Perspective: Mid-Day Commentary for October 27

By: Arlan Suderman, Chief Commodities Economist

Fri, 27 Oct 2023, 15:57

Perspective: Midday Commentary

Guest Commentary by Mike Castle

Market Intelligence - Senior Fertilizer Analyst

October 27 - The major stock indexes are mixed at mid-day, with the Nasdaq leading the way higher on strength in the tech sector, the S&P 500 holding narrowly in the green, and the Dow Jones in the red for a third consecutive day. The VIX is down slightly on the day, hovering around the 20 level. The U.S. dollar has reversed course from this morning's gains to trade in the red near 106.2 at the time of writing. Treasuries are mixed, with 10-year yields pushing slightly higher to trade just above 4.86% while 2-year yields remain close to unchanged from the day prior around 5.04%. Crude oil is up this morning after yesterday's losses, in part due to further escalations in the Middle East, with reports of Israel conducting further raids into Gaza as well as reports of U.S. air strikes on Iranian military targets in eastern Syria overnight in response to the recent ramp-up in attacks on U.S. military targets in the region by Iranian-backed proxies. The ags are mixed at mid-day, with the soy complex pushing higher on continued strength in soymeal, dragging corn slightly higher, while the wheat complex falls.

Consumer inflation expectations rose in the U.S. in October, with this morning's University of Michigan Consumer Sentiment Survey showing both 1-year and 5-year expectations increasing from the month prior. 1-year inflation expectations jumped a full percentage point from September, up to 4.2%, marking the highest level seen since May. 5-year inflation expectations saw a smaller jump, rising 0.2% from the month prior to reach 3.0% again, matching the same level seen throughout the summer. This, coupled with this morning's PCE readings showing inflation holding stubbornly above the Fed's 2% target look to keep the inflation conversation in the focus of traders ahead of the Fed's upcoming meeting next Tuesday/Wednesday.

Overall consumer sentiment did improve on this morning's report, however, with the headline Consumer Sentiment Index rising 0.8 points from the preliminary October reading to reach 63.8, though that still marks a sharp drop from September's 68.1 reading. That improvement was largely front-end driven, with the Current Economic Conditions portion of the index seeing a very minor drop from the month prior, falling to 70.6 versus the 71.4 seen in September, while the forward outlook softened notably, with the Consumer Expectations portion of the index falling 6.7 points from the month prior to sit at 59.3, also the worst reading since May. Survey participants noted declining expectations for business conditions and their own personal finances in the months ahead, in part due to the escalating conflict in the Middle East and its potential cascading impact.

The tech sector is recovering today after an ugly week, with better-than-expected results coming from both Amazon and Intel's Q3 earnings after yesterday's close. Amazon's surprisingly upbeat third quarter revenues adds another highlight to the continued strength of the U.S. consumer in the near-term despite the souring economic outlook going forward. This morning's push higher is a welcomed reverse in course after the tech-heavy NASDAQ shed over 4% in the previous two sessions, led in large part by heavy losses for Google parent company Alphabet as well as Facebook parent Meta following earnings reports earlier in the week. Big tech will cap off this quarter's earnings season next week, with Apple due to report on Thursday (11/2).

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