Perspective: Mid-Day Commentary for September 26

By: Arlan Suderman, Chief Commodities Economist

Mon, 26 Sept 2022, 14:58

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

September 26 - Wall Street firmed off a weaker open to trade mixed at this hour, although the VIX remains above 30, indicating that fear levels remain elevated. The dollar index is trading near 113.4, while yields on 10-year Treasuries are trading near 3.77%. Crude oil prices are 1% higher, while the Ags are mixed to weaker.

This is the final week of September. The Midwest harvest is picking up momentum, with early harvested corn and soybeans taking advantage of strong cash basis in some regions. USDA will release its quarterly grain stocks and small grains summary reports on Friday. The strong dollar and high VIX create headwinds for the grain and oilseed markets, even though fears of tight supplies linger. The bulls continue to struggle to sustain momentum amid these strong headwinds, particularly with weather being very cooperative for early planting in Brazil thus far, with rains falling to give crops a good start. Traders currently see the glass as "half empty" relative to the broader markets. The work of managing supply and demand is largely occurring in the cash markets.

The U.S. dollar index surged to a fresh 20-year high of 114.53 overnight as the British pound broke to record low levels, the Japanese yen consolidates near record low levels, and both the euro and the yuan continue to trend weaker. It's not that the U.S. has a strong economy, but we're just the best looking horse at the glue factory currently. In other words, the strong dollar isn't a reflection of economic strength, but that our problems are not as bad as those in other major currencies, and the Federal Reserve is taking interest rates higher at a faster pace than other central banks. None of them want to be raising rates right now, but they must aggressively do so to get inflation under control after stimulus programs got out of control during the pandemic.

Call this a failure of "Modern Monetary Theory." It doesn't work, and we're paying the price of academic thinkers thinking that it would work over the past 15 plus years. Major economies are now in another unique race - trying to push their currencies higher to maintain pace with the U.S. dollar. Unfortunately, they're falling behind in this race, creating significant headwinds for U.S. commodities. The strong dollar, used as a safe-haven asset by global traders, is also reflective of the global economic concerns haunting the markets. The U.S. markets show stability thus far today, but the fact that the VIX is still trading near 30 is indicative of the dark clouds over-shadowing these markets. Traders remain wary of building large ownership in any assets that do not possess a strong story. Those that do can move higher amid the headwinds, but it will take more work than normal to do so. The fact that daily trade volume remains elevated while open interest is at or near multi-year lows indicates that much of the trade occurring in these markets is driven by day-trading Algos.

The U.S. dollar surges to a fresh 20-year high on declining confidence in competing currencies. SOURCE: Reuters Eikon

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