Perspective: Mid-Day Commentary for May 4

By: Arlan Suderman, Chief Commodities Economist

Wed, 04 May 2022, 16:10

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

May 4 - Stocks are under pressure again at midday as traders brace for the Federal Reserve's comments to be released this afternoon. The Fed is scheduled to release its revised monetary policy statement at 2 p.m. EDT, followed by a press conference with Fed Chair Jerome Powell 30 minutes later. This is one of the most anticipated statements from the Federal Reserve in many years, following the central bank's failure to act more quickly, which in turn allowed inflation to reach 40-year highs. The Fed now appears to have "gotten religion" regarding inflation, with some of its most dovish members speaking like strong hawks on monetary policy in recent weeks. That has Wall Street afraid that the Fed might over-react with today's policy changes, slamming the brakes on economic growth. Meanwhile, money flowing into the food and energy based commodities suggests that those traders fear that the Fed may not do enough to tame inflation, and there's a good argument for that. Former Fed Chair, and current U.S. Treasury Secretary, Janet Yellen stated this morning that she is confident that the Fed will use all its tools to tame inflation, and that a soft landing is possible. However, she also stated that the Fed will need to be "skillful" and "also lucky" to achieve that soft landing. Those aren't comments that instill confidence in Wall Street traders - stating that the Fed needs to be "lucky."

Even so, the VIX slipped below 29 in this morning's trade, suggesting easing anxiety levels as the Fed statement nears. The dollar index continues to hover near 103.4 at midday, while yields on 10-year Treasuries trade near 2.98%. Crude oil prices are more than 3% as we approach midday, while the grain and oilseed markets are mixed to higher. Wheat prices are the leader to the upside this morning, posting gains of more than 3% after Bloomberg ran a story stating that India is considering curbs on exports over the coming year due to adverse weather that hurt production back in March. The world was counting on increased exports from India to partially offset lost exports from Ukraine due to the war there. Curbing India's exports puts more focus back on U.S. production problems, with historically low crop ratings currently in the Plains winter wheat crop, combined with extensive planting delays for the spring wheat crop. Corn and soybean prices lacked the strength of conviction seen among buyers in wheat today, but they've had a stronger bias nonetheless. Drought is starting to take its toll on Brazil's safrinha corn crop, while planting delays in the United States are raising concerns about the Midwest crop.

La Nina remains active with cooling in the equatorial Pacific, as shown in the graphic below, with forecast models now projecting it to remain active for a rare third consecutive growing season. Note also the cool waters in the Gulf of Alaska, stretching down along the U.S. West Coast, stretching southwest toward Hawaii. This is a classic set up for a problematic summer in the Midwest, although it doesn't guarantee such. Another factor that would further increase those odds would be cool waters off Asia around Japan and Korea, and those waters saw notable cooling in the past week. Maintaining these patterns into early June would raise risks for the summer.

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