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Perspective: Morning Commentary for May 3

By: Arlan Suderman, Chief Commodities Economist

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

May 3 - The market is eagerly awaiting comments from the Fed later today as they wrap up their two-day meeting. Consensus expectations are for another 25 basis point rate hike, though the more interesting news will come from their afternoon press conferences as traders look for fresh signs of direction. Stock futures are pointing to a slightly higher open this morning, while the VIX hangs around the 18 mark. The U.S. dollar looks to add to yesterday's weakness, hovering around the 101.3 level. Treasury yields are off slightly to start the day, with 10-year yields trading below 3.4% while 2-year yields hang around 3.94%. Crude oil is extending yesterday's losses, with the nearby WTI contract falling below $70 to its lowest level in over a month while the ags are largely mixed. 

Reversing course from recent signs of softening, the U.S. labor market showed unexpected strength on this morning's ADP National Employment Report. The report showed private businesses in the U.S. create 296K jobs in April, doubling the forecasted number of 148K and marking the strongest monthly employment gain since July. March was also revised down slightly, dropping from its initial reading of 145K down to 142K. The service sector led the push higher, adding 229K of the jobs, with the majority in leisure & hospitality. The goods-producing sector added 67K jobs overall, with gains in construction and mining more than outweighing a 38K reduction in manufacturing jobs as the U.S. manufacturing sector continues to struggle. This gives the market fresh jobs data to digest until it turns its focus to the more closely watched Nonfarm Payrolls report set to come out this Friday. 

This morning's employment report also showed the financial sector cut 28,000 jobs in the month of April, adding to the lingering fears following the string of recent bank failures. First Republic Bank's failure has continued to weigh on regional bank stocks this week, with PacWest and Comerica among notable names posting double digit percentage losses yesterday. Regional banking indexes have fallen sharply in 2023, with the KBW Regional Banking Index down nearly 30% from the start of the year and reaching its lowest level since late 2020. While many in the banking sector have attempted to provide assurances that the worst is over, it does seem that uncertainty for mid-sized banks will remain in traders' minds for the foreseeable future. 

Mortgage applications in the U.S. fell 1.2% in the week ending April 28th, according to this morning's report from the Mortgage Bankers Association. The purchase index fell 2% week-on-week while refinance applications rose 0.8% with 30-year fixed rates dropping 5 basis points to 6.5%. In year-over-year terms, the Market Index has fallen just under 40% as the housing sector cools from its red hot post-pandemic run. The housing market has held up surprisingly well, however, mostly driven by the limited supply of available houses. With many buyers not wanting to sell their homes and give up their extremely low mortgage rates, enough houses have been kept off the market to keep prices from experiencing large scale declines. 

Iran seized another oil tanker in the Strait of Hormuz today, its second in less than a week. A considerable percentage of the world's crude oil and products pass through this choke point between Iran and Oman and it has continued to be a point of contention, especially with global geopolitical tensions continuing to rise. Talks between the U.S. and Iran over their nuclear program have stalled and Iran continues to supply drones to Russia for their long distance strikes in Ukraine. While the market seems to be shrugging off this morning's news with recession fears weighing on demand expectations, this serves as another reminder of the risks to global commodity flows during these times of ever-increasing tensions. 
 

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