June 2 – Stock futures dipped lower overnight as rising geopolitical tensions increased the uncertainties of the market. Traders continue to follow escalating tensions with China amid the current trade war, while also looking ahead to this week’s critical U.S. jobs data. The VIX traded near 20 overnight, while the dollar index is trading near 98.8. Yields on 10-year Treasuries are trading near 4.44%, while yields on 2-year Treasuries are trading near 3.93%. Crude oil prices surged higher to trade just below $64 per barrel as geopolitical tensions rise in the Black Sea Region, despite another OPEC+ output increase decision. The grain and oilseed markets were again mixed, with weakness in the oilseeds offset by a firmer tone for the grains.
Peace talks between Russia and Ukraine are set to begin today in Turkey, but the two are far from reaching an agreement. In fact, the war ratcheted up significantly over the weekend when Ukraine successfully implemented an attack deep inside of Russia that it had been planning for well over a year. That was quickly followed by a massive retaliatory strike by Russia. The Ukraine attack involved smuggling bomb-laden drones deep inside Siberia near key strategic sites where Russia’s missile carrying planes – including the capability of delivering nuclear warheads – were located. The attacks are believed to have knocked 34% of those planes out of commission. The drones were apparently hidden inside the roofs of wooden sheds that were trucked to the attack sites, before the roof panels were removed and the drones were launched for the coordinated attack. The attacks took place as much as 4,300 km (2,670 miles) inside of Russia. That led to a retaliatory strike by Russia that included an attack by 472 drones making it the largest such attack on Ukraine since the war began in February 2022. This war is escalating as the peace talks begin – which isn’t unusual – and that elevates risks that commodity movement could be curtailed.
China rejects any notion that it violated the tariff agreement signed with the United States on May 11, countering accusations from President Trump late last week that it had done so. The agreement was primarily one to cool tensions between the two countries – rolling back tariffs for 90 days to allow some commerce to occur, while the two sides negotiated. But there have been no known high-level negotiations since May 11, with cabinet members saying that President Trump and President Xi need to get personally involved to make that happen. President Trump didn’t specify what the agreement violations were, but it is believed to be China slow-walking steps needed to allow the export of rare earth minerals agreed to in the May 11 document. Those rare earth minerals are essential to sustain the production of certain electronics, including the production of autos. This provides further evidence that China is in no hurry to reach a broader trade agreement with the United States, believing that all of the U.S. court challenges to the president will eventually curtail the trade war, requiring China to give up little to nothing.
A second terror attack in two weeks targeting Jews in the States took place over the weekend, raising concerns of possible other attacks during the two-day Jewish Shavuot holiday today and tomorrow. An Egyptian man here on an expired visa used a flame thrower and Molotov cocktails to attack participants of a peaceful protest in Boulder, Colorado Sunday. The attack injured eight participants of the gathering seeking the release of hostages being held by Hamas in Gaza. Sunday’s attack comes following a May 21 attack in Washington, D.C. in which a young couple was gunned down after attending a Jewish event there. New York City police are increasing security at local religious sites for the Shavuot. The domestic attacks are part of the elevated risk picture for market participants.
OPEC+ held a virtual meeting over the weekend to discuss production quotas for the month of July. The cartel decided to increase output in July by another 411K barrels per day, matching increases that it had previously agreed to for May and June, after a modest increase in April. OPEC+ sees an opportunity to regain global market share at a time when prices are testing breakeven levels in the North American shale oil patches. They’ve tried in recent years to maintain prices at levels that would sustain their oil-dependent economies, but all that did was expand production in the U.S. shale oil fields, leading OPEC+ members to lose market share as global demand softened during and post-pandemic. OPEC+ had cut more than 5 million barrels per day from its previous output levels following that strategy. They now appear to be shifting strategies, seeking to sustain their economies on volume rather than price. Cartel members are taking advantage of this time when they know that President Trump wants cheap energy prices to limit the inflationary impact of the tariff war.
Soyoil prices bounced a bit overnight with crude oil, following last week’s price break, as traders continue to wait for the release of the Trump Administration’s biomass diesel production mandates, along with small refinery exemptions. Wheat prices find continued support from weaker condition ratings and rising Black Sea tensions.
