Perspective: Mid-Day Commentary for June 20

By: Arlan Suderman, Chief Commodities Economist

Tue, 20 Jun 2023, 15:46

Perspective: Midday Commentary

Guest Commentary by Mike Castle

Market Intelligence - Fertilizer Analyst

June 20 - Stocks are squarely in the red to start the week, continuing to fall back after reaching new 2023 highs on Friday. Concerns of hawkishness from Fed Chair Jerome Powell's address to Congress tomorrow are weighing on equities as market expectations of another rate hike in July grow, with the possibility of another later in 2023 despite last meeting's pause. The VIX is up slightly, though still very low near the 14.5 level. The dollar is rallying again, trading up near the 102.2 level at the time of writing. Treasuries are under pressure today, with 10-year yields falling to trade near 3.71% while 2-year yields trade near 4.67%. Crude oil is off sharply to start the week, with the nearby WTI contract falling near the $70 level while the ags are largely mixed.

U.S. Secretary of State Antony Blinken traveled to Beijing to meet with Chinese President Xi Jinping in an attempt to cool simmering tensions between the U.S. and China. This was the first visit to China made by a U.S. Secretary of State since 2018. While no major breakthroughs were achieved, both sides expressed positivity on progress in relations and the need for increased communication going forward. Hopes are for this meeting to pave the way for further high-level meetings between U.S. and Chinese officials in the near future, though that's not guaranteed, as we've experienced how quickly things can change. Regardless, a stabilization of relations between the two sides is certainly better news than the deterioration seen to start the year, and should be taken as such.

Meanwhile, China's struggling economy was disappointed by the lower than expected 10 basis point cuts to their one and five-year loan prime rates. With signs of a slowdown continuing, the market expects further stimulus measures to provide a much needed boost as the country continues its economic recovery post-COVID lockdowns. In another fresh round of negative news, China's CNPC cut their forecast for 2023 Chinese oil demand by roughly 1% compared to March's estimate. However, today's announcement from the People's Bank of China did little to ease concerns, with market participants waiting for signs of further measures in the weeks ahead.

In other U.S./Asia geopolitical news, Indian Prime Minister Narendra Modi is set to make a three-day visit to the U.S. this week to meet with President Biden, other government officials, as well as some private industry leaders. The U.S. continues to attempt to grow ties with India, now the world's most populous country with growing economic power and influence in the region. As a key member of the BRICS alliance, India has ramped up its economic ties with Russia since its invasion of Ukraine, increasing purchases of Russian oil, fertilizer, and other commodities over the last year plus. The goal for the U.S. is to reduce India's reliance on Russia, especially when it comes to the defense sector. Expectations are for major announcements to be made on defense cooperation between the two countries, with India expected to make large scale arms purchases and the U.S. to help facilitate India's own domestically produced weapons and technology. India's position in the BRICS alliance is a delicate one, as they've had to work through their own long standing tensions with China to cooperate. The meeting could be seen by China as an attempt by both countries to gain an advantage to combat them, adding to the complexity of the competitive relationship between the world's two biggest economies.

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