Perspective: Morning Commentary for July 8

By: Arlan Suderman, Chief Commodities Economist

Fri, 08 Jul 2022, 13:32

Perspective: Morning Commentary

Arlan Suderman

Chief Commodities Economist

July 8 – Overnight strength turned negative following the release of this morning’s monthly jobs data, reflecting the ongoing sensitivity of Wall Street traders to any data that might suggest trouble ahead. Yet, the VIX continues to trade near 26, which is just above one-month lows. The dollar index is trading near 107.2, after hitting a new 19-year high near 107.8 overnight. Yields on 10-year Treasuries are trading near 3.06%, as they rallied on the jobs numbers. Crude oil prices are 2% higher this morning, while follow-through buying generally supported the Ags overnight as supply concerns emerge once again.

The economy created 372K jobs in June, down from 384K the previous month, but well-above the 270K anticipated by analysts. The unemployment rate remained at a historically low 3.6%. The job participation rate ticked lower to 62.2% in June as fewer people looked for work. Average hourly earnings rose as expected by 0.3% in June, but the May number was revised up to 0.4% gains. That pushed the May year-on-year gains in hourly earnings to 5.3%, up from 5.2% previously, and it pushed the June gains to 5.1%, beating analyst expectations of 5.0%. The average workweek was unchanged at 34.5 hours. It’s interesting to note that leisure and hospitality employment grew by another 67K in June, but that still remains down by 1.3 million from pre-pandemic levels.

A key part of taming inflation is calming wage inflation. That means easing pressure on the labor market so that it’s not so tight. This report suggests that wages are continuing to spiral upwards due to a lack of workers for a near-record large number of openings. That’s good for employees who can auction off their services to the highest bidder, but it’s bad for the economy in that it continues to perpetuate inflation, which is the greater threat currently. We need to see the job participation rate increase, rather than going down. We need to see more people in the workforce, rather than fewer. More people to fill the available positions that would ease upward pressure on wages.

The Federal Reserve will certainly take all of this into consideration when it meets on July 26 & 27 to consider changes to its monetary policy. The market is currently trading 98% odds that the Fed will boost its benchmark interest rate by another 75 basis points at that meeting to 2.25%, with expectations that it will be above 3.5% by the December meeting. Wall Street fears the detrimental impact of these rapidly rising interest rates, even though they’re rising at a fraction of the pace accomplished by Paul Volker to get inflation under control four decades ago. Yet, the Fed suddenly woke up to the real long-term threat of inflation to the economy and sees it as the worse of the two evils. America has never tamed inflation with negative real interest rates where rates were below the pace of inflation, and the current pace of rate hikes will take some time to get us positive. This is no longer about fixing the problem without pain. Rather, it’s about finding the solution with the least long-term pain – which should have been the Fed’s focus 15 to 18 months ago. The pain would not have needed to be as deep if it had acted then.

Covid is again spreading in China, resulting in new restrictions with adverse economic impacts. China reported new cases of covid in 47 cities located in 16 provinces on Thursday. Shanghai reported another 45 new infections, according to today’s China Direct, published by our Shanghai office. As such, people are not allowed to enter public venues without a negative Covid test in the past 24 hours. People wanting to avoid being notified that they have to go to government quarantine facilities simply stay home. Yet, that’s having a big adverse impact on the economy, which has been struggling since the previous outbreak started in March. As such, Shanghai continues to gradually reopen cinemas, while slowly lifting other travel curbs as well. China’s trying to walk a fine line between maintaining a zero-tolerance of Covid while trying to reopen its economy. China’s central bank continues to maintain an easy money policy to stimulate the economy, but that creates challenges for is currency when the U.S. is actively raising interest rates, resulting in in an outflow of foreign capital from China at a relatively strong pace. Meanwhile heavy rains over the past several weeks result in considerable flooding and increased crop risks for corn and soybeans in much of eastern China, as also outlined in today’s edition of China Direct.

Grain and oilseed prices had a nice recovery on Thursday, with follow-through buying overnight. The question is, can they sustain that strength going into the weekend following a dismal weekly export sales report, and with modest headwinds from the outside markets? Fundamentally, the Midwest trends notably drier through the remainder of the month following this week’s rains. Temperatures will moderate considerably over the coming week, but then the heat is expected to start building in from the west once again. That may prove to be more of a threat for soybean production if the forecast verifies, although it could create some challenges for corn as well, depending on how long the moisture lasts that fell this week. Areas that missed this week’s rains will be the first to notice problems.

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Matt ZellerTue, 04 Aug 2026, 12:43

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Mike CastleMon, 03 Aug 2026, 15:10

Grains & Oilseeds

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