Perspective: Morning Commentary for November 8

By: Arlan Suderman, Chief Commodities Economist

Tue, 08 Nov 2022, 14:48

Perspective: Morning Commentary

Arlan Suderman

Chief Commodities Economist

November 8 – Stock futures had a positive tone to them overnight, while commodity prices tended to slip lower. It’s Election Day in the United States, with a lot at stake for the economy. Stock traders are pulling for a more business-friendly environment. Sometimes that means gridlock in Washington, which may very well be the case after today’s election. However, surging Covid numbers in China and more lockdowns cast a bearish cloud over the broader commodity complex in overnight trade. Even so, the VIX is trading near 24 this morning, reflecting slowly easing fears on Wall Street. The dollar index consolidated to trade near 110.2 following a couple of days with significant losses. Yields on 10-year Treasuries are trading near 4.19%, while yields on 2-year Treasuries are trading near 4.70%. Crude oil and the grain and oilseed markets posted modest losses overnight.

Elections are sensitive subjects in today’s world. The old rule of thumb about not talking about religion and politics is due to the emotions attached to those subjects. No matter the comment, people read into it what they think you’re saying, whether actually intended or not. But the fact is, Wall Street has a bias. That bias is a political bent that it believes is best for business, as that is its focus. Sometimes that means a pro-business agenda, and sometimes that means gridlock. Ironically, gridlock – when neither party has total power resulting in neither getting what they want – is often considered good. The skeptics in the business world believe that business is best when government stays out of the way. Politicians typically do not understand business, so they tend to promote policies that they think will be good, without understanding the implications for the economy. That naivety can cross party lines. As such, Wall Street is often happy if gridlock exists, meaning nothing gets done in Washington, and policymakers stay out of the way of business. That’s the idea behind this week’s modest strength on Wall Street despite negative news coming out of China and ongoing geopolitical risks in the Black Sea Region.

The National Federation of Independent Business’ optimism index slipped to 91.3 for October, down from 92.1 previously, and below analyst expectations of 91.8. It was the 10^th consecutive month for the index to be below its 49-year average of 98. One third (33%) of small business owners report that inflation is their single most important problem running their business. That’s up 3 points on the month, but still 4 points below the high set in July. That July high was the highpoint seen since 1979. There’s a significant amount of data showing that the strength in the current economy is grounded in small businesses, which are more flexible in adjusting to our current challenges. Yet, the survey revealed that business owners expecting better business conditions over the next six months deteriorated another 2 points from the previous month to a net negative 46%. The percent of owners expecting real (adjusted for inflation) sales to be higher fell 3 points to a net negative 13%. Even so, 46% of the business owners reported job openings that were hard to fill, which remained the same from September. Ninety percent reported few or no qualified applicants for their open positions.

Lockdowns are spreading again in China. The epicenter of the current Covid spread is in Guangzhou and a dozen other cities seeing rapidly rising infection numbers. Authorities reported 7,475 new Covid-19 cases Monday, rising 36% from the previous day. New cases in Guangzhou reached 2,377 on Monday. That’s a very small fraction of the more than 15 million people living there, but it’s a huge number to authorities committed to a dynamic-zero policy. Leaders know that the lockdowns and restrictions are hurting China’s economy, so they keep trying various new strategies to open the economy while trying to hold down Covid cases, and Covid is winning. The new variants are thus far proving they cannot be contained.

China’s lockdowns raise demand concerns for commodities, leading to a negative tone in overnight trading for the energy and grain and oilseed markets. Wheat thus far continues to find support on price breaks due to fears that Russia will block extension of the trade agreement that allows Ukraine to use three ports to ship grain. That agreement expires on November 19, so we should be close to a decision one way or the other. The soybean story is a balance between Brazil weather and Chinese demand. Chinese buyers can access South American soybeans for up to $1.40 per bushel cheaper prices than they can buy soybeans coming down the Mississippi River due to low water problems, so that’s where they’re doing much of their buying. That’s a problem since the river probably won’t be “fixed” until after cheaper new-crop Brazilian supplies are available. Look for USDA to begin addressing the corn and soybean export problems in tomorrow’s crop report. The bulls are struggling to hold their positions, especially in corn where the charts are starting to look heavy. Tomorrow’s USDA report should give us a pretty good idea at what the final corn and soybean crop sizes will be, meaning that the focus will increasingly be focused on the sluggish export demand tied to a strong dollar and poor water levels on the Mississippi River, with wheat traders continuing to focus on the Black Sea. The holiday doldrums are just around the corner, leaving the bulls searching for anything that will sustain their argument.

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Mike CastleTue, 04 Aug 2026, 14:58

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