Perspective: Morning Commentary for March 2

By: Arlan Suderman, Chief Commodities Economist

Wed, 02 Mar 2022, 14:17

Perspective: Morning Commentary

Arlan Suderman

Chief Commodities Economist

March 2 – The Ukrainian war is the main topic of conversation, but traders will take the time to consider economic news today, including updated private sector jobs numbers and testimony from Federal Reserve Chairman Jerome Powell. That offered an opportunity for consolidation in some markets overnight, while others continued to move in the same direction with great fervor. The VIX is trading near 33 this morning, reflecting the fact that fear levels remain elevated on Wall Street. The dollar index is trading near 97.5, after posting fresh 21-month highs overnight, while yields on 10-year Treasuries are trading near 1.79%, after falling to two-month lows near 1.68% yesterday as money flowed to the safe-haven assets. Crude oil prices pushed above $112 per barrel earlier in the session, posting fresh highs not seen since 2014. The Ags are mixed, with wheat prices trading the expanded daily limit higher overnight, while corn and soybean prices saw some profit taking and consolidation as new South American production estimates emerge.

At what point is the war priced into the market? That’s a question continually before traders across the spectrum of markets this week. That will vary with the market, as each has its own fundamentals influenced by the war, as well as the other economic factors that were already on the table before the Russian invasion of Ukraine. Some markets have been followers of the market emotion, while others have very obvious fundamental implications that could continue to deteriorate over the coming year or more. The initial reaction seen in the markets over the past 10 days has largely been one of emotion. We’re now entering the time when traders start to sort out the impacts of current events against each individual asset and asset class. That may mean continued strength in some assets, and continued weakness in others, while there will be a third category that sees adjustments to the recent moves, based on more solid fundamental analysis. This applies for the commodity sector, as well as the equities, currencies, securities, etc.

The private sector created 475K jobs in February, according to this morning’s ADP employment report, beating analyst estimates of 320K. That bodes well for Friday’s government jobs report, which is expected to show that the economy added 390K jobs last month. However, that’s not the real story out of this morning’s data. Go back a month to the January jobs reports, in which the ADP data showed a loss of 301K jobs during the month, followed by the government’s report two days later showing that the economy created 467K jobs. We all wondered how the private sector numbers could be so different from the government numbers. Well, ADP revised the January numbers in this morning’s release, reversing the 301K jobs lost into 509K jobs created. That’s a reversal of 810K jobs! It provides validation for the government numbers, and erases fears that the economy took a big hit from the Omicron variant of Covid-19 in January. In fact, it verifies the great resilience of this economy as we stayed open through the Omicron surge this winter.

That puts the focus squarely on Fed Chair Jerome Powell’s testimony at 10 a.m. ET this morning before the House Financial Services Committee. Wall Street will monitor his comments closely for hints regarding the path that the Fed will follow when crafting its revised monetary policy when it meets in two weeks. How aggressive will it be with rate hikes, when will it start reducing the balance sheet, and how will soaring energy prices tied to the Russian invasion of Ukraine influence their decision? He’ll have the opportunity to “fix” any stumbles he may make in his comments when he returns to Capital Hill to testify before the Senate Banking Committee tomorrow. Regardless, Powell’s testimony provides a bit of a reprieve from the focus on the war to focus on the number two issue – taming inflation that is running at a 40-year high amid a war that is likely increasing those inflationary pressures, but which also creates challenges for the economy.

Wheat prices surged the expanded daily trading limit higher as the world loses nearly a third of its exportable supplies via the Black Sea due to the war. However, a round of profit taking emerged to consolidate soybean prices this morning, while helping to cool the rally a bit in corn. StoneX Brazil released its updated production estimates this morning based on its latest customer survey. StoneX pegged Brazil’s soybean crop at 121.2 million metric tons, down from 126.5 mmt last month and down from its initial estimate of 145 mmt. The all-corn production estimate remained unchanged at 116.1 mmt as producers wait to see how the weather plays out for the large safrinha crop that is currently being planted. StoneX Brazil cut its export estimate to 75 mmt, suggesting more U.S. sales ahead.

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August 7 – The U.S. economy unexpectedly lost 23k jobs in July, dramatically below market expectations of an 80k increase and marking the worst Non-Farm Payrolls print since February. Furthermore, May and June were both revised sharply downward, with combined revisions showing 103k fewer jobs than previously reported. Outside of the healthcare sector, which added 22k jobs in July, the losses were very broad-based. Government payrolls saw the largest decline, shedding 53k jobs in July, the largest seen since October 2025, while June was revised down to show a loss of 10k jobs as well. The private sector at least saw growth, adding 30k jobs in July, now matching the month prior after it was revised down from the 49k initially reported, and substantially missing forecasts of 78k jobs being added. This is a sharp reversal in course from the largely better than expected U.S. labor data seen earlier this week.

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August 6 – Stocks remain quietly mixed at midday as both the S&P 500 and Dow Jones remain just below their fresh all-time highs put in yesterday. This is allowing the VIX to cool to a four-week low below the 15.4 mark, reflecting the collective sigh of relief in the market amid largely better than expected U.S. economic data today. The dollar remains quietly in the green in its relatively tight range this week, trading at 99.9 at the time of writing. Treasuries remain elevated but have cooled from their recent peaks, with 30-year yields trading at 5.189%, 10-year yields trading at 4.647%, and 2-year yields trading at 4.229% at midday. Crude oil also remains quietly in the green, with nearby WTI up 2.3% on the day trading near $76.80 and nearby Brent up 2.4% on the day trading near $81.40. The ags remain mixed, with the wheat complex now squarely in the red while corn and soybeans cling to small gains, and the livestock complex largely pushes lower.

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