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Perspective: Morning Commentary for July 31

By: Mike Castle, Market Intelligence - Fertilizer Analyst

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Guest Commentary by Mike Castle

Senior Commodities Economist

July 31 – Stocks are looking to add to yesterday’s rebound, with futures pointing to positive opens across the board. The tech-heavy Nasdaq is looking to lead the way higher, with Amazon’s impressive earnings report after yesterday’s close possibly calming some of the nerves regarding the broader tech sector after the recent selloff. While topline revenue saw a solid beat, the biggest standout was the impressive performance of AWS, with sales seeing its fastest growth in four-and-a-half years, suggesting the company’s heavy AI infrastructure spending is translating into serious demand. As the AI buildout accelerates, the market is likely to draw an increasingly sharp distinction between companies converting these massive investments into earnings growth and those simply accumulating costs. The VIX is reflecting a cooling of fears on Wall Street as well, looking at a quiet start to the day as it sits near the 17.3 mark. The dollar is rebounding after tanking to a six-week low yesterday, trading at 100.34 this morning. Treasuries remain a concern for the market, though they are looking to reverse some of the sharp inversions seen this week, as 30-year yields remain near their 19-year highs, trading at 5.226% at the time of writing, while 10-year yields are flirting with an 18-month high as they trade at 4.70%, and 2-year yields have pushed to trade just below 4.29%. Crude oil is modestly higher to start the day, with nearby WTI up 1.6% to trade near $85.30 and nearby Brent up 1.7% to trade near $88.40. The ags are looking at a mixed open, with the wheat complex taking back some of yesterday's gains despite fresh escalations between Russia and Ukraine.

CME Group said spot yen trading volumes reached their highest in over a decade yesterday at $102B, providing evidence of the rumored intervention by Japanese authorities. I should be clear that Japan has not formally confirmed intervention, but the anomalous surge in trading volumes, coupled with the sharp break in the dollar and corresponding rise in the yen, presents a fairly compelling case that authorities stepped into the market. Obviously, a one-day move does not guarantee a material shift in strategy moving forward. Looking ahead, traders will be watching closely to see whether yesterday’s move was a one-off effort to stem the recent sharp decline that pushed the currency to a 40-year low versus the dollar, or the beginning of a more sustained campaign. Just looking at this morning’s trade, the yen is already giving back some of yesterday's gains. The willingness of Japanese authorities to act again if we see another return to recent lows in the yen will provide some of the clearest early indications.

This also shifts more focus to the Bank of Japan, who left rates steady as expected today but warned that underlying inflation risks were “too big to ignore.” There were some notable parallels to this week’s Fed meeting as well, with one member dissenting from the decision in favor of a hike. Sticking with the theme of parallels, the market is growing more hawkish regarding both central banks’ September meetings, pricing in higher odds of a hike. The real focus, however, is not on the perceived hawkishness or individual moves themselves, but rather the spread between the two. If both opt to raise rates by 25-basis points in September, the wide U.S. – Japan yield differential would remain intact, limiting the fundamental support provided to the yen—but potentially increasing the incentive for additional intervention. A more meaningful path would be seeing the BOJ grow more hawkish relative to the Fed, in which the narrowing of that differential could trigger an unwinding of yen-funded carry trades. So, the Goldilocks outcome here would be a gradual, well-telegraphed narrowing of that differential. However, the window for doing so may be fairly narrow in the backdrop of Japan needing enough yen strength to restore stability, but not so much that it becomes a source of broader volatility.  

The fact that Japan sources nearly all its crude oil from the Middle East adds further complexity to the situation, though they have begun sourcing more from the U.S. and other non-Hormuz restricted suppliers more notably in 2026. Japan’s headline inflation has held below its 2.0% mandate for the last six months, at least giving them a more favorable starting point, but the BOJ is clearly concerned about the current reacceleration and longer-term risks. This puts more focus on the geopolitical situation in the Middle East, notably how much longer it lasts. We’ve seen a renewal of strikes from both sides this week, but the U.S. response has been quite measured. Traders will be keeping a close eye on developments over the weekend, with market closures frequently seeing notable reversals in strategy to this point.

Employment costs held steady at 0.9% quarter-on-quarter growth in Q2, slightly above market expectations of a modest decline to 0.8%. In year-over-year terms, total compensation costs were up 3.4%, matching the reading seen in Q1 but obviously keeping present underlying inflationary pressures given the Fed’s stated commitment to its 2.0% mandate and resumed pressures in energy prices on the way. The composition was a mixed bag for the Fed, with wage growth cooling to a 3.2% year-over-year print from the 3.4% seen in Q1, suggesting lighter wage inflation, but benefits costs rising 3.8% year-over-year, stronger than the 3.6% increase in Q1. This was driven largely by private healthcare costs, showing 6.0% year-over-year growth in Q2, a material cost weighing on employers.

The other concerning takeaway is the shift to negative real wage growth for private sector employees in Q2, the first such occurrence since Q4 of 2022. This snaps a streak of 13 consecutive quarters of real wage growth in the private sector. While June inflation data brought a welcomed reprieve from the recent resurgence, the market’s bigger concern is what comes next. While energy price pressures will certainly be the headline, there are other areas of cost pressure that may prove sticky moving forward as well.  

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Perspective: Morning Commentary for July 31

July 31 – Stocks are looking to add to yesterday’s rebound, with futures pointing to positive opens across the board. The tech-heavy Nasdaq is looking to lead the way higher, with Amazon’s impressive earnings report after yesterday’s close possibly calming some of the nerves regarding the broader tech sector after the recent selloff. While topline revenue saw a solid beat, the biggest standout was the impressive performance of AWS, with sales seeing its fastest growth in four-and-a-half years, suggesting the company’s heavy AI infrastructure spending is translating into serious demand. As the AI buildout accelerates, the market is likely to draw an increasingly sharp distinction between companies converting these massive investments into earnings growth and those simply accumulating costs. The VIX is reflecting a cooling of fears on Wall Street as well, looking at a quiet start to the day as it sits near the 17.3 mark. The dollar is rebounding after tanking to a six-week low yesterday, trading at 100.34 this morning. Treasuries remain a concern for the market, though they are looking to reverse some of the sharp inversions seen this week, as 30-year yields remain near their 19-year highs, trading at 5.226% at the time of writing, while 10-year yields are flirting with an 18-month high as they trade at 4.70%, and 2-year yields have pushed to trade just below 4.29%. Crude oil is modestly higher to start the day, with nearby WTI up 1.6% to trade near $85.30 and nearby Brent up 1.7% to trade near $88.40. The ags are looking at a mixed open, with the wheat complex taking back some of yesterday's gains despite fresh escalations between Russia and Ukraine.

Mike Castle
Mike Castle
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Perspective: Morning Commentary for July 30

July 30 – The Fed held steady as expected, but in a divided decision as three of the twelve FOMC members dissented in favor of a 25-basis point hike. That end result, coupled with new Fed Chair Kevin Warsh’s subsequent press conference, struck a notably hawkish tone—no surprise given the rise in real rates and the expected path of policy since the Fed’s last meeting, developments Warsh also highlighted. Part of this hawkish tilt was Warsh unequivocally rejecting any tolerance for above-target inflation, reiterating “there is no soft implicit target—not on this Committee’s watch. There is only a target, and it is 2%.” He also acknowledged that five-plus years of above-target inflation had damaged public confidence in the Fed’s commitment to that 2% target, while arguing that credibility now depends on delivering actual price stability rather than relying on guidance. The new Fed Chair has obviously inherited a very difficult situation, growing more complex seemingly by the day, though this morning’s employment and inflation data both look to provide something of a sigh of relief, however brief. Traders will likely take some time to adjust to the new era at the Fed, with an explicit emphasis on providing less forward guidance, but as we’ve seen time and again, the market will find a way to adapt.

Mike Castle
Mike Castle
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Perspective: Morning Commentary for July 29

July 29 – It’s Fed day, but the market is focused primarily on geopolitical escalations and concerns regarding the tech sector’s heavy AI spending, with stock futures pointing to a mixed open. The Nasdaq is looking to start the day in the green after seeing an ugly selloff that has pushed the index to near three-month lows this week. The VIX is in the green to start the day but remains relatively muted as it hovers near 18.7 at the time of writing. The dollar has traded both sides of unchanged overnight but is currently up very slightly on the day, reflecting cautious expectations of holding steady today but fearing a possible hike. Personally, I don’t expect Warsh’s first move at the helm to be a hike, especially following largely better-than-expected June inflation data, but unpredictability is likely the underlying concern. Treasuries are off from their recent peak but remain elevated, with 10-year yields trading above 4.62% and 2-year yields trading above 4.30% at the time of writing. Crude oil is up sharply, reversing course from the early week losses, with nearby WTI up 6.5% on the day to trade near $84.30 and nearby Brent up 5.6% to trade near $86.70 amid escalations in the Middle East that we’ll dive into below. The ags are largely mixed to start the day, with the biggest losses being seen in soybeans.

Mike Castle
Mike Castle
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