Perspective: Morning Commentary for November 21

By: Arlan Suderman, Chief Commodities Economist

Mon, 21 Nov 2022, 14:08

Perspective: Morning Commentary

Arlan Suderman

Chief Commodities Economist

November 21 – Stock futures came under modest pressure overnight, as Covid cases continue to climb in China, resulting in tighter restrictions and more lockdowns. That raises more concerns about the global economy, which in turn reduces expectations for demand for commodities, resulting in weakness for that sector as well. The VIX edged higher to trade near 24 this morning, reflecting slightly elevated fears on Wall Street. The dollar index rose more significantly to trade near 107.7. Yields on 10-year Treasuries are trading near 3.80%, while yields on 2-year Treasuries are trading near 4.51%. Crude oil prices are modestly lower, while the same was true for the grain and oilseed sector as well due to the lingering Covid problems in China.

The markets are entering a period that historically has been considered a “holiday malaise” when trade volume traditionally pulls back until the first of the year. Today’s Algo-trading computers may sustain that volume a bit better in the current environment, even though open interest remains very low in many markets, but market-moving news tends to slow this time of year, and movement can become somewhat erratic at times – although that’s been the common denominator for much of the past couple of years. Market values are expected to continue to be headline driven, as the Algos react to developments in the Ukraine war, as well as Covid-stricken China.

Covid cases continue to climb in China, but the consequences on that country’s economy clearly appear more related to its efforts to contain the virus, than they are due to the virus itself. Covid numbers hit a new seven-month high today with 26,824 new cases identified. The hardest hit cities by the virus include Guangzhou, Chongqing, and Beijing. This resulted in more restrictions and lockdowns, despite the fact that more than 91% of the cases were asymptomatic. China recorded three Covid-related deaths over the weekend – their first in nearly six months! Authorities shut down businesses and schools in the hardest hit districts of these cities, while tightening restrictions for those wishing to enter those cities. The population of Beijing is pegged at 21.3 million. It recorded 962 new cases on Sunday, up 316 from the previous day. Yet, Liu Xiaofeng, deputy director of Beijing’s municipal Centre for Disease Control and Prevention, stated in a media briefing, “The city is facing its most complex and severe prevention and control situation since the outbreak of the coronavirus.” The streets are strangely quiet in lockdown areas, with stores other than those selling groceries mostly closed. Several cities had suspended community Covid testing last week as part of China’s efforts to open up, but many of them are now reinstating mass testing as the numbers soar. The bottom line is, China’s economy is expected to continue to struggle, with output also negatively impacting the global supply chains, while also reducing demand for commodities in the months ahead.

China took significant steps at the recent G-20 meetings to ease rapidly mounting tensions with the United States and with other western nations. Chinese President Xi Jinping met with U.S. President Joe Biden, as well as other global leaders, with the focus on softening the recent tone that had been escalating in recent months. This doesn’t mean that China has any less resolve to take control over Taiwan, but the escalating tensions were pulling that timeline forward much faster than China desired. It has significant domestic problems currently, related to Covid and its economy, which it would prefer to focus on. This buys it some time to do so, while preparing its plan for Taiwan.

The Chicago Fed national activity index is a weighted average of 85 existing monthly indicators of national economic activity constructed to have an average value of zero when the economy is growing at a trend rate, with a standard deviation of one. The index posted a -0.05 for October, down from +0.17 in September, with the three-month moving average falling to +0.09. That means that the U.S. economy slowed to grow at a pace that is slightly below trend in October, after growing at a slightly above-trend pace in September. We’ll get critical data on durable goods orders, weekly jobless claims, and consumer sentiment on Wednesday, before the government shuts down for the Thanksgiving Holiday weekend starting on Thursday.

Ukraine’s corn harvest is only 50% harvested, and it may struggle to make additional progress as winter sets in amid shortages of fuel and parts. But the primary focus currently is on the resolution to extend the trade agreement that allows Ukraine to ship grain and other Ag products from three ports for another four months, even as Russia steps up shelling of critical infrastructure in Ukraine, including Europe’s largest nuclear plant. Traders are keeping an eye on South American weather, but thus far, the Brazil crops look pretty good overall.

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Mike CastleTue, 04 Aug 2026, 14:58

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