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Perspective: Morning Commentary for August 14

By: Arlan Suderman, Chief Commodities Economist

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August 14 – The S&P is on the cusp of new highs again this morning following another relatively quiet night in stock futures. This week’s inflation data was a non-event for the markets, as it came in at to modestly below expectations, leaving this morning’s retail sales numbers to finish out the week. Those numbers came in softer than expected, leading to lower Treasury yields and increased hopes that the Federal Reserve will back off its rate hike ideas, which supported stock futures. The VIX continues to trade near 14, which is near 2026 lows. The dollar index is trading near 99.6. Yields on 10-year Treasuries are trading near 4.65%, while yields on 2-year Treasuries are trading near 4.13% as the yield curve continues to steepen. WTI crude oil is trading near $81 this morning, while Brent trades near $87 per barrel. The roller coaster continues in the grain and oilseed markets, with prices higher this morning on escalating tensions in the Russia – Ukraine war.

The headline retail sales number fell 0.6% on the month in July, down from 0.2% growth in June and below analyst expectations that it would slip to 0.1% growth. Retail sales minus vehicles fell 0.3% on the month in July, versus a 0.2% contraction in June, and below 0.2% growth expectations. Retail sales minus vehicles and gasoline dropped 0.2% on the month in July, down from 0.4% growth in June, and below analyst expectations that we’d continue to see 0.4% growth in July. Ironically, the above negative July data covered the same month as the small business optimism index that I reported on earlier this week showing a surge in small business confidence. Nonetheless, investors expect the above numbers will make Federal Reserve policymakers think twice before hiking their benchmark interest rate when they meet next month.

Two more ships were hit trying to cross through the Strait of Hormuz today, leading what traffic there was to slow to a crawl once again. Such attacks in the past led to U.S. strikes on Iran, but thus far President Trump seems to be holding to his recent shift in position to increase economic pressure on Iran over military strikes. U.S. Secretary of War Pete Hegseth stated that the United States will be unveiling measures to economically isolate Iran like we’ve “never seen before in the history of economic isolation of a country.” To the surprise of few, Iran’s parliamentary committee approved on Thursday a plan that would ban the transit of U.S.-, Israeli-, and other “hostile” countries assets and equipment through the Strait of Hormuz. That would allow Iran to block commerce through the Strait for any country friendly to either the United States and/or Israel. This is likely a response to the growing momentum that the U.S. Abraham Accord is seeing in the region in opposition to Iran.

Previous rumors of advancing peace talks have slowed dramatically, with everything seemingly at status quo for now. President Trump wants calm and lower prices ahead of the midterm elections, and Iran wants to keep things stirring until the midterm elections. The bottom line is that commodity flow through the Strait of Hormuz will likely remain squeezed to varying degrees over the next several months. Most Gulf States are developing plans to bypass the Strait of Hormuz to reduce Iran’s leverage over them, but that takes time to build pipelines and other alternative transportation options. Those alternatives will have a significant impact in the long run, but near term we’re stuck with the status quo.

Grain and oilseed prices rallied overnight on unconfirmed market chatter that Ukraine had successfully hit the northern Russian port complex at Ust-Luga, which is one of Russia’s major ports on the Baltic Sea. Again, this is still unconfirmed, but if true it would be another demonstration of Ukraine’s ability to strike any of Russia’s export infrastructure virtually anywhere in the country, blocking its ability to export commodities. Russia continues to retaliate by hitting Ukraine infrastructure as well, but at least Ukraine can move some grain over land into Europe. Ukraine’s ability to strike Russia’s grain and energy infrastructure appears to be giving it long-sought momentum in the war, which is why I question rumors of Ukraine seeking an agreement to put civilian assets off limits. Ukraine appears to be inflicting more harm on Russia ahead of next month’s elections than what Russia is on Ukraine. Grain always seems to find a way to move, but these strikes are making that increasingly difficult, with much of Russia and Ukraine’s Black Sea ports currently non-operating. What grain that does move is doing so at a significantly higher cost. We’re in a period of low demand for those products, but that is expected to change in the next several months.

Risk premium flowed back into the grain and oilseed markets overnight as we approach a weekend when headlines can continue to flow while the markets are closed. We’re still vulnerable to headlines of peace talks, but the bottom line is that we continue to see two wars that have turned into wars on commodity logistics, and I do not see that changing any time soon.     

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Perspective: Morning Commentary for August 14

August 14 – The S&P is on the cusp of new highs again this morning following another relatively quiet night in stock futures. This week’s inflation data was a non-event for the markets, as it came in at to modestly below expectations, leaving this morning’s retail sales numbers to finish out the week. Those numbers came in softer than expected, leading to lower Treasury yields and increased hopes that the Federal Reserve will back off its rate hike ideas, which supported stock futures. The VIX continues to trade near 14, which is near 2026 lows. The dollar index is trading near 99.6. Yields on 10-year Treasuries are trading near 4.65%, while yields on 2-year Treasuries are trading near 4.13% as the yield curve continues to steepen. WTI crude oil is trading near $81 this morning, while Brent trades near $87 per barrel. The roller coaster continues in the grain and oilseed markets, with prices higher this morning on escalating tensions in the Russia – Ukraine war.

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Arlan Suderman
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