Perspective: Mid-Day Commentary for June 27

By: Arlan Suderman, Chief Commodities Economist

Fri, 27 Jun 2025, 16:40

Perspective: Mid-Day Commentary

Arlan Suderman

Chief Commodities Economist

Today's Perspective Video: "What if This is Trump's Strategy?" A look at tariffs, trade deals & the commodities.

June 27 - A rare earths mineral deal with China, and a statement from the European Commission president optimistically expecting a trade deal with the United States by July 9, provided a psychological boost to the markets today. Both the S&P 500 and Nasdaq stock indices reached all time record highs, with the Dow trying to catch up. The VIX is trading near 16, while the dollar index is trading near 97.2 at midday. Yields on 10-year Treasuries are trading near 4.25%, while yields on 2-year Treasuries are trading near 3.73%. Crude oil prices are mixed to weaker at midday, while the grain and oilseed markets are mostly higher as value buyers return following a week of active selling as they position for the end of the fiscal quarter and for USDA's stocks and acreage reports on Monday.

Inflation and commodities are related; both directly and indirectly. Rising commodity prices contribute to inflation - especially food and energy prices. The opposite is true as well. But market expectations about inflation also influence money flow either in or out of the commodity sector, based on those expectations. In other words, many fund managers like to add ownership of commodities to their portfolio when they believe we are entering a time of rising inflation, to help mitigate the risks of inflation eroding the value of their portfolio. That thinking is also partially based on the expectation that inflation reflects a thriving economy that has higher demand for commodities. The opposite is also true for times when fund managers believe that we are heading to a recession, when inflation will be cooling along with demand for commodities as the economy slows.

The StoneX Commodity Tracker on our portal tracks the value of a basket - as well as subsets - of commodities versus various other indicators, including inflation expectations. Specifically, we do so against the US 2-Year Breakeven Inflation Rate, and the 5-Year Breakeven Inflation Rate, reflecting what the market thinks that inflation will do over those respective periods. A correlation of 0.70 or greater is considered to be statistically significant. The 10-year correlations with the overall commodity basket and inflation over the next two and five years generally has been running in the mid-0.80s. The graphic below looks specifically at the StoneX Energy Sub-Tracker versus the US 2-Year Breakeven Inflation Rate, with a 10-year Correlation of 0.83 - a relatively strong correlation.

Now focus on inflation expectations over the past year - specifically, the multi-year low in inflation expectations that came right ahead of the Federal Reserve's big 50-basis-point rate cut last September (A). The market felt that the Fed had either cut too early, or cut too much, and it began to trade higher inflation expectations, believing that lower rates would over-stimulate the economy. The 2-Year Breakeven Inflation Rate rallied from a low of 1.47% to a high nearly 2 percentage points higher the first week of April (B) when President Trump announced his reciprocal tariffs. All the headlines for the next month forecast runaway inflation, which showed up in consumer surveys, and which caused consumers to pull back spending. But the market began trading fears of a recession, which would cool inflation by nearly a full percentage point, while slowing demand for commodities. Where we go from here will largely hinge on where we go from here regarding the tariffs and the restoration of certainty.

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