Perspective: Morning Commentary for February 16

By: Arlan Suderman, Chief Commodities Economist

Wed, 16 Feb 2022, 14:15

Perspective: Morning Commentary

Arlan Suderman

Chief Commodities Economist

February 16 – The focus is still on Russia this morning, with traders a bit less confident that we are drifting toward a peaceful solution. The VIX is trading near 27 this morning, while the dollar is trading near 95.9. Yields on 10-year Treasuries are trading near 2.01%. Crude oil prices are more than 1% higher in early trade, while the Ags are mostly higher as well. Stocks are soft this morning amid the geopolitical risks, while money is generally flowing back into much of the commodity sector following yesterday’s selloff.

President Biden told the nation Tuesday that there is little to no evidence that Russia is pulling back troops from Crimea as it stated yesterday. Similar statements have come from NATO officials. Instead, authorities say they see a continued buildup of systems to support war, such as field hospitals and strategic weapons systems. Cyber-attacks also increased on Tuesday on key defense and banking sites in Ukraine, suggesting that escalation continues. Furthermore, Russian lawmakers sent a formal appeal to President Putin Tuesday urging him to recognize rebel-held areas in eastern Ukraine as independent states, which is an old trick out of the Putin playbook that he uses to give him an excuse to invade to “protect” these independent states from enemy combatants – Ukrainian forces. That leaves risks high that there could be an invasion at any moment, much of which has already been priced into the market already, but risks linger, nonetheless. Russia has an estimated 150K plus troops lined around roughly 70% of Ukraine’s border currently. It takes one shot among those 150K to trigger a crisis.

Retail sales were hot in January, jumping 3.8% month-on-month, after falling 2.5% in December during the peak of the Omicron surge. Analysts had expected a 2.0% increase. Retail sales were up 13% year-on-year in January. Sales minus vehicles rose 3.3% month-on-month in January, up from analyst expectations of 1.0% growth, and certainly better than the 2.8% decline seen in December. Retail sales minus vehicles and gas rose 3.8% month-on-month, up from analyst expectations of 0.6%, and quite a reversal from the 3.2% decline seen in December.

Import prices rose 2.0% month-on-month in January, beating analyst estimates of 1.3%, after falling 0.2% in December. Import prices were up 10.8% year-on-year in January, beating analyst estimates of 10.2% and up from 10.4% the previous month. These prices flow to the consumer, suggesting ongoing inflation pressures for the time being. Export prices rose 2.9% month-on-month in January, beating analyst estimates of 0.7% and a reversal of the 1.8% decline seen in December. Export prices were up 15.1% year-on-year in January, exceeding analyst estimates of 14.6%, but slightly below the 14.7% the previous month. This is the inflation that we’re exporting to others.

That puts the focus back on the Federal Reserve as it contemplates changes in monetary policy ahead of its mid-March meeting. In fact, this would likely be the primary focus on Wall Street if not for the current geopolitical risks in the Black Sea Region. That speaks to the significance of the current crisis with Russia. Nonetheless, monetary policy remains a key component for the economy that will play a significant role at some point going forward. We should get some insight into the divisions within the Federal Open Market Committee later today when the Fed releases the minutes of its January meeting. Obviously, the minutes will be professional in discussing the differences, but the wording may provide some insight into the number of voting members wanting to be more aggressive in raising rates and withdrawing stimulus, versus those who want to go slow. This may impact Wall Street’s confidence in the Fed’s handling of inflation. This morning’s Fed fund futures trading still puts the odds of a 50-basis-point rate hike in March at 58%, while calling for increase of at least 175 basis points by the December meeting. It will be interesting to see if that changes after the minutes are released this afternoon.

The pendulum of geopolitical risks supported money flow into the Ag and Energy commodities overnight. However, the overnight strength didn’t come close to the selling enthusiasm seen on Tuesday, suggesting that the bulls remain cautious at this point. Soybean basis remains stronger than normal in Brazil due to slow farmer selling, but supplies are still increasing at a fast enough pace to soften recent bids to make Brazil more competitive once again. Yet another private source pegged Brazil’s soybean crop near 125 million metric tons on Tuesday, but near-term supplies are increasing. U.S. Gulf bids are still below Brazilian bids from May forward, but cheaper freight still gives Brazil the edge overall for shipment to China. That’s eventually expected to change for July and August loadings if the lower production estimates verify in the days and weeks ahead.

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Mike CastleTue, 04 Aug 2026, 14:58

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