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Perspective: Morning Commentary for February 6

By: Arlan Suderman, Chief Commodities Economist

Perspective: Morning Commentary
 
Guest Commentary by Mike Castle
Market Intelligence - Senior Fertilizer Analyst

 

February 6 - Stock futures are pointing to a higher open this morning, hoping to recover some of yesterday's losses on a combination of carryover strength from Chinese markets as well as some positive earnings results. The VIX is cooling slightly, continuing to reflect relative ease on Wall Street as it hangs around the 13.5 level. The dollar is continuing to show strength, pushing to nearly three-month highs as it trades close to the 104.4 level. Crude oil is up this morning on fresh escalations in the Red Sea, while the ags are largely mixed. 

 

Chinese markets saw their biggest jump in quite some time overnight, with optimism from regulator intervention pushing some of the prominent Chinese indexes to their largest daily gains in nearly two years. China's shaky economic footing as it re-emerged from stringent COVID lockdowns has been very much in the spotlight for the last couple years, and those concerns, coupled with foreign investment fleeing due to geopolitical tensions, have driven a steep downtrend in Chinese markets. The China Securities Regulatory Commission (CSRC) has announced a handful of measures aimed at boosting struggling Chinese stocks, and recently imposed further restrictions on short sellers, while state-sponsored investors announced additional increases in stock purchases. Further details of these measures can be found in this morning's edition of China Direct. Nothing has changed fundamentally, with China still facing a severe property crisis and other headwinds, but reports of Xi Jinping himself meeting with financial regulators is providing some amount of optimism that the Chinese government is taking the issue seriously and could finally stop the bleeding. It remains to be seen how long this boost will last but, regardless, the world's second largest economy will take any positivity it can get. 

 

U.S. Secretary of State Antony Blinken is in the Middle East this week, attempting to broker a truce between Israel and Palestine as the war in Gaza approaches the four-month mark tomorrow. Blinken's trip started Monday in Saudi Arabia, before heading to Egypt, then Qatar today, and ultimately ending in Israel on Wednesday. Hopes are to achieve a ceasefire in Gaza, as well as the release of the remaining Israeli hostages being held in the Strip. Commodity markets would likely breathe a sigh of relief if a deal were to be reached, as tensions have grown more and more widespread in the region since the war's outbreak, leading to major disruptions in shipping through the Suez Canal and Red Sea. 

 

More of these disruptions were seen on Tuesday, with the Iranian-back Houthis of Yemen reportedly damaging yet another ship transiting the Red Sea, while also firing at another. These attacks have continued despite U.S. & U.K. strikes on Houthi targets in Yemen, raising fears of additional escalation. The strikes are providing some support to crude oil markets as both WTI and Brent trade higher this morning after sharp losses last week. While the first market we think about regarding the Middle East is crude oil, it's important to keep in mind how broad of an impact this has on global inflation and thus the broader global economy. We've seen tremendous progress in the fight against inflation, but a rebound in crude and other energy products due to a widening Middle East conflict could bring about a sharp rebound in inflationary pressures, forcing central bankers to remain hawkish at the ire of traders. 

 

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