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Perspective: Morning Commentary for October 23

Mike Castle
Mike Castle

Market Intelligence - Fertilizer Analyst

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October 23 – The tech heavy Nasdaq saw its worst day since June yesterday, closing 2.9% lower, with concerns regarding the sustainability of the ongoing AI buildout in the backdrop of rising borrowing costs and increasing sovereign debt driving investors into safe havens, as evidenced by the surge in buying in the bond markets. Stock futures are pointing to a lower open again today, though Nasdaq futures are showing the smallest losses among the major indexes, a potential sign of an easing of selling pressure in the tech sector. The VIX is up 6% to start the day, trading just below 20.2 at the time of writing, hovering near its highest level since last Friday. The dollar is looking at a quiet start to the day after a largely quiet week, sitting just above unchanged near 101.68. Treasury yields are modestly higher this morning after falling notably this week, with 2-year yields at 4.66%, 10-year yields at 4.97%, and 30-year yields just above 5.29%. Crude oil prices are on the rise as the market rebuilds geopolitical risk premium amid escalatory rhetoric from the U.S. / Israel and Iran, raising fears of renewed and potentially even more intense back-and-forth strikes. Nearby WTI is up 2.5% to start the day, carving out a fresh five-week high of $101.60 at the time of writing, while nearby Brent is up another 1.35% on the day to trade near $114.70, nearing a six-month high. Meanwhile, the ags are looking at a quietly mixed open.  

President Trump invoked the Defense Production Act for oil production and refining yesterday, the latest measure aimed at reducing fuel prices ahead of the upcoming midterm elections on November 3. For the oil market, this is more important as a political and sentiment signal than as an immediate supply changer. For the diesel market, however, it could matter somewhat more if the administration successfully directs funding toward refinery expansions or debottlenecking projects. From a fundamental perspective, however, the key issue is timing. Even under emergency authorities, new production, refinery expansions, and infrastructure improvements usually take months or years to materially affect fuel balances. As a result, this announcement is unlikely to meaningfully change winter crude oil supply or diesel inventories by itself. The administration’s willingness to use federal funding and emergency authorities may help cap bullish sentiment in refined-product markets, but it does little to solve the ongoing geopolitical disruptions that are the root cause of today’s elevated energy prices—especially if the rumblings of renewed U.S. / Israeli strikes on Iran come to fruition.

France’s sovereign credit rating is expected to receive a downgrade from Moody’s after today’s market close, piling even more pressure on the French government already struggling with intensifying domestic discontent and social unrest. Expectations are to see a Moody’s downgrade to Aa3, which would bring them in line with S&P and Fitch, who have already moved lower previously. While a downgrade appears largely priced into French bond markets, where 10-year yields have climbed to their highest levels since 2002 and the spread versus German bunds has widened to a 15-year extreme, the bigger market focus will be on Moody's outlook and whether France's deteriorating fiscal position, political gridlock, and escalating social unrest point toward additional downgrades ahead. For U.S. markets, the immediate impact would likely come through global fixed-income channels, as further pressure on French and broader euro-zone sovereign debt could tighten financial conditions, lift global bond yields, and support safe-haven flows into U.S. Treasuries—potentially playing a major role in the notable drop in longer-term U.S. Treasury yields this week. While today's decision alone is unlikely to trigger major market disruption, any signal that France is on a path toward lower-tier investment-grade ratings would raise concerns about forced investor selling, European financial stability, and potential spillover into global credit markets heading into 2027. More protests are planned for this weekend, which could further undermine confidence in the government’s ability to deliver fiscal reforms and keep this ongoing saga in focus.

A Russian drone strike sank another vessel in the Black Sea on Friday, killing at least one sailor with three more still missing, this time 13 nautical miles off the Romanian coast. The Comoros-flagged Khoryv was reportedly on its way to Sulina, now a key choke point for Ukraine’s alternative Danube export corridor with their primary Black Sea ports still effectively cut off. Despite this week’s notable improvement in rhetoric and progress toward resuming trilateral talks and subsequent ugly selloff in the wheat markets, we have yet to see any actual improvement on the ground. Today’s strike is a fresh reminder of Russia’s continuing probe of NATO boundaries and concerted effort toward targeting Ukraine’s alternative export routes to reduce their ability to finance their ongoing war effort, particularly critical as U.S. support wanes. I’m still skeptical that the current diplomatic push will actually produce an end to the conflict in the near-term, especially with Russia not showing any signs of slowing their attacks. The risk of further escalation in the Black Sea remains present with this week’s announcement of NATO sending more military assets to the region in response to the increasing frequency of Russian attacks on shipping in and near NATO members’ territorial waters, with today just the most recent occurrence.

On the fundamental side, Russia’s winter wheat belt is experiencing its driest October since 2021 on a crop-area weighted basis, as shown below. Forecasts keep the region dry over the weekend, but chances for rain work their way in during the 6-15 day window, though current expectations are for these rains to hold mostly to the furthest southern end of the belt. Keep in mind that both Russian and Ukrainian farmers are facing an ugly near-term financial picture amid the ongoing disruptions to their primary export channels, bringing strain that has reduced expectations for winter wheat planting in the region. If a weather issue is added on top of this, it could lead to a more notable decline in winter wheat acres in both countries.

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Perspective: Morning Commentary for October 23

October 23 – The tech heavy Nasdaq saw its worst day since June yesterday, closing 2.9% lower, with concerns regarding the sustainability of the ongoing AI buildout in the backdrop of rising borrowing costs and increasing sovereign debt driving investors into safe havens, as evidenced by the surge in buying in the bond markets. Stock futures are pointing to a lower open again today, though Nasdaq futures are showing the smallest losses among the major indexes, a potential sign of an easing of selling pressure in the tech sector. The VIX is up 6% to start the day, trading just below 20.2 at the time of writing, hovering near its highest level since last Friday. The dollar is looking at a quiet start to the day after a largely quiet week, sitting just above unchanged near 101.68. Treasury yields are modestly higher this morning after falling notably this week, with 2-year yields at 4.66%, 10-year yields at 4.97%, and 30-year yields just above 5.29%. Crude oil prices are on the rise as the market rebuilds geopolitical risk premium amid escalatory rhetoric from the U.S. / Israel and Iran, raising fears of renewed and potentially even more intense back-and-forth strikes. Nearby WTI is up 2.5% to start the day, carving out a fresh five-week high of $101.60 at the time of writing, while nearby Brent is up another 1.35% on the day to trade near $114.70, nearing a six-month high. Meanwhile, the ags are looking at a quietly mixed open.

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Perspective: Mid-Day Commentary for October 22

October 22 – The tech sector remains in an ugly selloff at midday, leading the Nasdaq to show a 2.1% loss at the time of writing, while the S&P 500 is down 1.0%, but the Dow Jones is actually slightly above unchanged. The VIX remains elevated as well amid the combined tech sector and Middle East geopolitical escalatory fears, up roughly 10% on the day to sit near 18.35. The dollar has traded both sides of unchanged today but sits just slightly below it at the time of writing, hovering near the 101.65 level. Treasury yields are sharply lower at midday, with 2-year yields off 14-basis points to trade at 4.684%, 10-year yields off near 16-basis points to break back below the 5% mark for the first time in a month, and 30-year yields are off 12-basis points to sit at 5.316%. Crude oil prices are off their highs but still in the green amid escalating rhetoric between the U.S./Israel and Iran, as well as the ongoing fighting between the Saudis and Houthis, with nearby WTI up 1.0% to trade near $98.70 and nearby Brent up 2.8% to trade near $111.90 at the time of writing. The ags are largely mixed at midday, with soybeans finding strength amid red-hot U.S. export demand amid huge Chinese purchases, while much of the remaining grains, oilseeds, and livestock sector hangs in the red.

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