September 11 – Stocks continue to hang in the red at mid-day, with the major indexes down anywhere from 1.3% - 1.6% at the time of writing, while the VIX pushes to its highest level of the week above 21.3. Sticky portions of this morning’s core CPI data are weighing on hopes for a more aggressive rate cut from the Fed at next week’s FOMC meeting, with odds strongly favoring a 25-basis point cut. This is also providing strength to the dollar, as it shot higher following the CPI release, pushing as high as 101.8 before settling back to trade in the mid-101.6’s at the time of writing. Treasury yields are weaker on the day, with 10-year yields trading near 3.63% and 2-year yields trading near 3.59%. Crude oil has lost steam through the morning, though the nearby WTI contract is still hanging in the green as it trades near $66.50 at the time of writing, rebounding from 16-month lows hit yesterday on global demand concerns. The ags are mixed at mid-day, with corn now in the red while soybeans, soymeal, and the wheat complex remain narrowly in the green.
U.S. crude oil stocks, excluding the SPR, rose 0.833 Mb week-on-week to 419.14 Mb, close to in line with market expectations. Sharp shifts in trade were seen, with imports rising to a six-week high at 6.867 Mb and exports falling to a 13-week low at 3.305 Mb. Surprises were seen on the refined products side, however, with gasoline and distillate stocks both rising by 2.31 Mb week-on-week, much sharper than expectations of minor builds for both. Today’s attempted rebound in the crude oil market has stalled following the reports release, with nearby WTI now roughly $2 off the morning’s highs.
Average 30-year mortgage rates in the U.S. fell for the sixth consecutive week, now sitting at a 19-month low of 6.29%, according to the Mortgage Bankers Association (MBA). Meanwhile, overall mortgage applications in the U.S. rose 1.4% week-on-week, down from the 1.6% increase in the week prior but marking the fifth weekly increase seen in the last six weeks. This was comprised of a 1.8% uptick in applications to purchase a home and a 0.9% uptick in refinancing applications. Despite the recent decline in mortgage rates seen, many potential buyers continue to remain on the sidelines with expectations of lower rates ahead, shaped by the environment of a softening labor market and expected cuts from the Fed. Affordability concerns remain for many as well, with home prices still remaining high despite a slowdown in demand and uptick in existing home inventories. This was also reflected in this morning’s CPI data, with the 0.5% month-on-month rise in shelter costs marking one of the most concerning takeaways.
Ukraine carried out their largest attack on the Moscow region yesterday, causing at least one fatality while damaging buildings and shutting down three of Moscow’s major airports for at least six hours. Russian officials have vowed retaliation for the attack, increasing the risk of seeing impacts to grain shipments out of Ukraine, though they’ve proven to be very capable of maintaining exports under fire thus far.
Meanwhile, the market continues to keep an eye on the ongoing drought in the winter wheat belt of southern Russia and the eastern half of Ukraine, with concerns about the impact it may have on planting season. There is still plenty of time to get the crop planted, with forecasts calling for needed rains to return toward the end of September/beginning of October. With Russia already coming off of a down year, as driven home by recent reports of disappointing harvest results and drops in private production estimates out of the country (IKAR & SovEcon now both below USDA), the major concern would be seeing measures taken to restrict wheat exports. With the war now coming closer to home for Russian civilians, the Russian government will need to do whatever they can to prevent food inflation from causing further discontent. It’s important to note again, however, that it’s still too early for major concern regarding an inability to get the crop planted today, as with the current drought in Brazil’s major soybean growing regions and the winter wheat belt on the U.S. Southern Plains. Regardless, each of these situations must continue to be monitored in the weeks/months ahead.
