. reached its highest level in 40 years, with today's data for June showing their CPI up 9.4% year-on-year, up from 9.1% in May and slightly above expectations of a 9.3% increase. This is the highest level since February 1982 and has shifted expectations for the Bank of England to hike rates by 50 basis points at their August 4th meeting, up from the previously-expected hike of 25 points, with talk growing that the European Central Bank will be doing the same at their meeting tomorrow as widespread inflation runs through Europe. The silver lining was that core inflation, excluding the more volatile food and energy sectors, did fall slightly, coming in at 5.8% vs. the 5.9% seen in May. However, input prices for manufacturers rose a whopping 24.0% year-on-year, up from the already-elevated 22.4% seen in the month prior's data, with factory gate prices up 16.5% year-on-year, their highest level since September 1977. This could be an indication that inflation readings won't be improving any time soon, as the downstream effects to consumers are felt.
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A strong super El Niño has started, but the crop damage that would lift food prices is still expected to land between September and December. Indian wheat area and Southeast Asian palm oil production sit at the front of the transmission chain, with Brazil the larger unresolved question.
Damage to Black Sea ports has stalled grain exports, but the more serious risk is now forming on the farm. Collapsed farmgate prices and a Russian fuel crisis have put part of the wheat harvest in question.
August 13 – The major stock indices traded quietly mixed overnight ahead of this morning’s weekly job numbers and producer price index data. Like Wednesday, this morning’s data was considered good as well, providing support for stocks while generally allowing Treasury yields to slip a bit lower. The VIX is trading near 14.4, which is just above yesterday’s new low for the year. The dollar index is trading near 99.8. Yields on 10-year Treasuries are trading near 4.64%, while yields on 2-year Treasuries are trading near 4.15%. WTI crude oil is trading near $81 per barrel, while Brent trades near $87 per barrel. Wheat prices again firmed overnight on geopolitical risks in the Black Sea Region, while corn and soybean prices pulled back modestly from yesterday’s big gains.
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