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Perspective: Morning Commentary for October 27

By: Arlan Suderman, Chief Commodities Economist

Perspective: Morning Commentary
 
Arlan Suderman
Chief Commodities Economist

Guest Commentary by Matt Zeller, Senior Market Intelligence Analyst

October 27 – The Dow Jones Industrials are looking to put in a third straight lower session to end the week, with futures attempting to recover overnight but fading again this morning. Even a minor loss today would put the DJIA at a seven-month low, weighed by weak earnings reports by tech companies as of late, and a reasonable chance lingering out there for a further interest rate hike from the Federal Reserve. Yields on the benchmark 10-year U.S. Treasury remain elevated at 15+year highs, near the 5% mark, making them an increasingly attractive target for investment dollars rather than stock markets.

 

The U.S. dollar is working on a fourth straight winning day, making a move back towards nearly one-year highs from earlier this month; October would mark a third straight monthly gain for the greenback during a period of strengthening interest rates and a resilient economy. The ECB snapped their streak of ten straight rate hikes yesterday due to weakening economic data along with easing price pressures and slowing inflation; the U.S. has yet to see a dent in economic growth or inflation numbers quite reaching down to the levels that the Fed desires.

 

Personal income for the month of September rose 0.3% from August, below 0.4% both last month and as estimated by the trade; meanwhile, personal income rose 0.7% month-on-month, up from 0.4% in Aug and the average 0.5% expectation. PCE readings came in roughly as expected, up 0.4% MoM and up 3.4% YoY, with core PCE up 0.3% MoM and +3.7% YoY. The former number was steady with August with the latter only cooling slightly; inflation readings still near the 4% level remain well above the Fed’s ultimate 2% inflation target.

 

The below maps from Commodity Weather Group show a key reason why the grain markets have been unable to sustain any rallies as of late; there are certainly areas of South America that will continue to hold dryness concerns but Brazil as a whole looks off to a strong start moisture-wise during planting, and Argentina is improving in that regard. Rains will move from north to south over the next two weeks and provide pretty broad relief to any dry spots. Brazil is expecting another record soybean crop thanks to yet another increase in acreage, with corn output seen regressing a bit year-over-year, but any sort of decent Argentine crop will be a massive improvement over last year.

U.S. rains are slowing late harvest into the end of this week and through the weekend, but that might be offset in the trade’s mind by aided moisture for winter wheat as well as replenishment of the river systems.

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