Perspective: Mid-Day Commentary for June 1

By: Arlan Suderman, Chief Commodities Economist

Wed, 01 Jun 2022, 16:21

Perspective: Midday Commentary

Guest Commentary by Mike Castle

Market Intelligence - Fertilizer Analyst

June 1 - The rocky start to the week on Wall Street continues, with stocks unable to hold onto early morning gains, now firmly in the red while the VIX has climbed through the day to trade near 27.5. The U.S. dollar has risen to trade near 102.7 and yields on 10-year treasuries are up on the day as well, trading near 2.94%. The ags are experiencing another large sell off after trading up in the overnight session. The wheat complex has been hit very hard to start the week, with nearby Chicago and KC contracts both shedding over $1 in the last two days.

Shanghai's lockdown officially ended at midnight local time, with residents taking to the streets in celebration after two months of isolation. Though life isn't back to pre-pandemic normalcy, this is a huge step after some of the strictest lockdowns that the world has seen in order to adhere to China's zero-COVID policy amongst a densely-populated city of 25 million. Residents still have to be tested every 72 hours in order to utilize public transit or enter public venues, but this may just be their new normal for the foreseeable future. At any rate, reopening a major financial and economic hub should help provide a boost to the global economy and struggling supply chains.

U.S. manufacturing activity came in unexpectedly strong on today's report, with the Institute for Supply Management's (ISM) gauge of factory activity for the month of May coming in at 56.1%, well above analyst expectations of 54.5% and above 55.4% in the month prior. Any reading above 50% indicates growth. Overall demand remains very strong, though issues with sourcing inputs due to lagging supply chains still persist. Furthermore, issues with employee turnover and difficulty hiring new employees continue to dampen growth, with ISM's employment component slumping 1.3% month-on-month to 49.6%. This is the first time the index has fallen below 50% since November 2020.

The U.S. labor market remains tight, though today's data showed job openings falling 455,000 month-on-month to 11.4 million in April (with March being revised upward to 11.855 million). Despite this improvement, there are still 1.9 open jobs for every unemployed person in America. The gap between job openings and available workers did fall to 5.46 million from 5.6 million in March but this level is still historically very high.

Russian forces continue to advance on the key industrial city of Sievierodonetsk, with reports of intense shelling hitting dangerous chemical storage tanks as officials urge residents to stay indoors for their safety. If Russia is able to capture the city as well as its cross-river neighbor Lysychansk, it will effectively hold all of the Luhansk oblast, which would be a major victory in Russia's campaign to take over the Donbas. The U.S. announced another new $700 million weapons package to send to Ukraine, now including precision rocket systems, drawing the ire of Russian officials who warn it will only add fuel to the fire and increase the odds of a direct conflict.

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