September 18 – The countdown continues, with the FOMC’s rate decision and policy statement due to be released at 1:00 PM Central today, followed by Fed Chair Jerome Powell’s eagerly anticipated press conference 30 minutes later. The market is continuing to price in a 50-basis point cut today, leaving open the possibility of initial disappointment if we see a more conservative 25-point move, but still marking a new era as the Fed begins a cutting cycle for the first time since the pandemic. Even if we do see a 50-basis point cut, that’s no guarantee Wall Street will get the aggressive cuts they’re hoping for through the end of 2024 and into next year, with the possibility for a more front-loaded move still in play and the potential for a stimulatory effect from the first cut slowing future moves. Look for the trade to parse through Powell’s comments for hints at what to expect going forward, while also eagerly awaiting the dot plot graphic to further shape expectations.
Stocks have traded both sides of unchanged through the morning as the market awaits the Fed’s announcement, with the Dow Jones and S&P 500 slightly in the red and Nasdaq slightly in the green at the time of writing. The VIX is pushing to its highest level since early last week above 19 due to jitters surrounding the Fed’s decision. The dollar has rebounded from morning lows to now push slightly higher as it trades near the 100.6 level. Treasuries are up slightly on the day, with 10-year yields trading above 3.69% and 2-year yields near 3.66%. Crude oil is now attempting a push higher following a more bullish than expected D.O.E. report this morning and rising tensions in the Middle East, with the nearby WTI contract back above $71 at the time of writing after trading below $70 earlier in the session. The ags have lost steam through the morning after a firm start to the day, though the soy complex is continuing to push higher.
U.S. crude oil stocks fell by 1.63 Mb in the week ended September 13, much sharper than market expectations of a 0.2 Mb decline and pushing stocks (excluding the SPR) to their lowest level in nearly a year. This sharp decline was driven by a seven-week high in exports (4.589 Mb), along with a 0.7% decline in refinery utilization to five-week low of 92.1%. Gasoline and distillate stocks saw builds, though both were smaller than expected. Gasoline stocks grew by 0.07 Mb versus expectations of a 1.14 Mb build, while distillate stocks grew by 0.13 Mb versus expectations of a 0.99 Mb build.
Geopolitical risks look to add some uncertainty to markets today, with Hezbollah vowing retaliation for yesterday’s series of pager blasts that killed at least 12 and wounded roughly 3,000 in Lebanon. The ongoing back-and-forth between Israel and Lebanon’s Iran-backed Hezbollah has continued to increase fears of a widening conflict in the Middle East, which would have a major impact throughout the commodity space. Elsewhere, a Ukrainian drone attack on a major Russian ammunition depot today triggered a blast so large it was picked up by earthquake monitors, forcing evacuations in a nearby town in Russia’s Tver region, roughly 300 miles from the Ukrainian border and 240 miles west of Moscow. We saw a sharp rally in the wheat complex last week following escalations in the conflict, with Russia striking a Ukrainian wheat vessel in the Black Sea in retaliation for a drone attack on Moscow. That risk premium was quickly sold off to start this week, but if we see a similar response from Russia for this attack, we could obviously see similar action again. Spec traders have trimmed their net shorts in the wheat complex considerably, with large covering seen last week in response to the above, but there’s still enough out there to spark another short-covering rally if we do see retaliation aimed at grain exports, especially with fundamentals tightening.
