Perspective: Mid-Day Commentary for March 3

By: Arlan Suderman, Chief Commodities Economist

Thu, 03 Mar 2022, 15:46

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

March 3 - The Dow Jones Industrials started off solidly this morning but have mostly pared gains since, with the trade seeing some positivity in terms of Russia and Ukraine meeting for discussions, as well as a potential Iran nuclear deal and positive U.S. economic news. However the prospect of a drawn-out war remains, as Ukraine fights hard against Russian coercion and Putin shows no signs of letting up. The effects of an extended conflict will be unavoidable at some point, particularly in the commodity sector, with $100+ crude oil the elephant in the room in terms of keeping things humming along here in this country.

Russian and Ukrainian delegates did meet at the Ukrainian border today to discuss some sort of agreement between the warring factions, with the Ukraine side (according to one of the country's presidential advisor) looking for an immediate ceasefire, armistice, and evacuation of citizens from attacked cities. This was the second round of talks between the two countries, and comes as Ukraine and others (including the U.S. and Britain) accuse Russia of civilian targeting and human rights abuses. Russia was also removed from the global distribution system that runs airline reservations, another blow to the Russian aviation industry that has been shunned now by major carriers and manufacturers. Despite all this, Russian forces continue to advance on major southern UKR cities, a week after the war began, and President Putin told French counterpart Emmanuel Macron on a call today that military operations would continue - they are only intensifying today...

Traders had plenty of economic data to parse through ahead of Fed Chair Powell's testimony before the U.S. Senate this morning. Initial U.S. jobless claims for the week ending 2/26 came in at 215k, well short of the average 225k trade expectation and 233k on the week prior. That's the lowest number of applications for unemployment since January 1, as the U.S. economy continues to recover from COVID and restrictions ease throughout the country. Continuing claims were basically steady at 1.48 million for the week ending 2/19, though a lower 1.42 mln figure was expected there. Markit's U.S. Services and Composite PMI readings both came in slightly below estimates at 56.5 and 55.9, respectively, and both down only slightly from last month as well, indicating roughly steady business growth and expectations. Factory orders for U.S. manufacturers rose 1.4% in January, double the expected MoM increase, with December orders revised sharply higher from -0.4% to +0.7% as well. And finally, durable goods orders rose 1.6% in January, even with trade estimates and the month prior. All told, a promising run of data indicators for the strength of the U.S. economy today.

WTI crude oil hit its highest level since 2008 early this morning, at more than $116 per barrel, with worldwide Brent Crude coming within a few cents of the $120/bbl mark, its highest price since 2012. The market has cooled a bit into mid-morning after rumors of an Iranian nuclear deal, and subsequently the prospect of Iran crude barrels coming back on to the market. The U.S., E.U., and others continue to slap sanctions on Russia to make it tougher to produce and export oil; they have yet to directly ban Russian oil and gas exports, but world trade flows are already feeling the hit due to the indirect sanctions and voluntary actions by energy companies, not to mention skyrocketing prices. That goes double for the grains and edible oils markets, where the Black Sea absence is already hitting hard as global importers desperately seek replacements. Wheat contracts remain generally limit-up, as FOB premiums explode among other major wheat exporters.

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