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Perspective: Mid-Day Commentary for July 8

By: Arlan Suderman, Chief Commodities Economist

July 8 - Headlines regarding the Iranian war continue to capture the focus of investors on Wall Street today, following President Trump's comments late yesterday that the ceasefire is effectively over following Iran's persistent attacks on ships crossing the Strait of Hormuz. The United States ended the waiver on Iranian oil sales, and then hit Iran with a wave of military strikes overnight. President Trump indicates that more strikes may occur tonight, keeping tensions high in the region. Bloomberg posted a story quoting U.S. military officials stating that Iran continues to mine the waters of the Strait of Hormuz, seeking to force ships to follow a prescribed route near its coastline so that it can control who passes through the Strait, while also charging fees for doing so. That's likely why the U.S. military targeted and sank 28 Iranian vessels overnight last night, according to reports, suggesting that it was targeting boats that were trying to lay more mines. President Trump stated that we could further escalate attacks to possibly hitting key Iranian infrastructure, including power and water systems, and that the possibility of seizing Kharg Island remains on the table. Kharg Island is responsible for 90% of Iran's oil exports. A U.S. blockade of the Strait limited to Iran is also on the table. Iran says it will not back down from its goal of controlling the Strait.

Stocks remain under pressure this morning due to resumption of hostilities in the Middle East. Tankers are still moving through the Strait of Hormuz, but at a slower pace. That has energy prices higher this morning, although still not that far above pre-war levels. The VIX is trading near 18 at this hour, but that's off its overnight high near 19. The dollar index is trading near 101.1. Yields on 10-year Treasuries are trading near 4.59%, after posting nearly seven-week highs this morning, while yields on 2-year Treasuries are trading near 4.21%. WTI crude oil prices are currently trading near $75 per barrel, while Brent trades near $80 per barrel. The grain and oilseed markets are mixed to higher, but lacking clear direction outside of stronger soybean oil prices that are following crude oil prices higher.

Grain and oilseed traders took note yesterday when a midday model update for the American GFS showed a marked hotter shift for week #2 of the forecast. Even so, we continue to see significant differences. Commodity Weather Group noes that we have a strange situation where the strong El Nino trys to keep heat to the north, with wetter risks to the South and to the East, but a strong negative Pacific Decadal Oscillation (cool in Gulf of Alaska and warmer to the South) gives stronger intensity to heat periods than are typical with El Nino. It notes that "the result is a hotter answer than 2015, but cooler than many recent summers." The below graphics provide an example of the diversity of solutions looking two weeks out, which also coincides with peak pollination of the U.S. corn crop across the Midwest. We should note that the Euro has consistently had a hot bias, and even the cool WxNext2 overstated heat this this most recent event.

image 133954

Model & analog differences remain significant for week #2. SOURCE: StormVista & Commodity Weather Group

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Perspective: Mid-Day Commentary for July 8

July 8 - Headlines regarding the Iranian war continue to capture the focus of investors on Wall Street today, following President Trump's comments late yesterday that the ceasefire is effectively over following Iran's persistent attacks on ships crossing the Strait of Hormuz. The United States ended the waiver on Iranian oil sales, and then hit Iran with a wave of military strikes overnight. President Trump indicates that more strikes may occur tonight, keeping tensions high in the region.

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