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Perspective: Morning Commentary for January 4

By: Arlan Suderman, Chief Commodities Economist

Perspective: Morning Commentary
 
Guest Commentary by Mike Castle
Market Intelligence - Fertilizer Analyst
 

January 4 - Stock futures are pointing to a higher open this morning after yesterday's losses, with the VIX starting the day just under 23. The U.S. dollar is kicking off the day in the red, falling below 104 to trade near 103.8 at the time of writing. Treasuries are off slightly, with 10-year yields trading just above 3.67% while 2-year yields remain considerably higher near 4.3%. Crude oil is down hard this morning, with the nearby WTI contract trading below $75/barrel. The ags were mixed in the overnight session, with most grains in the red while soybeans cling to some minor strength.

 

More bad news out of the U.S. housing sector this morning, as mortgage applications in the U.S. fell 10.3% from the previous weekly reading, the sharpest drop seen in three months. The decline was in part driven by a 12% drop in the Mortgage Bankers Association (MBA) purchase index, as well as a 4.4% drop in refinancing applications. This morning's data release showed mortgage rates rise sharply, with the average contract rate for a 30-year fixed mortgage climbing to 6.58%, a sharp uptick from the previous weekly reading of 6.34% and representing the highest level seen since mid-November. Though rates have cooled slightly from their late October/early November highs above 7%, current readings are still near 20+ year high levels, keeping many prospective buyers on the sidelines.

 

European economies are showing some resilience, with this morning's Eurozone Composite PMI being revised higher to a 49.3 reading in December, a slight increase over the preliminary estimate of 48.8 and well above November's 47.8 reading. The Eurozone Composite PMI Index collects data from over 5,000 European companies, tracking a range of business activity variables, such as sales, new orders, employment, inventories, and prices. Like many economic indexes, a reading above 50 indicates an expansion in business activity while a reading below 50 indicates contraction. Although the December reading lies in contractionary territory, it still represents the highest reading since July and the second consecutive monthly increase from October's low, providing some minor optimism. Manufacturing output contracted for the seventh consecutive month, while service sector activity contracted for the fifth consecutive month. Regardless, with the struggles that European economies have been facing throughout 2022, traders are happy to find a sign of a silver lining anywhere they can.

 

Skepticism continues to grow regarding China's reported COVID statistics, as official daily death numbers remain in the single digits despite the rapid spread through an older population without natural immunity. British health data firm Airfinity estimates that actual daily death tolls are likely near 9,000 per day. The concern has prompted World Health Organization (WHO) officials to meet with Chinese scientists this week after not receiving data since China's unexpected policy shift and reopening. The WHO said it expects to release findings from its meeting some time today. Regardless of true numbers, we know that travel and other economic activity in China has rebounded extremely quickly. With the upcoming Lunar New Year on the horizon, the rapid spread will likely continue, meaning China's COVID situation will likely remain a feature throughout the winter.

 

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